It’s no exaggeration to say that 403(b) and 457(b) contributions were a huge part of my journey to financial independence. These tax-advantaged accounts are investment multipliers! So, every year I look forward to the announcement of contribution limits for the following year.
Adjusting my contributions to meet the new max (when possible) is also the first step I took in my financial plan each new year. So I’m making sure I get this out now!
For 2022, the IRS increased max contribution limits to $20,500 after they held steady last year steady for 2021. Health savings account limits also increased slightly to $3650 per person or $7300 jointly. Both traditional and ROTH limits held steady.
Table of contents
2022 Employee Contribution Limits for 403(b) and 457(b)
| 2022 | Change | (old) 2021 | |
|---|---|---|---|
| 403(b) | $20,500 | +1000 | $19,500 |
| 457(b) | $20,500 | +1000 | $19,500 |
| 50+ Catch-Up | $6500 | No Change | $6500 |
| HSA | $3650 | +50 | $3600 |
Why 2022 Contribution Limits Matter
These are potentially great tax-advantaged investing options! The fact that some educators have access to all of these is an amazing advantage.
Combined with IRA contributions (The IRA limit remained at $6000 but income levels were changed), an educator could potentially put more than $50,000 into tax-advantaged investment options in a single year!
Total Tax-Advantaged Options for Educators
| Investing Option | Amount |
| 403(b) | $19,500 |
| 457(b) | $20,500 |
| HSA | $3650 |
| IRA | $6000 |
| TOTAL: | $50,650 |
For those over 50, the catch-up allows you to contribute an additional $6500 for both 403(b) and 457(b) and an additional $1000 to IRA meaning you could contribute a total of $64,650!
Don’t forget that these limits are per person – a married couple can contribute twice these amounts in most cases.
That’s an amazing amount of investing benefit for anyone who can hit the limits on one, or all, of the options.
Max 403b Contribution for 2022
While most just focus on the total contribution limits for individual employees, an employer can also contribute more to a 403b! (The 457b limit includes both employee and employer contributions.)
Should you be lucky enough to have an employer who also contributes, the total contribution limit is $61,000. This is a big increase in 2022!
This is a very rare circumstance for educators. Yet, there are a lucky few who can make this max contribution to their 403b.
Why Do The Contribution Limits Change?
Each year the Treasury Department reviews the limits and considers adjustments based on inflation (an increase in the cost of living.) If costs are going up, they may raise the contribution limits.
This year, in response to the inflation we’ve all heard about, the IRS adjusted contribution limits. You can read the announcement here.
As you’ll see below, the limits adjust from time to time, but not yearly. So, you can’t easily project limits going forward. This is why I review and adjust this post every year.
How Often Do Contribution Limits Change?
Here’s the trend for the last decade:
| 403(b) | 457(b) | Catch-Up | HSA | |
|---|---|---|---|---|
| 2011 | $16,500 | $16,500 | $5,500 | $3,050 |
| 2012 | $17,000 | $17,000 | $5,500 | $3,100 |
| 2013 | $17,500 | $17,500 | $5,500 | $3,250 |
| 2014 | $17,500 | $17,500 | $5,500 | $3,300 |
| 2015 | $18,000 | $18,000 | $6,000 | $3,350 |
| 2016 | $18,000 | $18,000 | $6,000 | $3,350 |
| 2017 | $18,000 | $18,000 | $6,000 | $3,400 |
| 2018 | $18,500 | $18,500 | $6,000 | $3,450 |
| 2019 | $19,000 | $19,000 | $6,000 | $3,500 |
| 2020 | $19,500 | $19,500 | $6,500 | $3,550 |
| 2021 | $19,500 | $19,500 | $6,500 | $3,600 |
| 2022 | $20,500 | $20,500 | $6,500 | $3650 |
Here is what that looks like graphed over time:
403b, 457b, (and 401k) base limits are identical, so the two lines are the same. They have different catch-up provisions that are not graphed here.
As you can see, the limits are on a clear upward trend. This makes sense as prices, and therefore the cost-of-living, typically rise. The reason the limits rise is that ultimately it will be more expensive to retire.
You’ll note that the trend is not smooth or predictable. It is not uncommon for limits to remain the same for a year (or more) after an increase.
Limits increased every year from 2011-2013 but stayed flat from 2015-2017 (and in the years just prior to 2011 too.) HSA limits increased 3x the $50 increment in a single year (2013) but not at all in 2016.
What Should I Do With This Information?
It’s important to pay attention to the limits so you know all your tax-advantaged options. It is especially helpful to have this information now as you build your financial plan for the coming year.
Start Your Contributions Now
403b and 457b contributions must be made through your employer.
If you haven’t already started contributing to these retirement accounts, visit your HR site and set-up contributions now. Even just a small amount each month will make a big difference over time!
If you aren’t sure which option to choose, check out 403b vs 457 for a strategy and flowchart on which to choose.
Note: Don’t Forget About Fees
I hate that I have to do this anytime I’m talking about using educator investing options – but make sure you check the fees. Many 403(b) options are in fee-loaded annuities products that don’t make sense for many people. Hopefully that changes soon, but for now, make sure you check to see if the investment options make sense for you.
Hopefully, the powers-that-be fix this soon and educators ALL have consistently good 403(b) options.
Increase Your Contributions
If you are already contributing, take this opportunity to increase your contributions. Some high earners max out their contributions early each year with large contributions in the early months and then no contributions later.
I prefer to have even amounts withdrawn for each of 12 months. In 2021, that will be $1708.33 a month each for 403b and 457b. (The one advantage of last year’s lower limit is it divided to a clearn $1625.)
Remember to do this for both the 403b and 457b.
Your HSA and IRA contributions can be done anytime during the tax year, and do not have to be done through payroll deductions. Contribute to these when it works best for you.
Summary
Employee contribution limits have increased for 403(b), 457(b), and the HSA. Age 50 catch-up provisions for the 403(b) and contribution limits for IRAs have remained the same for 2022.
These options provide educators (and employees of other public or non-profit groups) an incredible amount of tax savings.
Review your products to see if they work for your investing strategy and have reasonable fees. Then, increase your contributions through your payroll department.
Enjoy the tax-advantaged investing! Over time, you will reach financial independence.
I teach at a community college and it is not unreasonable to double my salary through summer school, extra classes, and side gigs. These extras could stop at any time though. I’ve been frontloading cash for my yearly expenses at the beginning of the year and then contributing my full paycheck at the end of the year. This year I will have maxed out my Roth IRA, 403(b), and gotten about $11,000 in my 457.
My only planned adjustment next year is to max the 457 first so I can access that money in the event of a job loss/change. My expenses are decreasing this year so I should be able to max everything out.
With this plan I think that I am minimizing my overall tax burden while preserving cash should the extra work dry up. I know I am giving up a bit of compounding time and losing a bit of dollar-cost averaging, but it seems like a good trade-off given the potential for income variability. Am I missing anything?
Wow, you are crushing it! That’s basically what we have done the past few years – built up until we’re maxing all three. I too prefer the 457 because of the flexibility with the job change. I do average mine in over the whole year, but everyone should choose what works best for their comfort and cash flow. It seems like you’ve got a good grip on the tradeoffs and made your choices accordingly. Good luck on maxing in the coming year – it’s a great feeling.