Erin Bendig
In 2025, 403(b) contribution limits exceeded 2024 limits. That's helpful (and a big boost) for certain employees of schools and other tax-exempt organizations who can participate in a 403(b) retirement plan, including teachers, professors, school administrators and hospital workers.
For those planning retirement, here's what you need to know about the IRS 2025 403(b) contribution limits.
2025 403(b) contribution limits
The maximum amount an employee could contribute to a 403(b) retirement plan for 2024 was $23,000. For 2025, that number increases to $23,500.
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If you're 50 or older, you can contribute an additional $7,500 as a "catch-up" contribution, bringing your contribution total to $31,000. Plus, under a change made in SECURE 2.0, a higher catch-up contribution limit applies for employees aged 60, 61, 62 and 63 who participate in these plans. For 2025, this higher catch-up contribution limit is $11,250 (instead of $7,500).
As with a traditional 401(k) account, money going into a 403(b) through payroll deductions hasn't yet been taxed. The contributions and earnings grow tax-free until you withdraw them — usually in retirement. You can pull money out of the account without a 10% penalty if you're at least 59-1/2. Withdrawals are subject to regular income tax.
15-year catch-up contributions and employer contributions to 403(b)s
For 2025, the single taxpayer contribution limit for a 403(b) plan is $23,500, and $70,000 for the combined employee and employer contributions.
Those between the ages of 60 and 63 will be eligible to contribute up to $11,250 as a super catch-up contribution starting in 2025. This means if you are 50 to 59 or 64 and older you can contribute up to $31,000 in 2025. Those 60 to 63 can contribute up to $34,750 in 2025.
Some employers also permit both younger and older workers to make catch-up contributions under the so-called 15-year service rule. Under this provision, if you have 15 or more years of service at the same employer, you can contribute an additional $3,000 a year if you have not maxed out your 403(b) contributions in previous years. The 15-year service catch-up contribution, however, has a $15,000 lifetime limit. But again, most K-12 school districts don't offer this 15-year service rule.
What are the best investments in 403(b)s?
403(b) plans are filled with high-cost annuities and other insurance products. Often, 403(b) participants pay high fees. According to the U.S. Government Accountability Office, even small fees can "significantly erode the amount of savings people have to fund their retirement." Certain administrative fees can be more than 2% each year, on top of individual investment option fees that can sometimes also be more than 2% each year.
Review your investment options to find the best insurance company or mutual fund provider within your plan to meet your needs. The website 403bcompare.com, which provides information on California 403(b) plans, lists fees, investment options and performance information for plans offered in the state's local school districts.
Even if you don't work in California, the site is a valuable comparison tool because many of the investment companies listed offer similar 403(b) plans in other states.
You can also switch investments and financial firms within your plan. First, stop making contributions. Why? Because each contribution potentially has its own surrender charge, which is a fee you'll pay if you sell the investment within several years. By stopping contributions, you reduce the amount you'll pay in surrender charges. Next, take time to figure out the costs and benefits of switching investments.
If you notice any of the big names, such as Fidelity or Vanguard, look into what they have to offer, and keep in mind any surrender charges you may have to pay. It may make more sense to place any new contributions with a new provider and wait to switch the older investment once the surrender charges are less.
Finally, talk to your plan administrator to find out when you can switch. Some plans are liberal and allow employees to switch anytime, whereas others permit changes only once or twice a year.
403(b) alternatives
As an alternative to a 403(b), consider opening a Roth IRA with automatic contributions. In 2025, you can contribute up to $7,000 a year to a Roth IRA, plus another $1,000 if you're 50 or older. You can withdraw your contributions at any time without penalty or taxes. You must be at least 59-1/2 and have owned the Roth for at least five years to withdraw earnings free of penalty and taxes.
Pros and Cons of a 403(b)
Like most things in life, not one plan works best for everyone, and while there are many benefits to 403(b) plans, there are also a few key disadvantages.
Pros of a 403(b) plan
- Pre-tax contributions: Contributions to a 403(b) plan are made before income tax is deducted.
- Employer matching: Some employers match employee's contributions up to a certain percentage.
- High contribution limits: In 2025, employees can contribute $23,500 (up from $23,000 in 2024), with a catch-up contribution of $7,500 for people age 50 or older. If you are between the ages of 60 and 63 you can contribute up to $11,250 as a super catch-up contribution.
- Tax-deferred growth: With a 403(b) plan, not only are your contributions made pre-tax, but the growth of your investments is also tax-deferred.
- Long-term employee benefits: If you've worked for a qualifying organization for at least 15 years, and your average annual contribution was less than $5,000, you may qualify for an additional catch-up contribution of up to $3,000 a year, above the standard limit.
Cons of a 403(b) plan
- Limited investment options: Many (but not all) 403(b) plans are annuity-based, meaning they may be limited to the products offered by insurance companies.
- Potential for high fees: 403(b) plans, especially those that are annuity-based, can incur high fees, including investment management fees, administrative fees and surrender charges.
- Early withdrawal penalties: If you withdraw funds before age 59½, you'll may have to pay a 10% early withdrawal penalty on top of regular income taxes.
- Employer matching: Employer matching of employee contributions is not mandatory.
- Complex rules: 403(b) plans can be complex, with different rules and restrictions depending on your employer and plan provider.
What is the Difference Between a 401(k) and a 403(b)?
While both a 401(k) and 403(b) have similarities, they are also very different.
| Row 0 - Cell 0 | 401(k) | 403(b) |
| Cost | Higher employer administrative costs | Lower administrative costs |
| Eligibility | Employees of private companies | Employees of non-profit and tax-exempt companies |
| Additional Contributions | Catch-up contributions for employees 50 and older | Additional $3,000 after 15-years of employment, plus catch-up contributions for employees 50 and older |
| Employer Match | Yes | Yes, but not common |
| Investment Options | Mutual Funds, annuities, stocks and bonds | Mutual funds and annuities |
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