05 May Max 403(b) Contributions in 2021
If you are a teacher, a qualifying public servant, or an employee of a tax-exempt organization, you have the option to enroll in a 403(b) retirement plan. Professors, teachers, school administrators, and hospital workers can all participate in a 403(b) retirement plan.
What is a 403(b) Retirement Plan?
A 403(b) retirement plan is also known as a Tax-Sheltered Annuity or TSA-plan. Employees and their employers can contribute to these plans as they normally would with a 401(k). Employer participation in contributions may vary from district to district. The 403(b) plan allows for pre-tax contributions, and the maximum contribution limit in 2021 is $19,500 (proportional to the annual cost of living), just as with the 401(k).
The Difference Between a 403(b) and a 401(k)
Though there are other, more subtle differences, the main difference is this: unlike the 401(k), the 403(b) plan is only offered to the employees of 501(c)(3) tax-exempt organizations. Some examples are public schools, co-op hospitals and government agencies. Those employees might also be able to contribute to a 401(k), but employees of for-profit organizations may not invest in a 403(b).
Maximum Employee 403(b) Contribution Limits in 2021
The maximum contribution limits for 2021 remain the same as the amounts in 2020. The maximum amount an employee can choose to contribute to their 403(b) retirement plan in 2021 is $19,500. If you are over the age of 50, you can elect to contribute $6,500 in addition to the aforementioned $19,500 as a “catch-up” contribution. If you choose to make a catch up contribution, your contribution total may not exceed $26,000.
Similarly to a traditional 401(k) retirement plan, money going into your 403(b) retirement plan via payroll deduction has not been taxed yet. Your contributions through your earnings will grow tax-free until they are withdrawn. Usually, most individuals withdraw the money once they reach retirement. You are eligible to withdraw money from your account at any time but doing so will result in a 10% penalty if you are under the age of 59½, or 55 if you have left your job. When you make your withdrawals, they will be subject to regular income tax.
Employer Contributions to 403(b)s
The combined employee and employer contribution limit for 403(b) plans in 2021 is $58,000 for employees under the age of 50. This amount is up $1,000 from 2020. For employees age 50 and older, the limit is $64,500, meaning employers can contribute up to $38,5000 to a worker’s account, if the worker has maxed out their contributions. However, this perk is generally offered to employees at public colleges and universities, rather than usually not offered to many public K-12 employees.
Do You Have Questions about 403(b)?
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