In the United States, a 403b is a retirement plan intended for individuals who work in the education field, are civil employees, or are employed by non-profit organizations. The Internal Revenue Service (IRS) sets limits for 403b contributions, and you may learn the tax year's limits by visiting the IRS website. It is important to understand that 403b limits are subject to change, so you will need to check them annually. It is also important to understand that the IRS sets maximum lifetime limits and puts restrictions the sources from which you can contribute to a 403b. Additionally, it's crucial to realize that exceeding 403b limits may result in penalties.
Each year, the IRS sets 403b limits for contributions that are made by an individual as well as limits for the combined contribution an individual and a company can make. You can check with the IRS to learn what the limits are in a given tax year. It is also important to note that the IRS will usually allow you to make a catchup contribution if you are 50 years of age or older. A catchup contribution is an additional investment that helps you set aside more money for retirement since you are closer to retirement age at 50.
Another important thing to know about 403b limits is that there is a lifetime maximum set for catchup contributions. It also limits catchup contributions based on the number of years you have worked for a company. For example, if you have worked for a company for at least 15 years, the IRS may allow you to make a significant number of additional contributions. It typically restricts these additional contributions to those who have contributed less than an average amount each year, however.
The IRS contribution limits also restrict allowable contribution sources. You cannot contribute more than your included compensation, which includes your taxable income and income from certain other sources. For example, it may include income earned in a foreign country, some types of fringe benefits, and some contributions to flex accounts.
It is also important to note that contributing beyond the IRS’ stated 403b limits may result in penalties. If you’ve contributed too much, however, you do have the chance to fix it. You can withdraw the amount you have over-contributed before you file an income tax return. If you have enjoyed earnings on your contributions, you will usually have to withdraw them as well. You will then have to report this amount as income when you file your tax return.
