403(b) Tax-Deferred Retirement Plans

The 403(b) and Why It Is Important

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. The 403(b) is named after the section of the IRS code governing it.
The 403(b) can be an excellent way to save money for retirement. It can serve as a supplement to a traditional pension plan or other retirement plan(s), or as a stand-alone plan.


Employees of tax-exempt organizations established under section 501(c)(3) of the Internal Revenue Code are eligible to participate. Participants include teachers, school administrators, school personnel, nurses, doctors, professors, researchers, librarians, and ministers. However, employers can restrict access based on such factors as hours worked. Check with your employer for details.

How a 403(b) Works

Employees enroll and participate through their employer. Contributions to a 403(b) are made on a pre-tax basis through a Salary Reduction Agreement. This is an arrangement where the participating employee agrees to take a reduction in salary. The amount by which the salary is reduced is directed to investments offered through the employer and selected by the employee. These contributions are called elective deferrals and are excluded from the employee's taxable income. Contributions grow tax-deferred until the time of retirement, when withdrawals are taxed as ordinary income. 
IRC 403(b) Tax-Sheltered Annuity Plans
Understanding Your 403(b) Plan - Introduction to How It Works

How Much Can Be Contributed to a 403(b)?

Participants may contribute up to $18,000 for year 2017.  In 2015 and 2016 the limit was also $18,000.  Employees who are age 50 or over at the end of the calendar year can also make catch-up** contributions of $6,000 in 2015 - 2017 beyond the basic limit on elective deferrals.
For those with employer matches or other employer contributions, the limit is $53,000 or 100% of compensation (whichever is less). The participant is still limited to the employee elective deferral limit ($18,000 for 2016). An employer can add up to another $35,000.
Limit on annual additions
The limit on annual additions (the combination of all employer contributions and employee elective deferrals to all 403(b) accounts) generally is the lesser of:
$54,000 for 2017 ($53,000 for 2015 and 2016), or
100% of includible compensation for the employee's most recent year of service.

Generally, includible compensation is the amount of taxable wages and benefits the employee received in the employee's most recent full year of service.

Withdrawal Requirements for 403(b) Money

You must begin to take withdrawals from your 403(b) no later than April 1 of the year following the year in which you turn age 70½. If you are still working, you can delay withdrawal from your 403(b) until April 1 following the year in which you retire.
See IRS on Required Minimum Distributions (RMD).

403(b) account balances that existed on December 31, 1986 are not subject to the age 70-1/2 distribution requirement. However, any earnings on that balance are. Distribution from the 12/31/86 balance needs to start at age 75. This requirement is not found in the Internal Revenue Code, but rather in a letter ruling. Also, any distributions in excess of required distributions are deemed to reduce the 12/31/86 balance. So, if any money has been taken out of the 403(b) account other than those that are required (such as a partial withdrawal or a deemed distribution), the 12/31/86 balance may be less than anticipated. For your specific situation it's recommended that you consult a professional tax advisor.

For more information go to:

​                        403(b) Tax-Sheltered Annuity Plans

WM Durham Associates LLC nor any of its employees provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions. This material should be regarded as general information.​​