403 (b) Plans Catch-Up Contributions

A 403(b) plan is a great way for employees to save for retirement. Here's everything you need to know about 403 (b) Plans Catch-up Contributions.

In 2023, 403 (b) Plans Catch-Up Contributions are for employees age 50 or over. The 403 b plan is a tax-favored retirement savings option for employees of schools and nonprofit organizations. Like employer-sponsored 401(k) plans, the 403 (b) plan lets employees save pre-tax money and let it grow tax-deferred within the plan until they withdraw it in retirement. The plan offers a limited amount of elective deferrals each year based on the employee’s compensation and years of service. These amounts are adjusted for cost-of-living increases and are generally limited to the “applicable dollar amount” shown in IRC Sections 401(k) and 402(g).

401(k) contributions and 403 (b) contributions can help those who have gotten behind on their savings reach peak earnings in retirement. Generally, these contributions can be made by a person whose employer has offered a 403 (b) plan in the past and who has worked for that company for at least 15 years. The amount of the contribution is adjusted based on the employee’s previous deferrals to their employer-sponsored plans.

These contributions may be a great way to boost your retirement savings and can be done at any time. However, you should make sure that the amount you contribute to your 403(b) plan is enough to meet the new annual limit. This will help you avoid triggering penalties if you contribute too much money to your account.

What is 403 (b) 2023 Contribution Limits Catch-Up?

If you have a 403 (b) plan, your contribution limits are limited by the number of years you’ve worked for the organization. If you have 15 years of service, you may be eligible to make a special catch-up contribution of up to an additional $3,000 per year. The contribution limit for 401(k) plans, SEP-IRAs, and most 457 plans is $22,500 in 2023, plus an extra $7,500 if you’re 50 or older. It’s not always easy to determine if you can contribute more than your maximum amount, but it’s worth asking.

It’s also important to remember that if you have more than one employer-sponsored plan, your total employee contributions can’t exceed the annual contribution limit for all the plans. This includes 401(k)s, 403 (b)s, SEP-IRAs, and SIMPLE IRAs. The standard elective deferral limit for a 403 (b) is $20,500 in 2022 and $22,500 in 2023. But if you’re 50 or older, you can contribute an additional $6,500 in 2022 and $7,500 in 2023.

This catch-up contribution option can help you save significant money for retirement. It can be a great way to help cover the cost of college or even buy a house when you retire. But it can be complicated to figure out how much you can contribute and how many years it will take to reach your goal. The key is understanding the rules and how they all work so you can get the most out of your savings.

What is 403 (b) 2023 Contribution Limits Catch-Up
403 (b) Plans Catch-Up Contributions 1

Can You Make Retroactive 403 (b) Contributions?

If you have adopted a 403 (b) plan in the last six years and haven’t made any 403 (b) contributions since then, it may be possible to make catch-up contributions for that period. This is possible because the new IRS remedial amendment period allows 403 (b) plans to retroactively self-correct errors in their plan documents.

As part of this RAP, the IRS will also allow employers to adopt retroactive amendments that improve a plan’s benefits, rights, or features. These changes were previously limited to only situations in which the amended benefit, right, or feature satisfies certain conditions, including that the improved benefit, right, or feature be non-discriminatory and that it applies to all eligible participants.

A number of examples of retroactive plan amendments include adding or improving a benefit, right, or feature to reflect an error in drafting the document, such as when the employer-provided more generous benefits than the plan had anticipated. Other retroactive plan amendments are available to correct operational mistakes, such as an erroneous schedule for employee contributions that fail to meet the required contribution rules.

However, in order to take advantage of the remedial amendment period for plans, plan sponsors must adopt either a pre-approved plan or an amended plan that complies with all requirements under 403(b) by March 31, 2020. The funding limits under IRC Sections 404 and 430 still apply to retroactively adopted plans.

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