What Are The Maximum Deferral Limits When Both A 403(b) and 457(b) Plan Are In Place?

I recently read your 2021 Ask the Experts column on the maximum deferral limit when both a 403(b) and 457(b) plan are in place. Is it possible that the Experts can update that column with the 2023 figures? Thanks!

Kimberly Boberg, Taylor Costanzo, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

Absolutely, and it is quite appropriate to do so given the significant increase in the dollar limits due to inflation.

The 2023 limit is quite a bit of money, with the ultimate answer dependent on which catch-up contributions a plan sponsor offers and an employee’s eligibility for those provisions. Eligible employees who elect to make deferrals to both plans will generally be able to make up to $22,500 in deferrals to the 403(b) plan and another $22,500 in deferrals to the 457(b) plan in 2023, for a total of $45,000, provided that the employee has at least $45,000 in compensation to defer. (Note: If an employee received EMPLOYER contributions to the 457(b) plan, the $22,500 limit for that plan would be reduced by those contributions.)

If an employee is age 50 or older by the end of 2023, and both the 403(b) and 457(b) plans permit the use of the age-50 catch-up election (only permitted under the 457(b) plan if it is a governmental plan), that total deferral limit would increase to $60,000 ($22,500 + $7,500 catch-up to each plan for 2023). If the 457(b) plan is a private tax-exempt plan, there is no age-50 catchup, and the combined limit is $52,500 ($22,500 + $7,500 catch-up to 403(b), plus $22,500 to 457(b)).

There are some more obscure elections which a small number of employees may use to further increase their contribution limits, provided the plan offers them. The first is the 457(b) three-year catch-up election, which allows the employee to contribute the lesser of twice the 457(b) limit or the 457(b) limit plus any unused limitations in prior years. If the plan offers the election and the employee qualifies, that could increase the maximum dollar deferral limit in the 457(b) plan to $45,000, making it possible for an employee to defer a total of $75,000 ($22,500 in deferrals + $7,500 in catch-up to the 403(b) plan and $22,500 in deferrals + $22,500 in three-year catch-up to the 457(b) plan) to both plans if he/she is older than 50 (note: the three-year catch-up and the age-50 catch up cannot be used in the same year in the 457(b) plan, or else this limit would be even higher in a governmental 457(b) plan).

The second election is the 403(b) plan 15-year catch-up election, which would allow for up to an additional $3,000 to be deferred to the 403(b) plan (for a total of $78,000 when added to the scenario described above), if the plan permits the election, and the employee qualified. However, this particular election is so difficult for plan sponsors to administer that many have opted not to offer it.

Keep in mind that as an employee’s deferrals increase, the section 415(c) limits may come into play, depending on the 403(b) plan’s level of employer contribution.

NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice. 

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