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403(b) Plans and Facts
03(b) Plans – Facts on Investments, Loans and Distributions
- How are 403(b) plan assets invested?
Assets in a 403(b) plan can be placed in any of the following investment types:
- An annuity contract provided through an insurance company;
- A custodial account invested in mutual funds; or
- A retirement income account set up for church employees.Contract exchanges with a non-payroll slot vendor are permitted if:
- Q. What are the rules on in-service transfers or exchanges?
- The plan permits the exchange;
- The accumulated benefit after the exchange is at least the same as before the exchange;
- The employer and the non-payroll slot vendor agree to share information regarding employment and the plan’s terms;
- Any pre-exchange benefit restrictions are maintained after the exchange; and
- The vendor complies with the plan’s terms.
- Plan-to-plan transfers between 403(b) plans are permitted if:
- The terms of the transferring and receiving plans allow these transfers;
- The transferred assets belong to a current or former employee of the receiving plan’s sponsor;
- The accumulated benefit after the exchange is at least the same as before the exchange; and
- Any benefit restrictions of the transferring plan are maintained by the receiving plan.Only eligible rollover distributions can be transferred between a 403(b) plan and a qualified plan (for example, a 401(k) plan) or a 457 plan).
- 403(b) plans subject to the Employer Retirement Income Security Act of 1974 (ERISA) should also consult the Department of Labor’s rules for additional conditions on in-service transfers.
- IRS Revenue Procedure 2007-71 contains additional details on contract exchange and transfer rules.
- Do the in-service transfer rules also apply to custodial accounts and church retirement income accounts?
Loans and Distributions
- Can employees take loans from their 403(b) account?
Yes, a 403(b) plan may, but is not required to, allow loans. If permitted by the plan, employees may obtain a loan to the extent and in the manner allowed by the plan.
- Can employees get a hardship distribution from their 403(b) account?
A 403(b) plan may, but is not required to, allow hardship distributions. If permitted by the plan, participants may obtain a hardship distribution to the extent and in the manner allowed by the plan.
- When can employees take money out of a 403(b) plan?
In addition to loans and hardship distributions, a 403(b) plan may allow employees to take money out of the plan when they:
- Reach age 59½;
- Have a severance from employment;
- Become disabled;
- Die; or
- Encounter a financial hardship.Eligible distributions may be rolled over to another plan or an IRA.Q. How are benefits paid to an employee from a 403(b) plan?Certain distributions may be eligible for rollover to another plan or an IRA.Source: U.S. Internal Revenue Service
- 403(b) plans may provide employees with a choice on how benefits will be paid. For example, an employee can choose to have benefits paid in a lump sum.
- The employee will have to pay taxes on any amount of the distribution that was not from designated Roth or after-tax contributions and may have to pay an additional 10% early distribution tax unless an exception to this tax applies.
- Employees may also receive a qualified reservist distribution.
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