How the SECURE Act Will Impact 403(b) Plans

The SECURE Act will specifically impact 403(b) plans in a few ways, says Angela Montez, senior vice president, general counsel and chief legal officer at ICMA-RC.

“It includes a provision that would facilitate employers terminating 403(b)(7) custodial accounts,” she says. “It directs the Treasury to create a rule to permit the distribution of assets in kind with an annuity. When the new 403(b) rules were finalized in 2008, they raised the question of whether you could terminate a 403(b) plan at all.”

A second provision says ministers and employees of a tax-exempt plan can participate in 403(b)(9) church plans, she adds.

However, while these two provisions apply solely to 403(b) plans, there are other provisions that apply across the board that might impact 403(b) investors as well, Montez says.

The first is the change in required minimum distributions moving from age 70-1/2 to age 72, she says. The second is the portability of lifetime income options, be it an annuity, collective investment trust or mutual fund, in the event that a plan terminates, she says. Investors can roll the money over to an individual retirement account or another plan to preserve the tax-qualified status, she says.

Finally, the SECURE Act includes a provision to allow each parent to withdraw up to $5,000 from their retirement plan without any tax or fine consequences in the event of a birth or the adoption of a child. It also permits the parent to pay back that money without any time constraints, she says.