501(c)(3) Nonprofit Retirement Plan Contribution Limits

Keeping track of contribution limits is an annual challenge for employees.
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People employed by 501(c)(3) nonprofits have access to different retirement instruments than other private sector employees. For example, 501(c)(3) employees may opt to participate in a 403(b) retirement savings plan. This is not mandatory and it is not uncommon for a 501(c)(3) employee to have a more traditional 401(k) retirement plan or another retirement instrument. All retirement plans have contribution limits, which are based on government rules and are specific to a plan. Limits are not imposed on 501(c)(3) nonprofits but rather on individual retirement instruments.

Income Tax Implications

Retirement plan contributions often are not taxed as part of a person's regular paycheck. That is, the amount of the contribution is taken out before the tax is calculated. This provides employees the incentive to save for retirement while reducing their tax liability. The Internal Revenue Service limits the contributions a person can make to their retirement account during a given year. Each year the IRS sets the contribution cap for the coming year.

Additional 501(c)3 Opportunities

Those employed for 501(c)(3) nonprofits can contribute to 403(b) retirement accounts. These are accounts that may include matching or proportional contributions from the employer, or might be exclusively funded by the employee. A 403(b) retirement plan is similar to a 401(k) plan with one exception; portions of the 403(b) may be diverted into a Roth IRA account, which is not permitted of 401(k) funds. There may be tax implications from the earnings on a Roth IRA each year, but this does not affect the annual contribution amount.

Nonprofits and 401(k)s

A 501(c)(3) nonprofit employee might open a 401(k) account instead of a 403(b) retirement account for many reasons. One is that not all 501(c)(3) nonprofits qualify to offer their employees 403(b) accounts. Those that don't may offer 401(k) plans instead. Also, smaller 501(c)(3) nonprofits might not offer access to any retirement package at all. Whatever the case, an employee of a nonprofit still is bound by the contribution limits established by the IRS annually.

Additional Form Requirements

In addition to checking the contribution limits annually, 501(c)(3) employees who elect to participate in a 403(b) retirement account may be required to fill out IRS Form 5500 annually. This form is for people who have an irregularity in the circumstance of their contribution, such as people who live abroad or who participate in plans with fewer than 100 contributors.

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