A 403(b) retirement plan is a tax-deferred savings plan that can help physicians and other healthcare professionals save for their future non-working years.
While 401(k) plans are offered by for-profit entities, 403(b) plans are offered by tax-exempt organizations like hospitals, nonprofit medical providers, universities, public schools, and other nonprofit organizations.
We’ll cover what you need to know about the 403(b) max contribution and more in this guide.
403(b) IRS Contribution Limits for 2023
For 2023, the 403(b) max contribution limit is $22,500 for pretax and Roth IRA contributions. Your total combined employee and employer match contribution limit is $66,000.
Employees who are age 50 and older can save extra through catch-up contributions. In 2023, employees aged 50+ can contribute up to $30,000 in total.
For plan participants of any age, your contributions cannot surpass your total yearly earnings at the employer who sponsors your 403(b) plan.
403(b) Key Highlights
- $22,500 contribution limit for 2023 — up from $20,500 in 2022
- $7,500 catch-up contribution limit for 2023 — up from $6,500 in 2022
Roth 403(b) Contributions
A Roth 403(b) plan enables you to make after-tax contributions to your retirement savings. This means when you reach the eligible retirement age, you’ll be able to withdraw those funds tax-free.
For 2023, you’re allowed to contribute up to $22,5000 in total across your traditional and Roth 403(b) plans and an additional catch-up contribution of $7,500 if you’re 50 or older.
In addition to 403(b) plans, SIMPLE IRA plans and SARSEP IRA plans also count toward the same annual contribution limits of $22,500 or $30,000.
Other 403(b) Catch-up Contributions Allowed
Employees aged 49 and younger can make additional catch-up contributions in some situations.
Employees with 15 years of service or more at the same employee may be able to save an additional $3,000 per year until they reach up to $15,000 in total yearly contributions.
There are limits to these incremental contributions, based on how much you have already saved in the plan.
Check with your company’s plan sponsor to see if this option is available for you and how much you would be able to contribute.
403(b) Contribution Limits with Multiple Employer-Sponsored Retirement Plans
You’ve likely had or will have more than one employer that sponsors a retirement plan, whether it’s a 403(b), 401(k), or other similar options.
Across any and all retirement plans, your yearly contribution limit of $22,500 for 2023 remains the same, with additional catch-up funds permitted for older workers.
Each employer can contribute to your plan up to the employer maximum for that year, regardless of how much any other employer may contribute. This means that depending on your income level, your contributions to a traditional 403(b) may not be tax deductible.
After-Tax 403(b) Contribution Limits
In some scenarios, you may be able to contribute additional after-tax funds into your traditional 403(b) plan which generally is only for pre-tax money.
This lets you save up to the total contribution limits for the year with after-tax money. For those under age 50, if you contribute $22,500 to your employer plan and your employer matches that contribution with an additional $22,500, you could save an additional $21,000 in after-tax contributions to bring your total yearly contribution to $66,000.
Some 403(b) plans may not allow for any after-tax contributions so consult your plan administrator. If you are not able to set aside after-tax dollars here, you can consider other IRA options.
403(b) vs. a 457(b)
Both of these plans are quite similar in being tax-advantaged ways for you to save for retirement with pre-tax employee contributions.
A 403(b) plan is commonly offered by non-profit organizations like hospitals or medical groups, whereas a 457(b) retirement plan is primarily offered to civil servants and public safety workers.
Unlike 403(b) plans, however, employees can make early withdrawals from their 457(b) plan without incurring early withdrawal penalties.
Often, employers that offer 457(b) plans also offer other Roth 457(b) plans for after-tax contributions.
Should I Have Both a 457(b) and a 403(b)?
Most employers won’t offer both 403(b) and 457(b) plans, so you don’t need to worry about choosing between the two. But some employers will have both options.
Ideally, you would contribute to both plans up to the maximum allowable contribution. This can be an excellent way to amplify your savings.
But if you are choosing between the two, evaluate the contribution limits, catch-up contribution limits, employer contributions, investment options, and plan management fees.
How Much Should I Contribute to My 403(b)?
Most experts recommend you save at least 10 to 15 percent of your annual income in a 403(b) plan or other retirement savings instrument. That figure includes any employer-matching contributions.
When it comes specifically to your 403(b) plan, the amount you contribute depends on your specific retirement goals. Some people may only put in enough funds to max out the matching contribution from their employer, and then save additional funds in other savings vehicles — including traditional IRAs and more aggressive investment products.
Talk to an investment advisor about your personal finance situation.
What Happens If I Contribute Too Much to My 403(b)?
Accidental overcontributions sometimes happen, although most 403(b) plans have guardrails in place to prevent you from contributing over the maximum limit.
This most commonly happens when you switch jobs and contribute to more than one employer plan within the same year.
If an over-contribution does occur, talk to your plan administrator.
By April 15, you should receive the overcontribution plus any earnings they made. These funds are considered taxable earnings and must be reported on your income taxes through a modified W-2 form. In some instances, they would need to be reported on a 1099-R form with your regular federal tax return.
How to Maximize My 403(b) and Other Retirement Contributions
Here are some ideas and strategies for maximizing your retirement savings.
1. Start Now, No Matter How Old or Young You Are
It’s never too early or too late to start saving.
Maybe you’re 42 and you’ve saved nothing because you’ve been mired in medical school loans. Or you’re 25 and have other life priorities — like getting your residency.
When bogged down with school or school loans, retirement savings might not be top of mind. But every penny you save now can help you help you fund your non-working, twilight years, whether that’s in 20 years or 50.
The sooner you start saving the better. The longer your money is invested the more it can benefit from investment returns and compound interest. If you’re still in medical school or don’t work enough hours to participate in an employer plan, you can still open an individual IRA account. Every dollar counts.
2. Don’t Leave Free Money on the Table
Most employers will match your 403(b) contributions up to a certain dollar amount, often 3 percent to 5 percent.
To incentivize you to save more, they may offer tiered matching. For example, an employer could offer a 50 percent match on every dollar you contribute up to 3 percent of your salary, and then a 100 percent match on every dollar you contribute for the next 2 percentage points. To get the full employer match, you would contribute at least 5 percent of your salary to your 403(b) plan.
Do not leave free money on the table. Make sure to contribute at least enough to get the full employer match.
3. Aim for Progress Not Perfection
Early on in your career, it can be hard to save 15 percent of your salary for retirement. You’ve likely got student loan debt, a mortgage and car payments, a wedding tab, and 529 college savings plans for your own kids. It can be hard to think of your old age when you’re bogged down with so many mid-life expenses.
But even if you can’t save 15 percent, or enough to get the full employer match, saving anything is better than saving nothing. With compound interest, even small sums can become large piles of cash over time.
And slowly but surely, you can automatically increase your contributions every year. There may be mechanisms in place for you to invest an additional half or full percentage point each year. As you get cost-of-living increases, raises, and promotions, you likely won’t feel a difference in your paycheck.
4. Don’t Ghost Your Old Retirement Accounts
You haven’t worked for XYZ Health Clinic in years. In fact, that was three employers ago. But don’t abandon your funds.
A surprisingly large number of people forget about retirement savings they’ve built up through past employers. If there are old accounts you’ve forgotten or otherwise neglected, reach out. You may be able to do an account rollover and move those old funds into your new, existing employer plan.
Or, you may want to set up an outside individual retirement account with your bank or an investment company.
5. Don’t Overlook 403(b) Benefits When Reviewing Job Offers
Let’s say that you are reviewing two different job offers.
- Employer A offers an annual salary of $225K, 4 weeks of PTO, and a 3 percent employer match on your 403(b) plan
- Employer B offers an annual salary of $209K, 4 weeks of PTO, and a 5 percent employer match on your 403(b) plan
Assuming you contribute enough to your retirement plan to get the full employer match, Employer A is offering you a total yearly compensation package of $231,750 while Employer B is offering you $232,140.
At first glance, it looks like Employer A is offering nearly $7K more than Employer B, but in fact, it’s offering you several hundred dollars less.
While you may be slightly leaning toward Employer A, you can use this information to your advantage.
6. Negotiate Better Retirement Benefits
New job negotiations tend to center on salary, PTO, and other perks like commuter benefits or free parking.
But you can try to negotiate better retirement benefits.
- Ask for a higher employer match.
- Ask for a shorter vesting period.
If one potential employer offers a lower 403(b) match than another, you have a solid case for asking for a higher match or a higher salary.
In 2023, you can save up to $22,500 in your 403(b) plan and that figure is set to increase to $23,000 in the following year. And if you’re over 50, you can make additional catch-up contributions.
While maximizing your retirement plan savings, or setting aside 10 to 15 percent of your yearly income is ideal, you can ultimately save as much as you want to for your retirement. Any limits that do exist are for IRS taxpayer benefits or specific 403(b) plan guidelines.