Contribution Limits
The maximum amount you can contribute to a 403(b) plan from your salary for 2022 is $20,500 (up from $19,500 in 2021). If you are age 50 or older, you can add an additional contribution of $6,500. In addition to the employee contribution limits, more funds can be added to the 403(b) plan if the employer makes matching contributions. For plans that provide employer contributions, the total contribution limit is the lesser of $61,000 for 2022 (up from $58,000 for 2021) or 100% of your compensation for your most recent year of service.
Benefits of Contributing to a 403(b) Plan
The main benefit of 403(b) plans is that contributions are made through pre-tax payroll deductions, so you earn tax-free growth on your money, in addition to reducing your taxable income for the year. These plans previously invested primarily in annuity contracts, with a separate account for fixed or variable return investments. Now, most 403(b) plans offer a variety of mutual fund investment options within deposit accounts. While some 403(b) plans still offer retirement investments, the use of diverse mutual fund investment formations is very similar to the structure of traditional 401(k) plans.
Designated Roth Account
The Designated Roth Account (DRA) program allows employers to designate 403(b) plan contributions as Roth contributions. Contributions are made with after-tax dollars, so there is no tax deduction in the current year. However, earnings grow tax-free, and you can withdraw your money without any penalties as long as you are age 59 and a half and five years have passed since your first contribution to the Roth 403(b).
Differences Between 403(b) and 401(k) Plans
These days, 401(k) and 403(b) plans are more alike than different, but that hasn’t always been the case. The Economic Growth and Tax Relief Reconciliation Act of 2001 eliminated the previous differences between these two types of retirement plans. However, there is still one special election – known as the 15-Year Rule – in effect for 403(b) plans if allowed by the employer. This special exception allows lifetime contribution amounts for employees who have worked for 15 years or more with the same employer to contribute an additional $3,000.
As of the rules effective in 2022, this exception cannot exceed the additional contribution of $3,000 annually, up to a lifetime maximum of $15,000. If both the age 50 limit and the 15-Year Rule allow for exceptions, any contributions exceeding the annual limit of $20,500 for 2022, or $19,500 for 2021, will first use the 15-Year Rule, followed by the age 50 exception.
Source: https://www.thebalancemoney.com/403b-contribution-limits-2894232
“`
Leave a Reply