403(b) Retirement Plans

For many ministry workers, retirement plans come in the form of a 403(b). The 403(b) plan is commonly used by employees of public schools, churches and religious schools, and other tax-exempt organizations. These tax-sheltered plans allow employees to defer some of their salary into individual accounts. Employers can also contribute to employees’ accounts.

There are a variety of 403(b) plans, including tax-sheltered annuities (TSAs), custodial accounts, and retirement income accounts. Each plan has pros and cons, along with differing limits, filing requirements, and penalties.

Your organization will need to consider other issues, such as the tax implications of offering 403(b) retirement plans. It’s also important to note the possibility of a discrimination claim if you offer a retirement savings plans to one employee and not all of them.

Generally, your organization could benefit from seeking guidance from a local, licensed tax professional when establishing 403(b) plans. Here’s some additional information about plan eligibility and contribution limits.


Only certain organizations are eligible to maintain a 403(b) plan. Examples include, but are not limited to:

  • Public schools.
  • Tax-exempt organizations (such as churches or other religious organizations).
  • Non-tax-exempt organizations that employ a minister to perform ministerial services.

For example, a minister serving as a chaplain for a secular business would be considered eligible for a 403(b) plan. Self-employed ministers also are eligible for a 403(b) plan because they are considered their own employer. Thus, they’re considered a tax-exempt organization by section 501(c)(3) of the tax code.


There are at least three ways to fund a 403(b) plan:

  1. Elective deferral. An employer is allowed to withhold money from an employee’s paycheck and place it directly in the employee’s 403(b) account. This is the most common method.
  2. Nonelective contribution. An employer contributes to the employee’s account using a matching, discretionary, or mandatory contribution. No salary reduction is made.
  3. After-tax contribution. Employees can invest part of their income in the retirement fund when they receive a salary payment from which income tax has been withheld. Note: After-tax contributions are not excluded from income and cannot be deducted on a tax return.

Employees can combine these three contribution methods in any way they choose.

Contribution Limits

There’s a limit on how much money can be contributed to a 403(b) plan in a calendar year, and the limit on total contributions can change each year. Generally, contributions are limited to the lesser of:

  • The limit on elective deferrals (one employee’s pre-tax contributions), or
  • The limit on annual additions (all employer & employee contributions to all 403(b) accounts).

Whether an employee must apply one or both of the limits depends on the type of contributions made to the employee’s 403(b) account during the year. Employees 50 or older may be allowed to make additional catch-up contributions. See IRS Publication 571 for details.

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