What Is IRC 403? Contribution Limits, Withdrawals, and RMDs

A 403(b) plan is a tax-advantaged retirement account for employees of public schools, colleges, churches, and organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code. The rules governing 403(b) plans set who can join, how much you can contribute, how the money is taxed on the way in and on the way out, and what you can do with the balance when you leave the employer. For 2026, the basic employee contribution limit is $24,500, with catch-up amounts available depending on your age and years of service.¹

Employees of cooperative hospital service organizations and civilian staff of the Uniformed Services University of the Health Sciences also qualify to participate.² A 403(b) is sometimes called a tax-sheltered annuity, or TSA plan. It is a different animal from a 403(a) qualified annuity plan, which is a rare arrangement used mainly by governmental entities and carries the full qualification burden of a traditional pension plan; if your employer offers a “403 plan,” it is almost certainly a 403(b).

Who Can Participate

The Universal Availability Rule

403(b) plans operate under a universal availability rule that goes beyond what 401(k) plans require. If any employee of an eligible organization can make salary-deferral contributions, then nearly every employee must be given the same opportunity, including a real chance to make or change a deferral election at least once per plan year and to use catch-up and Roth contributions if the plan offers them.³

Whether an employee actually has an effective opportunity turns on the facts: whether they received notice of eligibility, how much time they had to make an election, and whether any other conditions stood in the way. An employer cannot exclude employees simply by labeling them “temporary,” “seasonal,” “adjunct,” or “substitute.” The universal availability rule does not apply to churches or qualified church-controlled organizations.

Permitted Exclusions

A narrow set of employees can be excluded from making deferrals:

Employees who normally work fewer than 20 hours per week. The IRS defines “normally” specifically: the employer must reasonably expect fewer than 1,000 hours of service in the initial 12-month period, and the employee must actually work fewer than 1,000 hours in each subsequent plan year. Once an employee crosses that threshold in any year, the exclusion no longer applies going forward.³
Students performing certain student services described in IRC Section 3121(b)(10).
Nonresident aliens with no U.S.-source income from the employer.
Employees already eligible for another 401(k), 403(b), or 457(b) plan sponsored by the same employer.

These exclusions are all-or-nothing within each group. If any employee inside one of the categories is permitted to defer, no employee in that same category can be excluded.

Long-Term Part-Time Employees

Starting with plan years beginning on or after January 1, 2026, ERISA-covered 403(b) plans cannot require a long-term part-time employee to complete more than two consecutive 12-month periods of at least 500 hours before becoming eligible to make deferrals.⁴ The employee must also be at least 21. The change comes from the SECURE 2.0 Act and is aimed at bringing part-time workers at hospitals, universities, and similar organizations into the plan sooner.

2026 Contribution Limits

The Base Employee Deferral

You can contribute up to $24,500 from your salary in 2026.¹ This cap, set under IRC Section 402(g), applies across all your 403(b) and 401(k) accounts combined.⁵ So if you put $15,000 into a 403(b) through your school district and $10,000 into a 401(k) through a part-time job, you’ve used $25,000 of the shared limit and gone $500 over. Excess deferrals that aren’t corrected in time get taxed twice, once going in and again coming out.

Age-Based Catch-Up

Participants who are at least 50 by the end of the calendar year can add another $8,000, bringing the total to $32,500 in employee deferrals. SECURE 2.0 created a higher catch-up for participants aged 60 through 63, who can add $11,250 instead of $8,000, for a maximum of $35,750. Once a participant turns 64, the catch-up drops back to the standard $8,000.

The 15-Year Service Catch-Up

This one is unique to 403(b) plans and has no 401(k) equivalent. Employees with at least 15 years of full-time service at the same qualifying employer, meaning a public school system, hospital, church, or health and welfare agency, can contribute up to an extra $3,000 per year, subject to a lifetime cap of $15,000.⁶ The actual amount available in a given year depends on a formula comparing your total prior deferrals to $5,000 times your years of service. Anyone who contributed less than $5,000 per year on average over their career with that employer will generally have room.

When a participant qualifies for both the 15-year service catch-up and an age-based catch-up, the IRS requires that contributions count toward the 15-year catch-up first, then toward the age-based catch-up.⁷ Someone eligible for both could add $3,000 from the 15-year catch-up plus $8,000 (or $11,250 at ages 60 through 63) from the age-based catch-up, on top of the $24,500 base.

Total Annual Additions

The limits above cover only your own salary deferrals. A separate ceiling under IRC Section 415(c) caps total annual additions, meaning employee deferrals, employer contributions, and forfeitures combined, at the lesser of 100% of compensation or $72,000 for 2026.⁸ Catch-up contributions do not count toward the 415(c) limit, which is why total contributions for an older participant with a generous employer match can exceed $72,000.

Pre-Tax and Roth Contributions

Traditional pre-tax contributions reduce your taxable income in the year you make them. A teacher earning $70,000 who defers $24,500 pre-tax reports $45,500 in salary on that year’s return. The contributions and their investment earnings grow untaxed until withdrawal, when every dollar comes out as ordinary income.

Many 403(b) plans also offer a designated Roth account.⁹ Roth contributions come from after-tax dollars, so there’s no upfront tax break, but qualified withdrawals in retirement, including the investment earnings, are tax-free. The same $24,500 deferral limit applies regardless of whether you split contributions between the traditional and Roth sides.

Starting in 2027, participants who earned more than $145,000 in FICA wages from the sponsoring employer in the prior year (the indexed threshold is $150,000 for 2025 wages) will be required to make all catch-up contributions as Roth contributions.¹⁰ This SECURE 2.0 rule does not affect regular deferrals or participants below the wage threshold. Participants under the threshold, and those whose employers don’t offer a Roth option, can keep making pre-tax catch-ups.

Getting Money Out Before Retirement

The 10% Early Withdrawal Penalty and Its Exceptions

Withdrawals before age 59½ are taxed as ordinary income and generally hit with a 10% additional tax under IRC Section 72(t).¹¹ The penalty applies only to the taxable portion. Roth contributions you’ve already paid tax on don’t get penalized again, though Roth earnings withdrawn early can be.

Several exceptions eliminate the 10% penalty for 403(b) distributions, though income tax still applies to pre-tax amounts:

Separation from service during or after the year you turn 55.
Total and permanent disability.
Death (distributions to beneficiaries).
A series of substantially equal periodic payments calculated under IRS-approved methods over your life expectancy.
Distributions to an alternate payee under a qualified domestic relations order in a divorce.
Unreimbursed medical expenses exceeding 7.5% of adjusted gross income.

A note on a common misconception: the first-time home purchase exception does not apply to 403(b) plans. That penalty exception is available only for IRA distributions.

Plan Loans

Many 403(b) plans allow you to borrow from your own balance, though this is optional and not every plan includes it.¹² The maximum loan is the lesser of $50,000 or 50% of your vested balance. If 50% of your balance is under $10,000, some plans let you borrow up to $10,000 anyway, though this is not required.

Repayment must happen within five years with at least quarterly payments, unless the loan is for your primary residence, in which case the term can be longer. If you leave your employer with an outstanding balance, the plan sponsor can require full repayment. Any unpaid amount is treated as a distribution, subject to income tax and potentially the 10% penalty.

Hardship Withdrawals

A hardship withdrawal lets you pull money while still employed, but only if you face an immediate and heavy financial need and have no other reasonably available resources. Unlike a loan, it is not repaid; it permanently reduces your balance and is subject to income tax and potentially the early withdrawal penalty. Hardship distributions cannot be rolled over.

The IRS provides a safe harbor list of expenses that automatically qualify:¹³

Medical expenses for you, your spouse, dependents, or beneficiary.
Costs to buy a primary residence (purchase costs, not ongoing mortgage payments).
Tuition and education expenses for the next 12 months of postsecondary education for you or your family.
Payments to prevent eviction or foreclosure on your primary residence.
Funeral expenses for you, your spouse, children, dependents, or beneficiary.
Certain expenses to repair damage to your primary residence.

Plans that permit hardship withdrawals may define the available reasons more narrowly than the IRS safe harbor, and the withdrawal is limited to what you actually need.

Required Minimum Distributions

Traditional pre-tax 403(b) accounts cannot grow tax-deferred forever. Participants must begin required minimum distributions at age 73.¹⁴ For individuals born in 1960 or later, the RMD starting age moves to 75.¹⁵ If you’re still working for the plan sponsor and don’t own more than 5% of the organization, you can delay RMDs from that specific plan until you actually retire.

Missing an RMD or taking less than required triggers an excise tax of 25% on the shortfall.¹⁶ That penalty drops to 10% if you fix the mistake during the correction window, which generally runs through the end of the second tax year after the year the excise tax was imposed. Required amounts come from IRS life expectancy tables divided into your account balance and change every year.

Roth 403(b) balances were previously subject to RMDs, but starting in 2024, designated Roth accounts in employer plans no longer require distributions during the owner’s lifetime, aligning them with Roth IRAs.

Rolling Over a 403(b)

When you leave an employer or retire, you can move your 403(b) into another eligible retirement plan. Pre-tax funds can roll into a traditional IRA, another 403(b), a 401(k), a governmental 457(b), or a SEP-IRA.¹⁷ You can also roll pre-tax 403(b) money into a Roth IRA, but the entire amount becomes taxable income in the year of conversion.

A direct rollover, where funds transfer straight from one plan to another without passing through your hands, avoids the 20% mandatory withholding that applies to distributions paid to you.¹⁸ If you take a check instead, you have 60 days to deposit the full distribution (including the withheld portion) into an eligible plan, and the withheld amount comes back only as a tax refund if you replace it from other funds.

Certain distributions cannot be rolled over: required minimum distributions, hardship withdrawals, loans treated as distributions, and payments that are part of a series of substantially equal periodic payments. The receiving plan is also not required to accept rollovers, so confirm with the new plan administrator before starting a transfer.

ERISA and Non-ERISA Plans

Whether your 403(b) falls under the Employee Retirement Income Security Act shapes your protections and the plan’s obligations. Plans sponsored by public schools and churches are automatically exempt from ERISA.¹⁹ Since most 403(b) participants work for public school systems, a large share of the 403(b) universe sits outside ERISA.

Private-sector 501(c)(3) organizations such as hospitals, museums, and charitable nonprofits are generally subject to ERISA, but a safe harbor exemption exists for plans where employer involvement is minimal. To qualify, the employer cannot contribute, and participation must be completely voluntary with no automatic enrollment. Plans in the safe harbor avoid full ERISA compliance, including Form 5500 filing and the associated audits, but they also give up automatic enrollment.

ERISA-covered plans carry stronger participant protections: fiduciary duty standards for investment selection, claims and appeals procedures, and the option to auto-enroll employees. The tradeoff is more administrative cost. If you work for a nonprofit hospital, it is worth knowing whether your plan operates under ERISA, because that determines your recourse if something goes wrong with plan administration.

1
Internal Revenue Service. Retirement Topics – 403(b) Contribution Limits
2
Internal Revenue Service. 403(b) Plan Fix-It Guide – Your Organization Isnt Eligible to Sponsor a 403(b) Plan
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Internal Revenue Service. Issue Snapshot – 403(b) Plan – The Universal Availability Requirement
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Internal Revenue Service. Notice 2024-73 – Additional Guidance with Respect to Long-Term, Part-Time Employees
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Internal Revenue Service. Consequences to a Participant Who Makes Excess Annual Salary Deferrals
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Internal Revenue Service. 403(b) Plans – Catch-Up Contributions
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Internal Revenue Service. 403(b) Plan Fix-It Guide – 15-Years of Service Catch-Up Contributions
8
Office of the Law Revision Counsel. 26 U.S. Code 415 – Limitations on Benefits and Contribution Under Qualified Plans
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Internal Revenue Service. IRC 403(b) Tax-Sheltered Annuity Plans
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Internal Revenue Service. Treasury, IRS Issue Final Regulations on New Roth Catch-Up Rule, Other SECURE 2.0 Act Provisions
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Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
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Internal Revenue Service. Retirement Topics – Plan Loans
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Internal Revenue Service. Retirement Topics – Hardship Distributions
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Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
15
Congress.gov. Required Minimum Distribution (RMD) Rules for Original Account Owners
16
eCFR. 26 CFR 54.4974-1 – Excise Tax on Accumulations in Qualified Retirement Plans
17
Internal Revenue Service. Rollover Chart
18
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
19
Congress.gov. 403(b) Pension Plans – Overview and Legislative Developments