403(b)s and 401(k)s are very similar and in general are treated as equivalent when I mention them on this site. However, there are a few differences. One of these differences is an extra catch-up contribution.

The Over 50 Catch-up Contribution

If you are 50 or older, both 401(k)s and 403(b)s have a $6K catch-up contribution that allows you to increase the employee contribution from $18K (2015) to $24K. That also increases the total employee+employer contribution from $53K to $59K. That’s cool, and pretty well known.

The “15 Years of Service” Catch-up Contribution

However, 403(b)s, IF PERMITTED BY THE PLAN, may also have an extra catch-up contribution for those who have worked for that particular public school system, hospital, home health agency, health and welfare agency, church, or association of churches for at least 15 years. It has some weird rules with it. The maximum is $3000 per year. But you can only do that for 5 years, and only if you haven’t put a ton into the plan in the past. It truly is a “catch-up” contribution. Here are the specific rules straight from the IRS:

Your 403(b) elective deferral limit is increased by the lesser of:

  1. $3,000,
  2. $15,000, reduced by the amount of additional elective deferrals made in prior years because of this rule, or
  3. $5,000 times the number of the employee’s years of service for the organization, minus the total elective deferrals made for earlier years.
Canyoneering is a messy sport

Canyoneering is a messy sport

Examples

So, if you’re 45 and have been with this place for 15 years and have NEVER contributed anything to the 403(b), you can put in $21K this year ($18K + the $3K catch-up.)

If you’re 45, have been there 15 years, and have made big contributions to the plan each of those 15 years (let’s say a total of $125K over those 15 years), then you get no catch-up contribution at all due to rule 3. (15*$5K = $75K and $125K>75K). So your contribution limit is just $18K.

If you’re 49, have been there 30 years, but just started saving 5 years ago, then rule two comes into play. Let’s say you put in $16.5K +$3K in 2010, $16.5K +$3K in 2011, $17K +$3K in 2012, $17.5K + $3K in 2013, and $17.5K+$3K in 2014. Total contributions are $100K. So rule three says $30 years * $5K = $150K. So rule three does not limit you. But since you have already made a total of $15K in catch-up contributions, you’re out of luck this year due to rule 2. Contribution limit is $18K.

Combining the Two Rules

If you’re over 50, your first dollars of “catch-up” go toward the 15 year catch-up, then if you exceed that, you go into the over 50 catch-up. If you’re 50 years old, have been there at least 15 years, and have never contributed a thing, your total limit is $27K (with a total employee+employer limit of $62K.) You can catch up pretty fast at that rate.

In the end $3K a year ($15K total) that you may or may not be able to do isn’t much, but it’s better than a kick in the teeth. Might as well take advantage if you’ve been slacking on the retirement savings.

What do you think? Do you have a 403(b)? Does it allow for 15 year service catch-up contributions? Do you qualify? Have you taken advantage? Why or why not? Comment below!