Many people will spend as much time in retirement as they did working. Planning for a comfortable retirement means taking advantage of every opportunity to save, and that includes both employer-sponsored and individual retirement plans. The 403(b) is an example of the former, and the IRA is an example of the latter. If a person’s earnings are sufficient, he may contribute to both the 403(b) and IRA, although whether the IRA is tax-deductible depends on the type of IRA account and his modified adjusted gross income.
Limits for 403(b) Accounts
The 403(b) is similar to the more familiar 401(k) employer-sponsored retirement account and is also named after the relevant section of the IRS code. These accounts are available to public school employees and nonprofit organizations. As with 401(k) accounts, contributions are deducted from the payroll, but in 403(b) parlance they are known as deferrals. Also as with 401(k) accounts, 403(b) account owners must start making withdrawals by the age of 70½.
As of 2019, an employee with a 403(b) account may make elective deferrals of up to $19,000. For those over 50, an additional catch-up contribution of $6,000 is permitted. Plans differ, and some may allow catch-ups for workers with a minimum of 15 years’ experience. For those employees, the limit is determined by which of these is the least:
- $15,000, with a reduction by the amount of previous years’ additional elective deferrals
- $5,000 times the worker’s number of service years, subtracting any elective deferrals made for prior years
Overall, the yearly additions limit is $56,000 for 2019.
Limits for Traditional IRAs
As of 2019, an individual may contribute up to $6,000 annually to a traditional IRA and up to $7,000 if she is over age 50, but the person must earn that much in order to make a contribution. For example, if a person has earnings of just $5,000, she cannot fully fund her IRA for that year. There are exceptions for spouses who do not earn enough income or have no earnings but file taxes as married filing jointly.; based on the spouse’s earnings, she may fully fund an IRA. As with 403(b) accounts, traditional IRA owners must start taking mandatory withdrawals by the age of 70½.
Anyone with earned income may contribute to a traditional IRA, but these IRAs are only tax-deductible for eligible contributors. Those not covered by a retirement plan at work may deduct their entire contribution. For 2019, a single person with a modified adjusted gross income of up to $64,000 may deduct his full IRA contribution even if he is covered by a retirement plan at work and may make a partial deduction if modified adjusted gross income does not exceed $74,000. For married couples filing jointly, the full deduction limit is a modified adjusted gross income of up to $103,000, with partial deductions permitted up to $123,000.
Limits for Roth IRAs
Contribution limits for Roth IRAs are the same as for traditional IRAs, but the similarities end there. Unlike traditional IRAs, Roth IRAs are not tax-deductible. Because they are funded with post-tax dollars, account owners do not have to pay taxes on withdrawals if they are over age 59½, and withdrawals are not mandatory.
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