403(b) Tax-Sheltered Annuities for

Participants

A 403(b) plan is a retirement plan offered by public schools and 501(c)(3) tax-exempt 

organizations. You can only obtain a 403(b) annuity or custodial account* under your 

employer’s 403(b) plan. These annuities are funded by your elective salary deferrals, employer 

contributions or a combination of both. 

403(b) plans offer significant tax advantages for participants:

 contributions and earnings are tax-deferred (in a traditional 403(b) annuity),

 earnings on after-tax Roth contributions may be tax-free,

 you may be eligible for a saver’s credit on your individual tax return, and

 you can carry your annuity with you when you change employers or retire.

Be aware of common mistakes.

As a participant in a 403(b) plan, you need to be familiar with the tax rules governing your 

403(b) annuity so you can:

 maximize your retirement benefits,

 comply with the law, and

 avoid additional taxes and penalties.

*Unless otherwise stated, references to 403(b) annuities in this publication will generally also apply to 403(b) 

custodial accounts. 
403(b) Plan Highlights

Plan Feature 403(b) Requirements

Eligible participants  all common-law employees of public school systems and 501(c)(3) 

organizations

General contribution limits  for elective deferrals

 $19,500 (in 2021, indexed for inflation)

 for employer and employee contributions (see 403(b) Contribution Limits) 

 $58,000 (for 2021, indexed for inflation), or 

 100% of includible compensation, if less

15-years-of-service catch-up 

contributions*#

 available for certain employers (such as schools, hospitals and churches)

 employee must have 15 years of service

 limited to least of: 

 $3,000,

 $15,000 less previously excluded special catch-ups, or

 $5,000 multiplied by years of service minus previously excluded deferrals

Age-50 catch-up contributions#  additional $6,500 (in 2021, indexed for inflation)

Loans#  Generally limited to the lesser of:

 $50,000, or 

 50% of the participant’s vested account balance

 payments at least quarterly

 term of no more than 5 years (except for purchase of main home)

 reasonable rate of interest

Other distributions  hardship distributions#

 domestic relations order

 distributions to those called to active duty in the military

Timing of distributions  elective deferrals are generally available at: 

 death,

 age 591⁄2,

 severance from employment, or

 disability

 you must begin receiving distributions no later than the later of retirement or 

age 72 (or 701⁄2 if born before July 1, 1949)

 employer contributions may be available earlier if provided in the plan and 

your annuity (but not if the funds are held in a custodial account)

Rollovers  permitted to and from other retirement plans (such as a 401(k) or 

other 403(b)) and IRAs 

 must satisfy eligible distribution rules

Transfers/Exchanges#  transfers to another 403(b) plan are permitted

 permitted to and from two annuity contracts or custodial accounts within the 

same 403(b) plan

*The special 403(b) 15-years-of-service catch-up is included in the general limit, but the age-50 catch-up is excluded from this limit. 

Catch-up contributions must be applied first to the 15-years-of-service catch-up, if available, before being applied to the age-50 

catch-up. See 403(b) Contribution Limits for examples of how the ordering works.

#

Available if both the plan and your specific annuity permit.
403(b) Plan

It’s important to know the tax rules that apply to a 403(b) plan 

to help you get the maximum benefit from your plan.

The IRS commonly finds mistakes in 403(b) plans in these areas: 

Universal availability. If a 403(b) plan allows any employee to make elective deferrals, it must allow 

all employees the same opportunity. Certain groups of employees may be excluded, such as those 

normally working fewer than 20 hours per week (less than 1,000 hours per year), students performing 

certain service, employees who are eligible for elective deferrals under another plan of their employer 

and non-resident aliens. Employers must notify employees of their eligibility to make an initial or 

change an existing deferral election at least once a year.

Contribution limits and catch-ups. Contributions must stay under the age-50 catch-up and 

15-years-of-service catch-up contribution limits. Any excess elective deferrals must be returned by 

April 15 of the following taxable year to avoid additional taxes and penalties.

Depositing elective deferrals. Your employer must send your deferrals to your annuity issuer as 

soon as is reasonable for proper plan administration (but no later than 15 days following the month 

you would have been paid).

Rollovers. You’re permitted to roll over any part of your otherwise taxable eligible distribution* from a 

403(b) annuity into another 403(b) annuity, 457(b) plan, traditional IRA or other eligible retirement plan. 

Likewise, if permitted by the 403(b) annuity, you may roll over your otherwise taxable distributions 

from another retirement plan into your 403(b) annuity. Distributions not properly rolled over are 

includible in your gross income and a 10% additional tax may apply.

Loans. Loans may be available under the 403(b) plan and your 403(b) annuity. If you default on your 

loan or it fails other conditions, the IRS may treat your loan as a taxable distribution. Your loan may 

continue to accrue interest until you’re eligible for a distribution to pay the loan back. If you’re under 

age 591⁄2 when your loan is deemed a distribution, a 10% additional tax may apply.

Hardship. Hardship distributions may be permitted under your 403(b) plan and your 403(b) 

annuity. Hardships must be due to an immediate and heavy financial need and must be limited to the 

amount necessary to satisfy that need. If these conditions aren’t met, you may be required to repay 

the amounts that don’t meet the hardship requirements of the plan or the law.

*Otherwise taxable eligible distributions don’t include required minimum distributions.

Common Mistakes
Contributions after you leave employment. Plans may allow for elective deferrals and employer 

contributions after you separate from service.

 Elective deferrals. If your plan permits, you may defer — up to your annual deferral limit — 

your unpaid regular pay and unused accrued vacation and sick pay, if paid before the end of the 

calendar year you leave employment, or within 21⁄2 months after leaving, if later.

 Employer contributions. If your plan permits, your employer may contribute up to the combined 

annual employer and employee contribution limit for you for up to five years following the end of the 

year you left employment. (Note: You can’t elect to receive this money in cash instead of deferring 

it to your 403(b) account.) These employer contributions must end when you die.

Moving funds while you’re still working.

 Exchanges within the same plan. The 403(b) plan must permit you to move funds from one 

approved annuity issuer to another. In addition, the new annuity issuer must agree to share 

information with your employer.

 Plan-to-plan movement of funds. Both 403(b) plans must permit the movement of the funds.

As a participant, you need to be aware of these common mistakes. By helping your employer correct 

mistakes timely, you can avoid additional taxes and penalties that may affect both you and your 

employer.

To Learn More...

For assistance or information on retirement plan tax-related issues:

 visit our 403(b) page and our 403(b) FAQ page

 call 877-829-5500 – Tax Exempt and Government Entities Customer Account Services

The following publications cover 403(b) annuities:

 Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans) For Employees of Public Schools and 

Certain Tax-Exempt Organizations

 Publication 575, Pension and Annuity Income 

 Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs)

 Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs)

 Publication 4483, 403(b) Tax-Sheltered Annuities for Sponsors

 Publication 4546, 403(b) Plan Checklist 

Publication 4482 (Rev. 8-2021) Catalog Number 47242K Department of the Treasury Internal Revenue Service www.irs.gov