Maximum Deferrals to Both a 403(b) and 457(b) Plan

“We are a public university that offers a 403(b) and 457(b) plan to our employees. What is the maximum amount of deferrals that an employee can make to both plans?”

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

It is quite a bit of money, with the ultimate answer being dependent on what catch-up contributions your plans offer and an employee’s eligibility for those provisions. All employees eligible to make elective deferrals to both plans will generally be able to, at a minimum, make a $19,500 deferral to the 403(b) plan and a $19,500 deferral to the 457(b) plan in 2021, for a total of $39,000 (Note: If an employee received EMPLOYER contributions to the 457(b) plan, the $19,500 limit for that plan would be reduced by those contributions), provided that the employee has at least $39,000 in compensation to defer. If an employee is age 50 or older by the end of 2021, and your plans permit the use of the age-50 catch-up election in both plans, that dollar limit would increase to $52,000 ($19,500 + $6,500 catch-up to each plan; since your plan is a governmental plan, the age-50 catch-up is permitted in your 457(b) plan).

There are some more obscure elections which a small number of employees may use to further increase their contribution limits, provided your plan offers them. The first is the 457(b) three-year catch-up election; if you offer the election and your employee qualifies, that would increase the maximum dollar deferral limit in your 457(b) plan to $39,000, making it possible for an employee to defer a total of $65,000 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).

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 $68,000 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 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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