Adding it up: An IRS reminder about 403(b) contribution limits

Written by Linda Segal Blinn

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The Internal Revenue Service (IRS) is reminding employers that the annual contribution limit for their 403(b) plans may require information from employees who participate in a qualified 401 plan of another employer.  

The Internal Revenue Code (“Code”) caps the total of employee contributions (other than the age 50+ catch-up), employer contributions, and forfeitures that can be allocated to a 403(b) participant’s account each year.  In 2023, that limit is 100% of the participant’s compensation up to $66,000 (and subject to annual IRS cost of living adjustments).  

In January 2023, the IRS updated its Issue Snapshot (“Application of IRC Section 415(c) when a 403(b) plan is aggregated with a Section 401(a) defined contribution plan”).  The IRS recapped the special annual contribution rules requiring the aggregation of a participant’s 403(b) account with that individual’s account under an outside employer’s plan if:

  • the individual has more than a 50% ownership interest in the outside employer sponsoring the defined contribution plan;
  • the outside employer sponsors a defined contribution qualified 401 plan or simplified employee pension (SEP); and
  • the individual participates in that plan of the outside employer.

The IRS stresses the importance of an employer soliciting information regarding employees with outside employment, noting: “This issue is frequently found during examinations of 403(b) plans maintained by governmental and tax-exempt healthcare entities and colleges/universities. This is because many of the healthcare doctors and the university professors maintain a practice outside of the entity that is the general 403(b) plan sponsor.”

Best practices for 403(b) plan sponsors

In the event of an audit of the 403(b) plan, the IRS would be assessing the sufficiency of the employer’s internal controls, including:

  • Protocols regarding outside employment. If an employer permits its employees to be employed by another unrelated entity, the employer’s procedures should include informing employees about the need for those employees to provide outside plan data to comply with the IRS annual contribution limit rules.
  • Annual solicitation of information from employees regarding ownership interest in any outside employer. An employer should notify employees at least annually that they may need to provide contribution information if they participate in another employer’s plan during the year to enable the 403(b) sponsor to monitor the IRS annual contributions limit. The employer should also have protocols to solicit any ownership interest of such individuals in an unrelated employer. 
  • Review of contribution information from outside plans. If the employee does meet the IRS criteria for aggregating the 403(b) account with an outside employer’s defined contribution plan, annual contributions made on behalf of the individual under that defined contribution plan must be combined with the contributions allocated to the participant’s 403(b) account to determine whether the IRS annual contribution limit has been exceeded.   
  • Make any necessary corrective distributions timely. If there is an excess, the IRS requires that a corrective distribution of that excess (and attributable earnings) be made first from the 403(b) plan. A corrective distribution of the excess over that year’s IRS annual contribution limit must be made from the 403(b) plan by the end of the year in which the excess occurred.  

Helpful resources:

The IRS Issue Snapshot can be found at  



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