“I heard that the new SECURE Act retirement plan legislation may have made it easier to terminate a 403(b) plan. If this is the case, can the Experts clarify?”
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:
Absolutely! Your sources are accurate that the Setting Every Community Up for Retirement Enhancement (SECURE) Act provides for increased flexibility for plan providers in connection with 403(b) plan terminations.
Specifically, the legislation directs the IRS to issue guidance by June 20, effective retroactively for tax years beginning on and after December 31, 2008, providing that individual custodial accounts may be distributed to participants in-kind on plan termination, eliminating the requirement of a cash distribution. This change will allow for distributions of custodial accounts under rules similar to the rules that have been available for annuity contracts under a 403(b) plan.
Further, so long as the custodial account remains compliant with applicable 403(b) rules through the date it is actually paid out, it will maintain its tax-deferred basis until payment to the participant (even after the employer terminates the plan).
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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