In 2024, 403(b) contribution limits exceeded 2023 limits. In 2025, these limits will see another increase. 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, up $500 from 2023. For 2025, that number increases to $23,500.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
If you're 50 or older, you can contribute an additional $7,500 as a "catch-up" contribution (this amount remains the same in 2025), bringing your contribution total to $31,000.
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 between $79,000 and $89,000, up from between $77,000 and $87,000 in 2024. The combined employee and employer 403(b) contribution limit for 2025 is $70,000.
Those between 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.
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.
Related Content
-
What the Comcast Cable Spinoff Means for InvestorsComcast has announced plans to spin off select cable networks and digital assets into a separate publicly traded company. Here's what you need to know.
-
TJX Stock: Wall Street Stays Bullish After EarningsTJX stock is trading lower Wednesday despite the TJ Maxx owner's beat-and-raise quarter, but analysts aren't worried. Here's why.
-
Beware Three Medicare Open Enrollment ScamsCrooks are perfecting Medicare Open Enrollment scams to try to steal your money or personal information.
-
How Lower Interest Rates Affect Your FinancesThe Fed's rate cuts will provide relief for some borrowers, but savers will have to work harder to get decent returns.
-
Four Ways to Maximize Your 401(k) Contributions Before the Year EndsTo maximize your 410(k) contributions in 2024, assess how much you’ve contributed so far, check your employer’s match, take a look at your budget and consider increasing how much you set aside per paycheck.
-
For a More Secure Retirement, Build in Some 'Safe Money'To solidify your retirement plan, write it down, reduce your market risk and allocate more safe money into your plan for income.
-
Five Steps to a Mindfully Fearless CareerIf, like many women, you're struggling with imposter syndrome, try developing an athlete's winning mindset. It's as simple as facing one small fear every day.
-
What You Should Know About Spousal IRAsWithout spousal IRAs, you would need an earned income to contribute to your retirement account.
-
Six Ways to Optimize Your Charitable Giving Before Year-EndAs 2024 winds down, right now is the time to look at how you plan to handle your charitable giving. The sooner you start, the more tax-efficient you can be.
-
How Preferred Stocks Can Boost Your Retirement PortfolioHigher yields, priority on dividend payments and the potential for capital appreciation are just three reasons to consider investing in preferred stocks.
