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The Internal Revenue Service issued new
regulations governing the 403(b) code on July 23, 2007. The regulations
were published in the Federal Register on July 26, 2007. These
regulations affect non-profit organizations and governmental entities,
like churches, schools and hospitals. The changes created by the new
regulations are far reaching.
The purpose of the new regulations
is to better provide the Internal Revenue Service a means of tracking
and enforcing the 403(b) code. The new regulations represent the first
major overhaul of the 403(b) code since, it was originally issued in
1965. The Internal Revenue Service proposed changes to the Code
more than two years ago. They have received comments from employers,
employees, practitioners and professional associations, like the
National Tax Sheltered Account Association, (NTSAA) and the National
Association of Insurance and Financial Advisors, (NAIFA).
The 130 page document spells out a
dramatic change of philosophy transferring more control from the
individual to the employer. The employer will now have more oversight
into its employees and former employees 403(b) plans than ever before.
Click here to view the final 403(b) regulations in adobe pdf.
The following questions and
answers are designed to provide a basic primer of how the new
regulations may effect both employer and the employee. This primer is
not to be construed as legal advise. It must be understood that there
are several elements of the new regulations that require clarification.
Updates will be posted to this site as they become available.
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The first set
of Questions and Answers are dedicated to the transfer and rollover
of funds. |
| Q. |
When do the
new 403(b) regulations take effect? |
| A. |
The general effective date is January
1, 2009, with some exceptions. |
| Q. |
What are the
exceptions? |
| A. |
Three major
exceptions apply. Fund transfers, collective bargaining units and
religious organizations.
For the purpose of this primer we will focus on fund transfers. Fund
transfers and rollovers are permitted under the old rules, (no
employer involvement) until September 24, 2007. |
| Q. |
What does this
mean? |
| A. |
If an
agreement has been entered into to transfer or roll funds from one
investment provider to another and both providers are in
receipt of the agreement the funds may be transferred or rolled
after September 24, 2007. |
| Q. |
What if an
agreement is entered into after September 24, 2007? |
| A. |
The transfer
may or may not be taxable. |
| Q. |
What does that
mean? |
| A. |
Generally
speaking employers must have a plan document effective by January 1,
2009. This plan document will define which features of the 403(b)
Code employees may utilize. For example if an employer does not
permit transfers and you previously entered an agreement to transfer
funds after September 24, 2007 the transferred funds maybe deemed
taxable. |
| Q. |
Can employers
limit where you may transfer your 403(b) accounts after September
24, 2007? |
| A. |
Yes. |
| Q. |
Can funds be
rolled into an Individual Retirement Account, (IRA)? |
| A. |
Yes. Funds may
be rolled into an IRA under certain conditions. |
| Q. |
What are the
conditions? |
| A. |
There must be
no outstanding TEFRA loans on the 403(b) amounts to be rolled. A
"distributable" or triggering event, like attainment of age 59.5 or
separation of service, must occur prior to the rollover. |
| Q. |
If funds are
rolled into an IRA does the employer or former employer have any
oversight of the account? |
| A. |
No. |
| Q. |
What are the
disadvantages of rolling 403(b) funds to an IRA? |
| A. |
IRA accounts
cannot accept TSA/403(b) contributions from an employer. IRA
accounts do not permit loans. IRA accounts do not permit withdrawals
prior to age 59.5 without a penalty, (under most conditions.) IRA
accounts do not permit special treatment of 12/31/86 account
balances for purposes of Required Minimum Distributions.
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| Q. |
If I wish to
transfer or roll funds under the old rules when is the latest I can
act? |
| A. |
It is
suggested that you initiate the written request by September 5,
2007. |
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Please e-mail your questions to
joe@retirementcouncil.com
or call (954) 340-1588. Due to the high volume of interest in this
matter we will respond to your questions as quickly as possible.
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