Annual 403(b) Limits

Retirement plans designed for non-profits and the public sector are 403(b) plans.

Traditional pension plans, also known as defined benefit plans, used to be the standard for retirement. But these days, workers are more likely to contribute to defined contribution plans like 401(k) and 403(b) plans. These plans allow workers to put money aside from every paycheck to save for retirement. The 403(b) plan is designed specifically for workers in the public and non-profit industries, like those who work for churches, schools and hospitals.

Younger Workers

For the year 2010, workers with access to a 403(b) plan can contribute up to $16,500 of their wages to the plan. Workers who want to contribute the maximum amount need to calculate the percentage of their incomes that will get them to that limit throughout the year. Workers who are not financially able to contribute the maximum amount can ramp up their savings percentage each year until they are at or near the maximum allowed.

Catch-Up Provision

If you are age 50 or older, you can contribute an extra $5,500 to your 403(b) plan under the catch-up provision. This $5,500 figure is for the year 2010, and you should check with your tax preparer or accountant for future years. The IRS changes the contribution limits for retirement plans from time to time, so always check before you change your contribution percentage.

Administrative Responsibilities

The administrator of your 403(b) plan is responsible for making sure you do not exceed your maximum annual contribution. Each time money is withheld from your paycheck for the 403(b), the administrator adds that contribution to your previous total. When you reach your maximum contribution for the year, the administrator should stop your contributions for the balance of the year, then reinstate them at the previous contribution percentage at the beginning of the following year. You can, however, keep track of your own contributions to make sure you do not go over the maximum allowed. If you do go over the maximum contribution, contact the administrator of the plan at once.

Two Jobs

If you work two jobs and both provide access to a 403(b) plan, your combined annual contributions cannot go over the $16,500 or $22,000 limit established by the IRS for the year 2010. In that case, you will need to keep careful track of your contributions to make sure you do not exceed those maximum levels. Watching your pay stubs and keeping a spreadsheet that shows your year-to-date contributions and the amount still left to contribute can help a great deal.

Highly Compensated Employees

If your annual salary is $216,667 or greater, you can contribute up to $49,000 to your 403(b) plan for the year 2010. As with all 403(b) contribution limits, this limit can change from time to time, so check with your tax preparer before planning your 403(b) contribution.

References

• Michigan State University: Contribution Limits for 403(b) Supplemental Retirement Program