Meet Nancy. She’s a dedicated director at a nonprofit in Arlington, juggling grant reports, board meetings, and team morale. Retirement? It’s on her radar—but buried beneath paperwork and annual fundraisers. Then one day, her HR manager mentions the 403(b) plan.
“What’s a 403(b)?”
Great question, Nancy.
If you’re like Nancy—working in education, healthcare, or a nonprofit—you’re likely eligible for a 403(b) retirement plan. Think of it as the tax-savvy sibling of a 401(k), tailored specifically for people making a difference in the world. Let’s explore why this plan deserves a spot at the top of your financial checklist in 2025.
What Is a 403(b) Plan—And Why Should You Care?
A 403(b) plan (also known as a Tax-Sheltered Annuity, or TSA) is a retirement savings vehicle for employees of public schools, certain hospitals, churches, and nonprofit organizations. This plan allows you to contribute a portion of your salary on a pre-tax basis—helping reduce your taxable income now while your investments grow tax-deferred until retirement.
But that’s not all. With employer matching, rollover options, and new contribution rules kicking in for 2025, your 403(b) might be more powerful than you think.
Key Benefits: Your Money, Working Smarter
- Tax Deferral: Contributions are deducted from your paycheck before taxes, shrinking your current tax bill while growing your future nest egg.
- Investment Growth: The earnings on your contributions compound tax-free until you withdraw—think turbocharged retirement growth.
- Portability: Changing jobs? You can often roll over your 403(b) into another 403(b) or an IRA, keeping your savings intact and growing.
2025 Contribution Limits: New Ceiling, New Opportunities
Let’s talk numbers. For 2025, the standard elective deferral limit (how much of your salary you can stash away) is $23,500. That’s the baseline. But if you’re playing catch-up, the IRS gives you a few extra tools:
Age 50+ Catch-Up
If you’re turning 50 or older in 2025, you can contribute an additional $6,500. That means a 50-year-old could contribute $30,000 total.
Age-Based Mega Catch-Up
If you’re 60, 61, 62, or 63 in 2025, the IRS lets you contribute $11,250 extra instead of the standard $6,500—bringing your total to $34,750.
15-Year Rule
Have you worked 15+ years for a qualified nonprofit, school, or church? You may qualify to put in up to $3,000 more per year, maxing out at a lifetime of $15,000. It’s a bit complex, so it’s worth speaking with a tax pro to crunch the exact numbers.
Combined Contribution Limits: It’s a Team Effort
It’s not just about what you put in—employers often contribute too. The total 2025 limit for all contributions (employee + employer + forfeitures) is $70,000 or 100% of your compensation, whichever is lower.
Another limit to keep in mind: Only the first $350,000 of compensation can be considered for calculating contributions in 2025.
Planning tip: This limit applies across all plans—so if you also contribute to a 401(k), SIMPLE IRA, or SEP, those totals count toward your elective deferral limit. However, government 457(b) plans don’t.
Roth Catch-Up Rules: New Roth Mandate in 2026
Starting January 1, 2026, if you earned $145,000 or more in Social Security wages the previous year, your catch-up contributions must go into a Roth 403(b). That means no upfront tax deduction—but your withdrawals in retirement could be entirely tax-free.
Plans that allow Roth catch-ups for high earners must also allow them for everyone else. Translation? Your employer may soon offer you more flexibility in how your money grows.
Avoid These 403(b) Traps
You’d be surprised how many organizations get tripped up by common 403(b) pitfalls. Here are three to watch out for:
- Universal Availability Violations: If elective deferrals are allowed, all eligible employees must be given the same opportunity (with limited exceptions).
- Exceeding Contribution Limits: Over-contributions can trigger taxes and penalties. Stay within your personal thresholds—especially if combining 403(b) contributions with other plans.
- Late Deposits: Employers must deposit employee deferrals promptly. Delays can lead to compliance headaches and IRS scrutiny.
Distribution & Rollover Options: When and How You Get Your Money
You can begin taking distributions at age 59½, or earlier if you retire, become disabled, or pass away (beneficiaries can inherit). But beware: withdrawing early can result in a 10% penalty, unless you qualify for exceptions like:
- Medical expenses
- Higher education costs
- First-time home purchase (via rollover to an IRA)
- Hardship distributions
Rollovers are allowed to other 403(b)s, 457(b)s, and IRAs—giving you flexibility if your career path shifts.
Loans & Hardship Withdrawals: Emergency Options
Need access to funds before retirement? Many 403(b) plans allow:
- Loans: Typically up to 50% of your vested balance (max $50,000).
- Hardship Withdrawals: Permitted for certain expenses like medical bills, funeral costs, or home repairs—but only under IRS-approved circumstances.
Bonus Moves: Get the Most From Your 403(b)
- Plan-to-Plan Transfers: If your plan uses multiple annuity contracts, you might be able to move funds between providers without triggering taxes.
- Post-Employment Contributions: Some plans allow elective deferrals and employer contributions after you’ve left the job, as long as it’s within the IRS’s specified time window.
Final Thoughts: Make 403(b) Part of Your Retirement Playbook
A 403(b) plan is more than a line on your paycheck—it’s a powerful tool for long-term financial independence. Whether you’re a seasoned nonprofit executive or just starting your teaching career, understanding your contribution limits, catch-up options, and compliance risks can help you turn your retirement dreams into reality.
Need help optimizing your 403(b) strategy for 2025? At JS Morlu, we work with nonprofit leaders, educators, and healthcare professionals every day to build customized tax and retirement plans. Let’s make sure your financial future is as impactful as your career.
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