TDA Retirement Plan: Contributions, Roth Option, and Withdrawals

A TDA retirement plan, short for tax-deferred annuity, is the common name for a 403(b) plan: a workplace retirement account that lets employees of public schools, colleges, churches, and other tax-exempt organizations defer part of their salary before federal income tax is applied.¹ The money you contribute lowers your taxable income for the year, investment gains build up untaxed inside the account, and you pay ordinary income tax on the withdrawals in retirement. For 2026, you can defer up to $24,500 of your pay, with larger amounts allowed once you reach certain ages.²

Who Can Have a TDA

Access is limited by federal law to a specific group of employers. You qualify if you work for a public school system, which includes elementary and high schools, community colleges, and state universities. Employees of 501(c)(3) organizations, such as charities, religious organizations, and private foundations, also qualify. Ministers qualify too, whether employed by a 501(c)(3) or serving in a self-employed ministry role.¹

Once an employer offers a 403(b) to anyone, the universal availability rule generally requires it to be offered to all employees.³ Two narrow groups can be excluded: employees who regularly work fewer than 20 hours per week, and students performing services for the school that employs them. Neither exclusion is allowed if anyone in that category is already participating.

If you’re a private-sector employee at a for-profit company, a TDA isn’t available to you; that’s what 401(k) plans are for.

Where Your Contributions Go

A TDA holds your money in one of three account types, depending on what your employer’s plan offers:¹

An annuity contract issued by an insurance company, often with a mix of fixed-rate options that guarantee a minimum return and variable options tied to market performance.
A custodial account invested in mutual funds, with a menu of stock, bond, and index fund choices similar to a 401(k).
A retirement income account, available only to church employees, that can be invested in either annuities or mutual funds.

Your employer picks the vendors and the specific products on offer. Most plans include at least one insurance carrier and one mutual fund company; some offer a longer roster. Fees and fund choices vary widely, so it’s worth comparing expense ratios before selecting your investments. Plans built around insurance-company annuity products tend to run more expensive than those with low-cost index funds through a custodial account.

How Much You Can Contribute in 2026

The 2026 elective deferral limit under Section 402(g) is $24,500.² That ceiling covers all your 403(b) and 401(k) plans combined, not each one separately. If you hold two jobs and both offer a TDA, your combined salary deferrals across both can’t exceed $24,500.

Going over the limit creates a problem. The excess plus any earnings must be distributed by the due date of your tax return for that year. Miss that deadline and the excess is taxed twice: once when you contributed it and again when it’s distributed.⁴

A separate ceiling under Section 415(c) caps total annual additions, meaning your deferrals plus any employer contributions. For 2026 that limit is the lesser of 100% of your compensation or $72,000.⁵

Catch-Up Contributions

Three catch-up provisions can raise your personal limit, and some participants qualify for more than one at once.

If you turn 50 or older during the year, you can add $8,000 on top of the standard limit, taking your maximum deferral to $32,500 for 2026.²

Starting in 2026, SECURE 2.0 introduces an enhanced catch-up for participants who turn 60, 61, 62, or 63 during the year. Instead of the regular $8,000, these workers can add $11,250, pushing the maximum to $35,750.⁶ Once you turn 64, you drop back to $8,000. It’s a four-year window for a final savings push.

Long-tenured employees get a third option. If you have at least 15 years of service with the same qualifying employer (public schools, hospitals, home health service agencies, health and welfare service agencies, and churches), you can add up to $3,000 per year on top of the other limits.⁷ A $15,000 lifetime cap applies, and a formula based on your prior deferrals with that employer can reduce the amount. If you qualify for both the 15-year and age-based catch-up in the same year, the 15-year amount is used first.⁸

Pre-Tax or Roth

Many TDAs now offer a Roth option alongside the traditional pre-tax version. With Roth contributions, you pay income tax on the money going in, but qualified withdrawals, including all the growth, come out completely tax-free. To qualify, the Roth account must have been open at least five tax years, and you must be at least 59½, disabled, or deceased.

A Roth 403(b) has no income limit, unlike a Roth IRA. A teacher earning $200,000 can fund one even though the same income would lock them out of a Roth IRA. The $24,500 deferral cap applies whether you contribute pre-tax, Roth, or a mix.

One change lands in 2026 under SECURE 2.0: if you earned more than $145,000 in FICA wages from your employer last year and you’re 50 or older, your catch-up contributions must go into the Roth side of the plan. Your regular deferrals can still be pre-tax. Workers below that wage threshold keep the choice.

How to Enroll

Enrollment starts with a Salary Reduction Agreement. This form tells your employer how much to withhold from each paycheck for your TDA, either as a dollar amount or a percentage of gross pay, and it’s where you name your beneficiaries. It goes to your benefits or human resources office, often through an online payroll portal.

Separately, you open an account with one of the vendors your employer has approved. On the vendor’s platform, you choose how to divide your contributions among the funds available. After the first payroll cycle following enrollment, log in and confirm the deposited amount matches what you elected. Discrepancies happen most often when the agreement is filed mid-pay-period, so checking early saves trouble later.

Getting Money Out Before Retirement

If your plan permits loans, you can borrow the lesser of 50% of your vested balance or $50,000. Some plans also allow a minimum loan of up to $10,000 even if that exceeds 50% of your balance.⁹ You repay yourself with interest on at least a quarterly schedule in substantially level payments, and the term is generally five years unless the loan was used to buy your primary home.¹⁰

Leaving your job with a loan outstanding usually means the unpaid balance is treated as a taxable distribution. You can avoid that by rolling the balance into an IRA or another eligible plan by the due date, including extensions, of your federal tax return for that year.⁹

Hardship withdrawals are a separate route for immediate financial needs. Plans that allow them typically limit the reasons to safe-harbor categories: medical expenses, buying a primary home, preventing eviction or foreclosure, tuition and education fees, funeral expenses, and federally declared disaster costs. Hardship withdrawals can’t be repaid, and the amount is subject to income tax plus the 10% early withdrawal penalty if you’re under 59½.

That 10% penalty applies to most pre-59½ withdrawals, but the exceptions cover more ground than many people expect: separating from service in or after the year you turn 55 (age 50 for public safety employees of state or local government plans), total and permanent disability, terminal illness, a series of substantially equal periodic payments, distributions under a qualified domestic relations order in a divorce, up to $5,000 per child within a year of birth or adoption, medical expenses above 7.5% of your adjusted gross income, up to $22,000 for federally declared disasters, up to $10,000 (or 50% of your balance if less) for victims of domestic abuse, and calls to active military duty for at least 180 days.¹¹ Several of these were added or expanded by SECURE 2.0, and not every plan has adopted them, so check your plan document before relying on one.

Required Minimum Distributions

Traditional TDA money can’t sit untouched forever. Starting at age 73, the IRS requires annual withdrawals called required minimum distributions.¹² Under SECURE 2.0, that starting age rises to 75 for anyone who turns 74 after December 31, 2032.¹³

Each year’s RMD equals your prior-December-31 balance divided by a life expectancy factor from IRS tables. The first RMD can be delayed until April 1 of the year after you turn 73, but doing so leaves you with two RMDs in the same calendar year, which can nudge you into a higher tax bracket.

Missing an RMD is costly. The excise tax on the shortfall is 25% of what you should have taken out.¹⁴ It drops to 10% if you correct the mistake during the correction window, which generally runs through the end of the second tax year after the shortfall year. Take the missed distribution and file the corrected return promptly to qualify for the lower rate.

Moving Your TDA When You Leave the Job

When you separate from service, you can roll your 403(b) balance into a traditional IRA, another 403(b), a 401(k), a governmental 457(b) plan, a SEP-IRA, or (after two years) a SIMPLE IRA.¹⁵ Converting to a Roth IRA is possible too, though the converted amount is taxed as income in the year of the conversion.

A direct rollover is the cleanest path: your plan administrator sends the funds straight to the receiving account, nothing is withheld for taxes, and there’s no timing risk.¹⁶ In an indirect rollover, the plan cuts a check to you and withholds 20% for federal taxes. You then have 60 days to deposit the full original amount, including the withheld portion out of your own pocket, into the new account. Any shortfall is treated as a taxable distribution and may face the 10% early withdrawal penalty if you’re under 59½.

1
Internal Revenue Service. IRC 403(b) Tax-Sheltered Annuity Plans
2
Internal Revenue Service. Retirement Topics 403(b) Contribution Limits
3
Internal Revenue Service. 403(b) Plan – The Universal Availability Requirement
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Internal Revenue Service. Consequences to a Participant Who Makes Excess Annual Salary Deferrals
5
Internal Revenue Service. COLA Increases for Dollar Limitations on Benefits and Contributions
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Internal Revenue Service. Retirement Topics – Catch-Up Contributions
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Internal Revenue Service. 403(b) Plan Fix-It Guide – 15-Years of Service Catch-Up Contribution
8
Internal Revenue Service. 403(b) Plans – Catch-Up Contributions
9
Internal Revenue Service. Retirement Topics – Loans
10
Internal Revenue Service. 403(b) Plan Fix-It Guide – Loan Amounts and Repayments Under IRC Section 72(p)
11
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
12
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
13
Federal Register. Required Minimum Distributions
14
Office of the Law Revision Counsel. 26 USC 4974 – Excise Tax on Certain Accumulations in Qualified Retirement Plans
15
Internal Revenue Service. Rollover Chart
16
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions