403(b) Max Contribution for 2023

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Niamh Kavanagh
Niamh Kavanagh is a social media and digital marketing expert, CMO of Dream Machine Foundation, and storyteller with a purpose. She grew Dream Machine to 8M followers and edited videos that raised $750K for charity, earning attention from Oprah, Steve Harvey, and Khloe Kardashian.

Saving for retirement today can help you live the golden years you’ve dreamt of, but it requires a little sacrifice today.

If you work for a non-profit, you likely have access to a 403(b) instead of a 401(k). They have many similarities and differences, including the 403(b) max contribution, depending on how long you’ve worked at the company.

What Is a 403(b), And How Does It Work?

A 403(b) is like a 401(k), but it’s for employees of non-profit organizations, such as public schools and 501(c)(3) tax-exempt organizations.

Like 401(k) accounts, employers offer these tax-advantaged accounts to attract quality employees, and some employers match a percentage of the contributions made.

Like 401(k) accounts, 403(b) accounts allow you to defer a percentage of your income for retirement. The funds you set aside are tax-deferred until you withdraw the funds, usually during retirement.

Some employers also offer Roth 403(b) accounts, which have after-tax contributions. But your earnings grow tax-free, and if you withdraw the funds during retirement, they are also tax-free if certain requirements are met.

What Is the 403(b) Maximum Contribution Limit for 2023?

Each year, the IRS sets contribution limits for 403(b) accounts, which limits how much you and your employer can contribute to your retirement account.

  • Pretax: The 2023 403(b) maximum contribution limit for 2023 is $22,500 for employees contributing to a traditional 403(b). This is the limit across all 403(b) accounts, whether you change employers or have both a Roth and traditional 403(b).
  • Roth (After-Tax): Roth 403(b) contributions are also limited to $22,500. These contributions are after-tax but may not exceed the annual limit in combination with any other employer-sponsored retirement accounts you hold.
  • Employee and Employer: Some employers match a percentage of an employee’s contributions, but the IRS limits that, too. In 2023, the combined 403(b) maximum contributions are $66,000. However, like 401(k) accounts, your total contributions cannot exceed 100% of your annual income.
  • Catch-Up Contributions: The IRS allows a provision for catch-up contributions for employees ages 50 or older. In 2023, people over age 50 can contribute an additional $7,500 to their 403(b), making the maximum employee contributions $30,000.
  • 403(B) Contribution Limits When You Have Multiple Employer-Sponsored Retirement Plans at Different Employers: Your 403(b) contribution limits are across all employer-sponsored retirement plans. This includes 401(k), SEP, and SIMPLE IRA plans. Any plan offered by an employer (or company you own) cannot have employee contributions that exceed the annual limit of $22,500 for 2023. However, your employer’s contributions are only limited by the maximum amount for that year allowed by employers, even if you’ve had other employer-sponsored accounts that year.

Impacts on 403(b) Contribution Limits

Certain factors affect the 403(b) contribution limits that apply to you. Understanding the factors can help you determine how much you can contribute.

Age

The older you are, the more you can contribute. This may be a good thing if you are behind on retirement savings. However, the earlier you can save, the better. The longer your money is invested, the more you can earn.

However, it’s nice to know that after age 50, the contribution limit increases by $7,500 in 2023. The limit may increase each year; it depends on the inflation rates.

Years of Service

The IRS has a special provision for employees who stayed with the same organization for 15 years. These employees can contribute the lesser of:

  • $3,000
  • $15,000 minus any money not included in previously taxable years because they were used as part of the catch-up provision
  • $5,000 times the number of years of service with the same employer, minus any elective deferrals to the plan in past years

Compensation

No employee can contribute more than 100% of their taxable income. This includes all contributions from employees and employers.

Other Retirement Plans

The annual 403b maximum contribution limits are across all plans. So, the limits apply across the board if you have other plans, such as a 401(k) or SIMPLE IRA.

In other words, you can’t contribute $22,500 per account but combine between all three accounts.

Can I Contribute to Both a 403(b) And a 401(k) Plan in the Same Year?

No law states you can’t contribute to a 403(b) and 401(k) in the same year. However, as stated above, the contribution limits remain $22,500 for 2023 for all accounts combined.

If you have the option for both accounts, be sure to maximize employer-match for each account to maximize your ‘free earnings.’

How Much Should You Contribute to Your 403(B)?

Determining how much to contribute to your 403(b) account is a personal decision. Ideally, you should save 15% or more of your gross income for retirement.

If a 403(b) is your only retirement account, aim to save 15% of your income. However, if you have other retirement accounts, at the very least, contribute as much as your employer will match to get the free contributions and grow your retirement funds faster.

Pros and Cons of Reaching the 403(b) Max Contribution

If you’re in a position to maximize your 403b contributions, here are the pros and cons to consider.

Pros

  • Offers attractive catch-up contributions for long-term employees
  • Allows employer match, like 401(k) accounts
  • Allows you to defer taxes on the maximum contribution limit as long as it’s less than 100% of your income

Cons

  • It may have high investment costs, taking away from your earnings
  • 403(b) plans don’t have Employee Retirement Income Security Act protections, so some safeguards may be missing
  • Doesn’t diversify your investments

What Happens if You Contribute Too Much to Your 403(b)?

You could face stiff penalties if you contribute beyond the annual limits to your 403(b). The trick is to catch it immediately and let your plan administrator know so you can reverse the issue before filing taxes.

This happens most often to people with multiple retirement accounts across various employers. Because each employer only keeps track of the contributions to their plan, it’s possible to over-contribute and not realize it.

If you file your taxes and don’t realize the over-contribution, you will owe a penalty for the year you overcontributed and the year you withdrew the funds. You’ll also pay the early withdrawal penalty if you withdraw the funds before age 59 ½.

It’s best to correct the issue before April 15, for the tax year you contributed too much. This allows you to receive the funds back and its earnings while paying applicable taxes on the full amount.

Strategies To Maximize Your 403(b) Contributions

Maximizing your 403(b) contributions may feel difficult today with high inflation and cost of living. But here are some tips to get you started.

Start Early and Contribute Consistently

The earlier you contribute to your 403(b), the more time your earnings have to grow. Make it a habit even if you can only contribute a small percentage of your income.

As you earn more money or become more established each year, save more, keeping the savings consistent.

Take Advantage of Employer Matching Contributions

Always contribute at least as much as your employer will match. It’s like they’re giving you free money.

If you invest the rest of your retirement income elsewhere, that’s okay; just take full advantage of what your employer offers.

Increase Your Contributions Over Time

As you decrease your costs, pay off debt, and earn more income, you’ll likely have more money to invest in retirement.

Make it a habit to re-evaluate your contributions annually to see if you have more money to contribute and grow your retirement funds.

Leverage Catch-up Contributions for Age 50+

If you’re over 50, take advantage of the ability to invest $7,500 more than the standard contribution limits. Your employer likely won’t match this amount, but catching up means more retirement savings.

Optimize Your Investment Allocation and Diversify Your Portfolio

Don’t put all your money in one investment. Have a diversified portfolio with active and passive investments.

Don’t stalk your portfolio, but keep an eye on it and reallocate it as needed when the market changes. If you aren’t sure when to reallocate, consult your financial advisor.

Minimize Fees and Expenses With Low-Cost Investment Options

Fees can eat up retirement funds quickly. Keep a close eye on the total fees and read the fine print.

Also, look for low-cost options, such as ETFs, versus actively managed funds like mutual funds that likely have higher fees.

Conclusion

The 403(b) max contribution is fairly flexible, making it easy to reach your retirement goals.

Even if you only save a small percentage of your income to start, be sure to take advantage of the employer match and the opportunity for catch-up contributions as you get older and closer to retirement to make the most of your retirement years.

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