“What is a retirement income account?”
Stacey Bradford, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:
A retirement income account described in Code section 403(b)(9) is generally a defined contribution program established or maintained by a church employer (including a church, convention or association of churches, or an organization described in Code section 414(e)(3)(A)), although church section 403(b) defined benefit plans that were in existence on August 12, 1982 are grandfathered. A retirement income account covers church employees and ministers, including certain ministers who do not work for a church but are eligible to contribute to a church retirement income account and deduct such contributions on their tax returns (subject to the annual IRS limits on contributions).
A retirement income account is treated as a section 403(b) annuity contract, and is subject to many of the same rules. However, there are some differences, including that a retirement income account may be exempt from nondiscrimination requirements and is not restricted in the kinds of investments it may hold. Importantly, the retirement income account must (1) have a written plan document, unlike section 403(b)(1) annuity contracts maintained by churches, (2) specifically designate the 403(b) plan as a section 403(b)(9) retirement income account, and (3) be held for the exclusive benefit of the employee and his or her beneficiaries. A church employer may also use a retirement income account in conjunction with annuity contracts and custodial accounts. In such case, the entire plan will be subject to the rules applicable to retirement income accounts.
The assets of a retirement income account may be commingled with other assets for investment purposes. Such assets may be commingled with “other church assets”, but must be separately accounted for and must continue to satisfy the exclusive benefit requirement. Other church assets include assets devoted entirely to church purposes and assets of other church retirement and employee benefit programs. Further, retirement income account assets may be commingled in a group trust with assets of other retirement plans, including section 401(a) qualified plans, individual retirement accounts, and section 403(b)(7) custodial accounts (subject to certain restrictions).
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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