403(b) Plan Guide
What is a 403(b) and how does it work?
What is a 403(b)?
403(b) is also known as a tax-sheltered annuity or a TSA plan. It is a qualified, tax advantage retirement plan offered by public schools and certain 501(c)(3) organizations.
This type of retirement plan offers participants the option to save for retirement by contributing to individual accounts.
Each plan can be set up to include either traditional or Roth features. In addition, employers are able to contribute to participants' individual accounts as well.
How does a 403(b) Work?
In order to maintain a 403(b) plan, employers must comply with its written program. The written program outline the terms and conditions for:
- Who is eligible to participate in the plan?
- What the plan's contribution rules for matching employee contributions will be?
- What the contribution and benefit limitations will be?
- Outline the non-discrimination requirements for the 403(b) plan to meet. This helps the plan avoid becoming a top-heavy and favoring highly compensated employees.
- The investment accounts types allowed under the plan.
- The plan benefit distribution requirements for a participant to be able to withdraw funds from the plan.
In addition to the above regulation requirements, there are optional provisions 403(b) plans can have in their written program.
These include:
- Loans
- Plan to plan transfers
- Hardship distributions
- Designated Roth accounts
- In-service contact exchanges
- Automatic contribution enrollments
- Non-elective employer contributions
- Employer's right to terminate the plan
- Elective deferral catch-up contributions
Types of 403(b) Contributions
403(b) contributions provide participants with a tax-efficient growth option for retirement savings.
When a member deducts a contribution from their paycheck, that money can be invested in their account and grow without capital gains taxes. This means most contributions to a 403(b) plan are tax deductible.
There are a few different types of 403(b) contributions that can be used including:
1) Elective deferral is an agreement that allows the employer to withhold money from an employee's salary and deposit it into their 403(b) retirement account.
2) Non-elective employer contributions are contributions to the 403(b) plan made outside of the salary reduction agreement. These contributions can include employer matches and discretionary and mandatory employer contributions.
3) After-tax contributions are known as voluntary contributions made by an employee. These contributions are included in the employee's gross income and reported as compensation for the year contributed.
4) Designated Roth Contributions are contributions the employee chooses to include in gross income for the year.
403(b) Max Contribution
A 403(b) plan limits how much an employee may defer from their salary each year. The amount may depend on the participant’s compensation, age, years of service and the provisions of the plan.
For 2026, an employee may generally defer the lesser of:
-
100% of includible compensation; or
-
$24,500, increased from $23,500 in 2025.
The employee deferral limit is separate from the combined employee-and-employer contribution limit. For 2026, total annual additions are generally limited to the lesser of 100% of includible compensation or $72,000, excluding eligible catch-up contributions.
Age-based catch-up contributions
A plan may permit participants who are age 50 or older by the end of the year to make additional contributions. For 2026:
-
Participants ages 50–59 or 64 and older may contribute an additional $8,000, bringing the total employee deferral limit to $32,500.
-
Participants ages 60–63 may contribute an additional $11,250, bringing the total employee deferral limit to $35,750.
Beginning in 2026, participants whose prior-year FICA wages from the sponsoring employer exceeded $150,000 generally must make their catch-up contributions on a Roth basis.
The special 15-year rule
Some 403(b) plans may also offer the 15-year service catch-up. Eligible employees with at least 15 years of service with certain schools, hospitals, churches, health and welfare organizations, or related qualifying employers may contribute up to an additional $3,000 per year.
The actual contribution is limited to the lowest amount permitted under the IRS formula, and the lifetime maximum under this provision is $15,000. Therefore, a participant contributing the full $3,000 annually could use the provision for five years, but the rule is not strictly limited to five calendar years.
Participants eligible for both provisions must apply the 15-year service catch-up first and the age-based catch-up second. Contribution and catch-up limits are subject to IRS cost-of-living adjustments and may not increase every year.
403(b) Tax Options
Depending on how your 403(b) plan is set up, it may have two different options for taxes.
In contributions are pre-tax, you will be allowed to postpone your tax payment until you start to make withdraws. This means your money will grow tax-free.
The goal for pre-tax contributions is hoping you will be in a lower tax bracket when you start making the withdrawals.
The other potential tax option will be Roth contributions. This means your contributions will be taxed immediately.
However, the contributions will be able to grow tax-free and eventually be withdrawn tax-free too.
In the Roth scenario, your hope would be you are currently in a lower tax bracket now, so that in the future you would avoid higher taxes.
There is a caveat to Roth contributions. Roth is only tax free if taken at 59 1/2 years old and contributions have been held for five years, unless early withdrawal exceptions apply.
403(b) Management Services
Langan Financial Group has been working with retirement plans, including 403(b) plans, for decades. We help provide retirement plan advisory services to non-profits and government employees.
Langan Financial Group will work with an organization to help ensure its retirement plan is providing the best value to its employees it can. We will:
- Review the plan's design to ensure it aligns with your goals and needs
- Review the plan to ensure it is doing what it is supposed to be doing
- Benchmark the plan to help keep costs competitive
- Benchmark the plan to help keep the organization's liability low
- Engage the employees through financial seminars, one on one financial planning, and other methods to help them with retirement planning
Get started today
Contact Us Today
Chat with a 403(b) Advisor
Give us a call at 717-288-1880 to see how our local advisors can help with your retirement plans.
Or visit our 403(b) advisor contact page to fill out an inquiry.
FREE Benchmark Comparison Services
Financial Advisor Locations:
Camp Hill, PA Financial Planning Office
York, Pa Financial Planning Office
Harrisburg, PA Financial Planners
Communities Served:
Langan Financial Group, LLC ("Langan Financial Group" or "LFG") is an SEC registered investment adviser. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability. LFG may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements.
Important information about our firm is on our Disclosures page. You can review our registration and disciplinary history on the SEC's Investment Adviser Public Disclosure (IAPD) website and, for brokerage registrations, on FINRA's BrokerCheck. This website is for general information only. It is not legal, accounting, or tax advice. Please talk with your own legal or tax professional about your situation. Important information about our firm is on our Disclosures page.
You can review our registration and disciplinary history on the SEC's Investment Adviser Public Disclosure (IAPD), website and, for brokerage registrations, on FINRA's BrokerCheck.
This website is for general information only. It is not legal, professional about your situation.
© Langan Financial Group
Harrisburg, PA Office
Address: 1863 Center St, Camp Hill, Pa 17011
Phone: 717-288-1880
York, PA Office
Address: 3405 Board Rd, Suite 200, York, Pa 17406
Phone: 717-773-4085
