2019 Contribution Limits for 403(b) and 401(k) Plans
Perhaps the single most important retirement account available to employees today is their employer-sponsored 401(k) or 403(b) plan. These defined contribution retirement plans have, in many cases, replaced the traditional defined benefit pension plans of years gone by. These 401(k) and 403(b) retirement plans allow for a significant amount of money to be set aside annually as Participants plan for their Future-Funded Ministry. These retirement plan savings are subject to significant tax advantages as well.
As the taxation of monies contributed to a retirement plan is often deferred to a later point in time, the IRS limits the amount of money that can be deposited into a 401(k) or 403(b) plan on an annual basis. The IRS refers to these retirement plan limits simply as the "Contribution Limits". The Contribution Limits apply to both employee and employer contributions. The Contribution Limits change from one year to the next as they are directly tied into the Federal Cost of Living Adjustment (COLA).
It is the Plan Sponsor/Plan Administrator's responsibility to monitor the amount of employee and employer money that is contributed into a Participant's retirement plan account on an annual basis. Most payroll systems allow for this to be easily monitored. If excess contributions are made into the plan and not corrected in a timely manner, the plan becomes subject to disqualification in the event of an IRS audit of the plan.
Outlined below are the basic 403(b) and 401(k) retirement plan Contribution Limits for 2019. These limits must be adhered to. Remember that your retirement plan continues to be one of the very best ways to prepare for the future financially.
2019 Limits at a Glance:
Elective Deferral Limits—§402(g) Limits—Employee Voluntary Contributions—$19,000
Age 50 Catch-Up Provision—§414(v) Limits—in addition to the Elective Deferral Limits above—$6,000
15 Years of Service Catch-Up Provision—§402(g)(7) Limits—in addition to the Elective Deferral Limits above, (403(b) plans only, see dialog below*)—$3,000
Maximum Combined Employee and Employer—§415 Limits—$56,000 (or 100% of Includible Compensation—apply the lesser of the two)
Maximum Combined Employee and Employer (with Age 50 Catch-Up Contributions)—§415 Limits —$62,000 (or 100% of Includible Compensation—apply the lesser of the two)
IRC 415(c)(7) Catch-Up Option (seldom used but nonetheless available, 403(b) plans only, see dialog below **) $10,000 per year Employer Contribution for very low-income employees
* Certain 501(c)(3) organizations that sponsor 403(b) plans are eligible for the use of the "15 Years of Service Catch-Up Provision". Those eligible employers are limited to five groups:
1. Educational institutions
3. Churches and church-affiliated organizations
4. Home health service agencies; and
5. Health and welfare agencies
The criteria for determining who is eligible for the "15 Years of Service Catch-Up Provision" is as follows:
1. The participant will have to reach the 15 years of service anniversary date by the end of the current tax year.
2. Years of service can only be counted with their current employer, except for the employees of religious organizations where years of service are counted within the denomination.
3. Participants who have contributed, on average, $5,000 or more for each year of service leading up to the 15 years, are not eligible to use the increased contribution limit.
4. The increased limit for the "15 Years of Service Catch-Up" can be used with the current employer only until $15,000 in "extra" contributions have been made. At that time, the "extra" contributions will need to cease.
** The "§415(c)(7) Catch-Up Provision" permits up to $10,000 per year to be contributed to a 403(b) plan until a total of $40,000 has been used under this limit. It will apply to very low-income employees for whom the religious organization wishes to make employer contributions. Example: Pastor preaches for a small congregation once a month and receives compensation of $2,400 per year for those services. Pastors cannot afford to make elective deferrals to a 403(b) plan; however, the church wishes to recognize his many years of faithful service. The church can make a contribution on behalf of Pastor to a 403(b) plan of up to $10,000 each year until the $40,000 limit has been utilized. After that, the church could continue to contribute on behalf of the Pastor, subject to the "100% of includable compensation" §415 limitations.