4050 / Can participants in a tax sheltered annuity plan who are age 50 and over contribute a "catch-up" contribution each year?
The otherwise applicable dollar limit on elective deferrals under a Section 403(b) annuity can be increased for individuals who attain age 50 by the end of the taxable year.1 In 2026, the applicable dollar amount is projected to be $8,000. In 2023-2025, the applicable dollar amount is $7,500. In 2021 and 2022, the applicable dollar amount was $6,500.2 The limit is indexed for inflation in $500 increments.3
Catch-up contributions by participants age 50 or over made under the provisions of IRS Section 414(v) are not subject to the elective deferral limit.4 The elective deferral limit of $23,500 in 2025 and $24,500 in 2026 is increased by the special catch-up limit under IRC Section 402(g)(7) and by the catch-up limit under Treasury Regulation Section 1.414(v)-1(c)(2).5
According to final 403(b) regulations, any catch-up amount contributed by an employee who is eligible for both an age 50 catch-up and the special 403(b) catch-up for certain organizations is treated first as an amount contributed as a special 403(b) catch-up, to the extent that type of catch-up is permitted and second as an amount contributed as an age 50 catch-up to the extent the catch-up amount ( Q 3761) exceeds the maximum special 403(b) catch-up after taking into account IRC Sections 402(g) and 415(c), the special 403(b) catch-up, and any limits on the special 403(b) catch-up that are imposed by the terms of the plan.6
Starting in 2025, under the SECURE Act 2.0, a new enhanced catch-up contribution is permitted for taxpayers who are between ages 60 and 63. That contribution limit will be equal to the greater of (1) $10,000 or (2) 150 percent of the standard catch up contribution limit for the prior year. The $10,000 limit will also be indexed for inflation, the amount was $11,250 in 2025. This amount will remain at $11,250 in 2026.7
Starting in 2026, if the taxpayer has income of at least $145,000 for the year, the catch-up contribution must be treated as a Roth contribution. That means these funds are contributed with after-tax dollars, so they will not reduce current taxable income, but can be withdrawn tax-free in the future. The $145,000 amount will also be indexed for inflation in future years and is projected to be $150,000 in 2026.
1. IRC §§ 414(v)(1), 414(v)(5).
2. IRC § 414(v)(2)(B)(i); Notice 2020-79, Notice 2021-61, Notice 2022-55, Notice 2023-75, Notice 2024-80.
3. IRC § 414(v)(2)(B)(ii).
4. IRC § 414(v)(3)(A); Treas. Reg. § 1.414(v)-1(d).
5. Treas. Reg. § 1.402(g)-2(a).
6. Treas. Reg. § 1.403(b)-4(c)(3)(iv).
7. Notice 2024-80.
[1] Notice 2024-80.
[1] Notice 2024-80.