Where to report 403b on taxes?

If you work for a tax-exempt organization such as a public school or hospital, your employer may offer a 403(b) plan. This retirement plan allows employees to save for retirement by making elective deferrals from their salary. 403(b) plans are regulated by the IRS, and they must conform to certain rules to maintain their tax-advantaged status.

When you contribute to a 403(b) plan, your employer reports these contributions on IRS Form W-2. Typically, you are not required to report 403(b) contributions on your tax return. Additionally, when you make withdrawals from a 403(b) plan, the plan administrator will send you Form 1099-R showing your overall withdrawals. You will be required to report these withdrawals on Form 1040.

403(b) Contribution limit

The IRS regulates the amount you can contribute to a 403(b) plan, and the contribution limits are reviewed annually. For 2022, a 403(b) plan participant can contribute up to 100% of their salary, or a maximum of $20,500, whichever is smaller. This is a $1,000 increase from 2021's contribution limit of $19,500. If you are above age 50, you can contribute an additional $6,500 catch-up contribution to your 403(b) plan, bringing the total annual contribution to $27,000.

If your employer offers matching contributions, the combined employee and employer contributions should not exceed $61,000 for workers under 50. If you are above 50, the combined contribution is $67,500. Typically, once you max out your 403(b) contributions, your employer can contribute an extra $40,500 annually, or $47,000 if you are above 50.

A unique feature of 403(b) plans is the 15-year service rule. This rule allows workers who have worked for 15 or more years with the same employer to contribute an extra $3,000 per year, with a $15,000 lifetime limit. For example, if you meet this rule, you can contribute $23,500 in 2022, or $30,000 if you are above 50.

Are 403(b) contributions reported on tax returns?

When contributing to a 403(b) plan, you can deduct the contributions directly from your paycheck or the employer may deduct the contributions automatically as elective deferrals. In a specific year, the amount that you can contribute to a 403(b) plan should not exceed the contribution limit.

Since 403(b) contributions are usually tax-deferred, the employer should deduct these contributions from the taxable income reported in Form W-2. The employer reports the pre-tax deferrals on an individual’s Form W-2 statement of wages. Any pre-tax deferrals are reported on box 12 of Form W-2 with code E. Therefore, if the W-2 information is recorded correctly in your individual tax return, you won't be required to take any other action.

The elective deferrals reported in Box 12 of Form W-2 may indicate the plan design i.e. whether the 403(b) plan allows catch-up contributions for those above age 50 and the 15-year service rule as well as employer contributions. The employer is required to ensure that elective deferrals do not exceed the annual IRS limit, including the catch-up contributions.

For example, if your annual income for the year was $100,000, and you contributed $20,500 to your 403(b), your employer will report $79,500 as taxable income in Box 12 of Form W-2. You won’t be required to report the contributions on your tax return.

Are Roth 403(b) contributions reported on the tax return?

If your employer offers a Roth 403(b) plan, you will be allowed to make non-deductible contributions to your retirement plan. Non-deductible contributions are also known as after-tax contributions, and the employer deducts these contributions automatically from your paycheck.

The employer reports the Roth 403(b) contributions in Box 12 of Form W-2 with code BB. You will also be required to include these contributions in your taxable income when filing taxes.

Where to report 403(b) distributions on taxes

Distributions from a pre-tax 403(b) plan are considered ordinary income and are subject to income taxes.

Once you take a distribution from a 403(b), the plan must send you and the IRS a Form 1099-R. This form shows the total withdrawals you made from the account and the amount withheld (if any) for taxes. Typically, your employer sends you this tax form when you withdraw at least $10 from your 403(b) account. The IRS uses Form 1099-R to determine your tax liability.

Once you receive Form 1099-R, you should confirm that the overall withdrawal amount is correct by comparing it with your withdrawal records. If the tax form is accurate, you should record the withdrawal amount on Form 1040. The 403(b) withdrawals should also be included in your taxable income for the tax year.

If you are not yet 59 ½ at the time of withdrawal, the distributions you take from your 403(b) account will be subject to a 10% early withdrawal penalty. In this case, you should use IRS Form 5329 to report the 10% penalty tax on early distribution. You must also enter this penalty on your Form 1040.

Where to report RMDs on taxes

Once you turn 72, you must start taking the required minimum distributions (RMDs) from your 403(b) plan. These distributions are treated as ordinary income for tax purposes, and you will receive IRS Form 1099-R. You will be required to report the RMDs on this tax form. You must also report the mandatory distributions on Form 1040.