How the 403b 15-Year Catch-Up Contribution Works
Long-service employees at certain organizations may use a special 403(b) rule to increase retirement contributions, helping to offset past low savings.
A 403(b) plan is a retirement savings vehicle for employees of certain public schools and tax-exempt organizations, functioning similarly to 401(k)s. A feature of these plans is the 15-year catch-up contribution, a provision designed to help long-tenured employees who contributed little in their early years of service accelerate their retirement savings beyond standard annual limits.
Eligibility Requirements for the 15-Year Rule
To use the 15-year catch-up, an employee must have completed at least 15 years of service with their current employer. Service with a previous employer, even if it was also a qualifying organization, does not count toward this requirement. A year of service is based on the employee’s actual work period, which for some, like teachers, may be an academic year.
The provision is only available to employees of specific “qualified organizations.” These include:
- Public school systems
- Hospitals
- Home health service agencies
- Health and welfare service agencies
- Church-related organizations
Employees of other types of non-profits or government entities that offer 403(b) plans may not be eligible for this rule.
A final requirement involves a look-back at the employee’s past contribution history. The employee’s average annual contributions to their 403(b) plan must not have exceeded $5,000 per year of service. If an employee has consistently contributed more than this average, they will not be eligible.
Calculating Your Available Catch-Up Amount
The 15-year catch-up contribution has financial limits, with an annual maximum of $3,000 and a lifetime maximum of $15,000. Not all employers that offer 403(b) plans permit this type of contribution, so employees must first confirm its availability within their specific plan.
The IRS provides a formula to determine an employee’s available lifetime catch-up amount. The calculation begins by multiplying $5,000 by the employee’s total years of service with their current employer. From this product, subtract the total amount of all prior elective deferrals made to that employer’s 403(b) plan. The result is the total lifetime 15-year catch-up amount available.
To illustrate, an employee with 20 years of service at a hospital has contributed a total of $85,000 to their 403(b) plan. First, their service years (20) are multiplied by $5,000, resulting in $100,000. Next, their total prior contributions ($85,000) are subtracted from this amount, leaving $15,000. This is their total available lifetime catch-up room.
This calculated lifetime amount is subject to the annual restriction. The employee in the example has $15,000 available and can contribute an additional $3,000 per year for five years. Once the $15,000 lifetime maximum is reached, they can no longer make 15-year catch-up contributions, even if they still meet the eligibility criteria.
Interaction with the Age 50 Catch-Up Contribution
Many employees who qualify for the 15-year rule are also over age 50, making them eligible for age-based catch-up contributions. The IRS has established an ordering rule when an employee is eligible for both. Contributions made above the regular annual deferral limit are applied in a specific sequence.
According to IRS regulations, excess contributions are first applied toward the 15-year catch-up limit. Only after the 15-year catch-up space for the year has been fully utilized are any further contributions applied toward the age-based catch-up limit. This ordering is mandatory and not at the discretion of the employee or employer.
For example, a 55-year-old teacher is eligible for a $3,000 contribution under the 15-year rule and the $7,500 age 50+ catch-up contribution. If this teacher contributes an extra $10,500 beyond the regular annual limit, the first $3,000 is designated as a 15-year catch-up contribution. The remaining $7,500 is then applied as an age 50+ catch-up.
The SECURE 2.0 Act created a greater savings opportunity for older participants. Beginning in 2025, employees who are ages 60, 61, 62, and 63 are eligible for a higher catch-up contribution of $11,250. For instance, if a 61-year-old principal is eligible for a $3,000 15-year catch-up, the first $3,000 of their extra contributions would satisfy that limit. They could then contribute an additional $11,250 using the higher age-based catch-up.
How to Make the Contribution
Making a 15-year catch-up contribution is not an automatic process and requires proactive steps from the employee. An individual cannot simply increase their payroll deferral and assume the plan will correctly categorize the funds. The employee must formally notify their employer’s human resources or payroll department of their intention to use this provision.
The employer holds the responsibility for verifying the employee’s eligibility and the accuracy of their catch-up calculation. The employee should be prepared to provide documentation of their service dates and a history of their prior contributions. Many plan administrators have a specific form or an established procedure for this election. Once the employer confirms eligibility and the available amount, they will adjust the payroll deductions accordingly.