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403(b) Contribution Calculator

403(b) Facts:

What is a 403(b)?

The 403(b) is a tax deferred retirement plan available to employees of educational institutions and certain non-profit organizations as determined by section 501(c)(3) of the Internal Revenue Code. Contributions and investment earnings in a 403(b) grow tax deferred until withdrawal (assumed to be retirement), at which time they are taxed as ordinary income. See IRS Publication 571 for IRS details on the 403(b). You can also obtain this document by calling 1-800-829-3676.

Why Contribute to a 403(b)?

A Healthy Retirement - Most employees of educational institutions and other non-profit organizations are provided with a pension upon retirement. Few pension plans, however, provide an amount equal to salary. A 403(b) plan can provide a healthy supplement to a pension. 

Lower Taxes - 403(b) contributions are made on a pre-tax basis which can greatly reduce your tax bill. Generally, if you contribute $100 a month to a 403(b) plan, you've reduced your Federal income taxes by roughly $25 (assuming you are in the 25% tax bracket). In effect, your $100 contribution costs you only $75. The tax savings are magnified as your 403(b) contribution increases.

More Tax Savings - all dividends, interest and capital gains accumulate in a 403(b) account on a tax-deferred basis. This means your earnings will grow tax-free until time of withdrawal.

How does a 403(b) plan work?

You set aside money for retirement on a pre tax basis through a salary reduction agreement with your employer. You choose from among the vendors offered by your employer where your money is to be invested. The money grows tax free until withdrawal at retirement.

How much can I contribute annually?

For 2009 workers are able to contribute the smaller of:

  1. the elective deferral of $16,500 (in 2009), or
  2. up to 100% of includable compensation (must be less than elective deferral), or
  3. for those with employer matches or other employer contributions, limits are $49,000 or 100% of compensation (whichever is less). The employee is still limited to the employee elective deferral limit ($16,500 for 2009). An employer can add up to another $32,500 
  4. in addition, if you are 50 or older at any time during 2009, you may contribute an additional $5,000

Note: There is a provision of the Internal Revenue Code that temporarily increases the elective deferral limit for those eligible employees. This increase is known as the 15-year-rule. This special provision increases your elective deferral limit by as much as $3,000 more than the current $16,500 limit (as of 2009). To qualify you must have completed at least 15 years of service with the same employer (years of service need not be consecutive), and you cannot have contributed more than an average of $5,000 to a 403(b) in previous years. The increase in your elective deferral limit cannot exceed $3,000 per year under this provision, up to a $15,000 lifetime maximum. If you have 15 or more years of service with your employer, it is highly recommended that you consult with a tax professional concerning the limits on your contributions. Note that if you are eligible to contribute to both the age 50 catch-up and the 15-year-rule the IRS will first apply any contribution above normal limits to the 15-year-rule.

Can I change the amount I contribute?

Yes. But you might have to wait for a specific date. Some employers limit the number of changes during a year. It's best to ask about this before you begin contributing.

Can I stop contributing altogether?

Yes. You may stop contributing at any time.

How is a 403(b) different from a TSA (tax-sheltered annuity)?

As far as the IRS is concerned a 403(b) is a TSA, and a TSA is a 403(b). The terms are interchangeable. Either way, participants can contribute to annuities, variable annuities or mutual funds.

When can 403(b) money be accessed without penalty?

Generally, penalty-free distribution from a 403(b) cannot occur until the participant:

  • Reaches age 59 1/2
  • Separates from service in the year turning 55 (and must be retired)
  • Retire before age 55 — eligible for Substantially Equal Periodic Payments (SEPP). Participants who have retired early (before age 55), but want access to their 403(b) without penalty can do so using SEPP. This provision requires that you take a series of substantially equal periodic payments. The key is that once you start these payments they must continue for five years or until you reach 59 1/2, whichever takes longer. If you start at age 58 you must continue until you are 63 (minimum 5 years)
  • Becomes disabled (as defined in section 72(m)(7) of the Internal Revenue Code)
  • Through a loan (some investment companies allow this, some do not)
  • Dies


Another way to access 403(b) money early is to take out a loan. Though not all vendors oblige, loans are permitted from a 403(b). Many mutual funds do not allow loans. This can be both an advantage and a disadvantage. The advantage is that access to your funds is limited and you are less likely to take out a loan, thus allowing your money to continue to grow. The disadvantage is that you may really need the money and the only way to get it is through a hardship withdrawal which has tax consequences (explained below). Other rules governing loans exist but vary by vendor, so consult your vendor for details. You may also want to read this story on loans: The 403(b) Loan: The New Debtors Prison?.

How will distributions from my 403(b) be taxed?

In most cases, the payments you receive, or that are made available to you from a 403(b) are taxable in full as ordinary income. In general, the same tax rules apply to distribution from a 403(b) that apply to distributions from other retirement plans. For more detailed information refer to IRS Publication 571. For your specific situation it's recommended that you consult a professional tax advisor.

What other reading material do you recommend?

Top Ten 403(b) Must Reads [403(b)wise]

Other Helpful Information:

TRS Benefits Handbook

TRS Death Benefits and Death Claims Checklist