403(b) Plan Contribution Limits for 2019
Retirement Plan Limits for Teachers and Non-Profit Employees
When it comes to examining all the account options available for retirement, 401(k) plans tend to get the most attention. But if you work at a school, hospital, library, research facility, church, or another organization qualified under IRS Section 501(c)(3), you probably know about 403(b) plans.
A 403(b), sometimes referred to as a tax-sheltered annuity plan or TSA, is a retirement plan for employees of public schools and certain non-profit organizations.
The 403(b) Contribution Limits for 2019
In addition to the employee contribution limits, more money can be added to a 403(b) if your employer offers match contributions. For plans that provide an employer match, the total contribution limit is $56,000 in 2019, up from $55,000 in 2018, for plans that provide an employee match.
If you earned less than $56,000 in your most recent year of working, you're limited to the amount of your earnings, not the greater amount.
The Main Benefits of Contributing to a 403(b)
These plans used to be primarily invested in annuity contracts, with a separate account for fixed or variable rate of return investments. Now the majority of 403(b) plans offer mutual fund investment options within custodial accounts. While some 403(b) plans still offer annuity investments, the use of diversified investment lineups of mutual funds is very similar to the structure of traditional 401(k) plans.
The most common benefit of 403(b) plans lies in the fact that contributions are made through pre-tax salary deferrals. If you work for a company that offers a 403(b), you can help strengthen your retirement in the following ways by participating in your employer’s plan:
- Automatically build wealth for retirement.
- Lower your taxable income through pre-tax contributions.
- Take advantage of dollar cost averaging by investing each pay period.
- Generate earnings that will grow tax-deferred and won't be taxed until you withdraw them.
- Benefit from possible employer matching contributions.
2019 Limits for Roth 403(b)s
The designated Roth account (DRA) program allows organizations to designate 403(b) plan contributions as Roth contributions. Roth 403(b) plans are very similar to Roth 401(k)s, and this option is relatively new. The primary benefit is that you can make after-tax contributions that allow for tax-free growth of your investments, then, in retirement, you can usually take withdrawals tax-free.
The annual contribution limit for Roth 403(b)s is $19,000 in 2019, plus an additional $6,000 catch-up contribution for those who age 50 or older.
- Contributions are made with after-tax dollars, so there's no current-year tax deduction.
- Earnings grow tax-free as long as you are at least 59 ½ years old and it's been five years since your first Roth 403(b) contribution.
- There are no income restrictions as there are with Roth IRAs.
- These plans provide tax diversification.
- You're eligible for a rollover to a Roth IRA at retirement to avoid taking required minimum distributions (RMDs).
If your plan offers a Roth 403(b) option, you can contribute to a traditional, pre-tax 403(b) and a Roth 403(b) in the same year as long as the combined contribution amount doesn't exceed the annual limit.
Differences Between a 403(b) and a 401(k)
These plans are very similar to 401(k) plans these days, but this wasn’t always the case. The Economic Growth and Tax Relief Reconciliation Act of 2001 eliminated previous differences between these two different types of retirement plans.
One special election—referred to as the 15-year rule—is still in effect for 403(b) plans, however, at least if it's permitted by the employer. This special lifetime catch-up provision allows employees with 15 or more years of service with the same employer to contribute an additional $3,000 if the average contributions in previous years didn't exceed $5,000.
Under current rules, this catch-up provision can't exceed $3,000 per year, up to a lifetime maximum of $15,000. If both the age 50 and the 15-year catch-up provisions are available, any contributions that exceed the $18,000 annual limit will first be applied using the 15-year rule, followed by the age 50 catch-up.