It's always a good idea to keep an eye on how your retirement savings plans are evolving, especially if you're an employee of a public school or a certain tax-exempt organization. The world of 403(b) plans, often called tax-sheltered annuities, sees regular updates, and the IRS publication 571 is our go-to guide for what's new. Let's break down some of the key changes coming our way for 2025 and 2026.
Catch-Up Contributions Get a Boost
One of the most exciting developments for 2025 is the enhancement of catch-up contributions for those nearing retirement. If you've reached ages 60, 61, 62, or 63 before the end of the tax year, you'll be able to contribute more. The new limit will be the greater of $10,000 or 150% of the previous catch-up limit, which was $7,500. This means a significant opportunity to supercharge your savings in those crucial years leading up to retirement.
Retirement Savings Contributions Credit Adjustments
For 2026, there are some shifts in the income limitations for the Retirement Savings Contributions Credit, also known as the Saver's Credit. This credit can be a real boon for lower-to-moderate income taxpayers saving for retirement. The adjusted gross income (AGI) thresholds are increasing: married couples filing jointly will see their limit rise from $79,000 to $80,500; heads of household from $59,250 to $60,375; and single filers, those married filing separately, or qualifying surviving spouses with a dependent child will see their limit go from $39,500 to $40,250.
Higher Limits for Elective Deferrals and Annual Additions
Good news for those consistently contributing to their 403(b) plans: the limits are going up. For 2026, the maximum amount you can defer from your salary (elective deferrals) increases from $23,500 to $24,500. On the other side of the coin, the limit on total annual additions to your account also sees an increase, moving from $70,000 to $72,000 for 2026.
New Features and Flexibilities from SECURE 2.0 Act
The SECURE 2.0 Act of 2022 continues to bring about significant changes, many of which are already in effect or becoming available. These include:
- Pension-Linked Emergency Savings Accounts (PLEAS): Starting for plan years after December 31, 2023, employers can offer these optional short-term savings accounts linked to retirement plans. They're treated like designated Roth accounts and can help cover unexpected expenses.
- Safe Harbor Deferral-Only 403(b) Plans: For plan years beginning after December 31, 2023, certain eligible employers can establish these plans, offering a simpler structure.
- Military Spouse Retirement Plan Eligibility Credit: A business credit is available for employers who offer participation and benefits to military spouses within two months of hiring.
- Matching Contributions for Student Loan Payments: Employers can now optionally match employee contributions when employees make qualified student loan payments, applicable for plan years beginning after December 31, 2023.
- Credit for Employer Contributions: Small employers (50 employees or fewer) can get an increased startup cost credit, and there's a new credit for employers (100 employees or fewer) based on matching and nonelective contributions.
- Qualified Disaster Recovery Distributions: These distributions, made to individuals whose homes were in a qualified disaster area and who suffered economic loss, have specific criteria. More details can be found in Pub. 575.
- De Minimis Financial Incentives: For plan years after December 29, 2022, employers can offer small incentives to employees who make elective deferrals.
- Emergency Personal Expense Distributions: Beginning with distributions after December 31, 2023, these are exempt from the 10% early withdrawal penalty.
- Distributions to Domestic Abuse Victims: Similar to emergency expenses, distributions made after December 31, 2023, to domestic abuse victims are also exempt from the 10% early withdrawal penalty.
- Terminally Ill Individuals: Distributions made to terminally ill individuals are not subject to the 10% additional tax on early distributions.
- Designated Roth Nonelective Contributions: Since December 29, 2022, certain nonelective contributions can be designated as Roth contributions.
It's a lot to take in, but these changes are designed to offer more flexibility and support for your retirement savings journey. Staying informed is key, and keeping an eye on IRS publications like 571 is a smart move for anyone with a 403(b) plan.
