Thin(k) About Your 403(b) Plan: Catch-Up Contributions – A 403(b) Plan’s Special Extra

We talk a lot about 401(k) plans, but many nonprofit organizations including churches, non-profit hospitals and public-school systems use the 403(b) as a qualified retirement plan for employees.  And, like the 401(k), you can “catch-up” in the 403(b), which has a very interesting additional catch-up provision.  As in a 401(k), employees who are 50 years of age and older in a 403(b) can make contributions beyond the maximum allowed.  These amounts are determined annually.  For 2020, employees can save $19,500 and those over 50 can make a catch-up contribution of an additional $6,500.

Here is where it gets interesting.  As long as the plan allows, employees with 15 years of service are eligible to make a catch-up contribution prior to reaching 50 year of age.  Of course, there is a limit to how much, which is determined by the lesser of:

  1. $3,000
  2. $15,000, reduced by the amount of additional elective deferrals made in prior years because of this rule
  3. $5,000 times the number of the employee’s years of service for the organization, minus the total elective deferrals made for earlier years.

You might wonder, what happens if an employee is eligible for both the 50-year-old and the 15 years of service catch-up provisions.  As long as the plan allows, the participant can use both.  However, the 15-year catch-up is subject to a lifetime limit of $15,000 as well as other tests; and savings in excess of the limit must be first applied to the 15-year catch-up.  Additionally, Click here for additional information on 403(b) contribution limits.  And, make sure you talk to your tax professional before taking advantage of this potentially great way to save more for retirement through your 403(b) plan.


For disclosures, please click here.