Can 403(b) Plans Accept Rollovers From ESOPs?

Q: Our 403(b) plan allows rollovers into the plan from other qualified retirement plans or IRAs. A new employee asked whether funds from an Employee Stock Ownership Plan maintained by a prior employer can be rolled over into our plan. Is such a rollover permitted?

Kimberly Boberg, Kelly Geloneck, Emily Gerard and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

A: Assuming the employee is eligible to receive a rollover distribution from the ESOP, generally yes. Because an ESOP is a qualified retirement plan, a distribution from such plan that is an eligible rollover distribution may generally be rolled over to a 403(b) plan, provided the 403(b) plan permits such rollovers under its terms.

However, distributions from an ESOP that include employer securities may have tax consequences that differ from those of a typical cash rollover. The employee may wish to consult a tax adviser before proceeding with the rollover.

NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice.

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