Publication 571 - Tax-Sheltered Annuity Plans (403(B) Plans) For Employees Of Public Schools And Certain Tax-Exempt Organizations Page 24

Minimum Required

dial account not later than 60 days after

you receive the cash distribution.

Distributions

•

12.

Assign all future distribution rights to the

You must receive all, or at least a certain mini-

new contract or account for investment in

mum, of your interest accruing after 1986 in the

that contract or account if you received an

403(b) plan by April 1 of the calendar year fol-

amount that is less than what you are enti-

lowing the later of the calendar year in which you

tled to because of state restrictions.

Distributions

become age 70

or the calendar year in which

•

Reinvest in an annuity contract or account

you retire.

subject to the same or stricter distribution

and Rollovers

Check with your employer, plan administra-

restrictions as the original contract.

tor, or provider to find out whether this rule also

applies to pre-1987 accruals. If not, a minimum

In addition to the preceding requirements, you

amount of these accruals must begin to be dis-

must provide the new insurer with a written

Important Changes for

tributed by the later of the end of the calendar

statement containing all of the following informa-

year in which you reach age 75 or April 1 of the

tion:

2002

calendar year following retirement, whichever is

•

The gross amount of cash distributed

later. For each year thereafter, the minimum

under the old contract.

distribution must be made by the last day of the

Exception to rollover rules. Effective for dis-

year. If you do not receive the required minimum

•

The amount of cash reinvested in the new

tributions after 2001, the IRS may waive the

distribution, you are subject to a nondeductible

contract.

60-day rollover period if the failure to waive such

50% excise tax on the difference between the

•

requirement would be against equity or good

Your investment in the old contract on the

required minimum distribution and the amount

conscience, including cases of casualty, disas-

date you receive your first cash distribu-

actually distributed.

tion.

ter, or other events beyond the reasonable con-

For more information on minimum distribu-

trol of the individual.

tion requirements and the additional tax that

Also, you must attach the following items to

applies if too little is distributed each year, see

Direct trustee-to-trustee transfers. If you

your timely filed income tax return in the year

Publication 575.

make a direct trustee-to-trustee transfer after

you receive the first distribution of cash.

2001 from your governmental 403(b) account to

No Special 10-Year Tax

1) A copy of the statement you gave the new

a defined benefit governmental plan, it may not

Option

insurer.

be included in your gross income.

2) A statement that includes:

A distribution from a 403(b) plan does not qualify

Rollover options Effective for distributions af-

as a lump-sum distribution. This means you can-

a) The words ELECTION UNDER REV.

ter 2001, you can roll over, tax free, money and

not use the special 10-year tax option to calcu-

PROC. 92-44,

other property that would otherwise be taxable

late the taxable portion of a 403(b) distribution.

from an eligible retirement plan to a 403(b) plan.

b) The name of the company that issued

For more information, see Publication 575.

the new contract, and

Additionally, you can roll over, tax free,

c) The new policy number.

money and other property that would otherwise

Transfer of Interest in

be taxable from a 403(b) plan to an eligible

Direct trustee-to-trustee transfer. If you

retirement plan.

403(b) Contract

make a direct trustee-to-trustee transfer after

December 31, 2001, from your governmental

Rollovers by the surviving spouse. If you

403(b) account to a defined benefit governmen-

are the surviving spouse of a 403(b) plan partici-

If you transfer all or part of your interest from a

tal plan, it may not be includible in gross income.

pant, you can roll over distributions made after

403(b) account to another 403(b) account, the

The transfer amount is not includible in gross

2001 from your spouse’s 403(b) plan to an eligi-

transfer is tax free. However, this treatment ap-

income if it is made to:

plies only if the transferred interest is subject to

ble retirement plan.

•

the same or stricter distribution restrictions. This

Purchase permissive service credits, or

rule applies regardless of whether you are a

•

Repay contributions and earnings that

current employee, a former employee, or a ben-

were previously refunded under a forfei-

eficiary of a former employee.

Distributions

ture of service credit under the plan, or

Transfers that do not satisfy this rule are plan

under another plan maintained by a state

distributions and are generally taxable as ordi-

Generally, a distribution cannot be made from a

or local government employer within the

nary income.

403(b) account until the employee:

same state.

•

Tax-free transfers for certain cash distribu-

Reaches age 59

Permissive service credit. Permissive ser-

tions. A tax-free transfer may also apply to a

•

vice credit means credit for a period of service

Has a severance from employment,

cash distribution of your 403(b) account from an

recognized by your defined benefit governmen-

•

insurance company that is subject to a rehabili-

Dies,

tal plan, only if you voluntarily contribute to your

tation, conservatorship, insolvency, or similar

•

403(b) plan an amount that does not exceed the

Becomes disabled, or

state proceeding. To receive tax-free treatment,

amount necessary to fund the benefit attributa-

•

you must do all of the following.

In the case of salary reduction contribu-

ble to the period of service and that is in addition

•

tions, encounters financial hardship.

to the regular employee contribution, if any,

Reinvest the cash in an annuity contract or

under the plan.

account issued by another insurance com-

In most cases, the payments you receive or that

pany.

are made available to you under your 403(b)

•

account are taxable in full as ordinary income. In

Withdraw all the cash to which you are

entitled in full settlement of your contract

Tax-Free Rollovers

general, the same tax rules apply to distributions

rights or the maximum permitted by the

from 403(b) plans that apply to distributions from

state.

other retirement plans. These rules are ex-

You can generally roll over tax free all or any

•

plained in Publication 575. Publication 575 also

Reinvest the cash distribution into another

part of a distribution from a 403(b) plan to a

discusses the additional tax on early distribu-

annuity contract or account issued by an-

traditional IRA or an eligible retirement plan. The

tions from retirement plans.

other insurance company or single custo-

most you can roll over is the amount that, except

Page 24

Chapter 12 Distributions and RolloversRolloversDistributions:

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