A 403(b) plan, also called a tax-sheltered annuity or TSA plan, is a retirement plan offered by public schools and certain 501(c)(3) tax-exempt organizations. It operates much like a 401(k) plan where participants can contribute through payroll reductions and invest their contributions to grow for retirement. The max contribution for 403(b)’s & 401(k)’s is $19,500 per employee per year and if you are 50 years or older you can contribute an additional $6,500 as a catch-up contribution
The 403(b), if eligible in the plan, has a special contribution for employees with 15 years of a service with the same employer. This special contribution limit allows a participant to contribute the lesser of:
- $15,000, reduced by the amount of additional elective deferrals made in prior years because of this rule, or
- $5,000 times the number of the employee’s years of service for the organization, minus the total elective deferrals made for earlier years.
This would allow an eligible employee under 50 years of age to contribute up to $22,500 for 5 years or an eligible employee 50 years or older to contribute up to $29,000 for 5 years. This lesser-known provision in 403(b) plans can be a great way to take advantage of additional tax deductible or tax-free savings for retirement.