403b – over age 70 and still employed – can EE withdraw?
Client is over age 70 1/2 and remains employed at the employer (public school district) through which 403b accounts were funded. I understand that A) this employee may continue to make ongoing salary reduction contributions to the 403b, and B) that RMD’s are not required at this time while employment continues (but may be required upon attainment of age 75).
But here is the question – the client wants to take in-service distributions. I’m concerned that this is not permisable even though the client is well over age 59 1/2 due to the ongoing employment with the funding employer. The age 59 1/2 triggering (so I’ve been told) is not sufficient in and of itself to allow permisable distributions. So the question is this – is it permitted for an employee to take IN-SERVICE distributions from 403b? Also, if the answer is no – where can I find this in an IRS document or PLR?
(assume no pre-1987 contributions – and also that the employee has been making salary reduction contributions continuing into the current year)
Thank you.
Permalink Submitted by Alan Spross on Wed, 2012-09-05 01:27
See attached:
http://www.mhco.com/Library/Articles/2008/ADB_InService_042508.html
Plans may restrict distributions while in service. About the only restriction the IRS has is that elective deferrals are not distributable until 59.5, but it’s a plan option whether to offer distributions at that age or not. Since there are no 5% owners in a 403b, there are not even any RMD requirements while participant is still working.
Permalink Submitted by Neal Solomon on Wed, 2012-09-05 02:42
Alan:
Thanks. But this does not speak to 403b and I can’t sight it as a governmental authoritative reference on the subject. 403b is a unique animal. In fact the type of plan I’m describing is NOT an ERISA plan. I recall that there was a special set of rules published specifically addressing 403b and individuals remaining in-service beyond age 70. It may have been a private letter ruling. Since these plans are used in education and religious institutions many teachers, professors, and clergy elect to continue working beyond age 70. I’ve understood this to mean that they get to avoid RMD’s at 70 1/2, may continue contributing – but also are prevented from distributing or rolling into IRA – until seperation from service. That’s what I’m looking to confirm or deny.
Permalink Submitted by Alan Spross on Wed, 2012-09-05 04:16
The challenge is getting clarity that plans that have the option to offer broadened in service contributions must do so. The “new” 403b Regs, provide some guidance starting on p 21 here what plans can and cannot do, but these Regs are still not clear with respect to the difference between what then CAN allow and what they choose not to allow.
http://www.irs.gov/pub/irs-tege/td9340.pdf#page=21
In any specific situation it is best to request a copy of the SPD or plan document if the administrators seem confused on the options.