In-Service Distribution

Submitted by Jason Hochstadt on Wed, 2022-12-28 03:04

Hello,

A client of mine will be performing an in-service distribution from her 403b Plan (she is employed and over 59 1/2 years old) into a Rollover IRA given better investment options. This will be done on a trustee-to-trustee basis.

Her 403b provider requires a Direct Rollover Form be completed, which includes In-Service Distribution as an option.

1. How does this get classified on a 1099-R? Similarly to a direct rollover? Is it categorized as a normal distribution (Box 7) w/ a corresponding amount listed as having been rolled-over via an In-Service Distribution?

2. If for some reason the 403b Plan provider requires a check be mailed to the client, will it still qualify for In-Service Distribution status provided the check is made payable to the custodian FBO the client’s Rollover IRA?

3. Anything else we should be aware of regarding the above from a reporting/procedural perspective?

Thank you.

Jason



Submitted by Alan - IRA critic on Wed, 2022-12-28 03:45

  1. This is both a direct rollover and an in service distribution. The 1099R is coded G and reported on line 5 of Form 1040. 
  2. Yes. Most direct rollovers consist of a check mailed to participant with participant’s IRA and custodian as the payee. Participant forwards to the IRA custodian.
  3. Client should monitor their IRA for deposit of the direct rollover check. 

Submitted by Jason Hochstadt on Wed, 2022-12-28 13:44

Hi Alan – Thanks!Also, how will the new account be titled? Pretend it’s Jan Smith who has a 403b Plan and we are doing this in-service distribution.  Additionally, Jan already has a small Rollover IRA from a former employer.  So, does this new Account get called ‘Jan Smith Rollover IRA’ – even if it’s predominantly being funded via an In-Service Distribution?       Jason

Submitted by Alan - IRA critic on Wed, 2022-12-28 17:13

This direct rollover could have gone into the existing rollover IRA, or to a new rollover IRA. Most custodians will support including “rollover” in the IRA title, but whether they do or not does not affect whether it is actually a rollover IRA or not. Would suggest attempting to have it flagged as a rollover IRA, as that could provide better creditor protection in states that do not protect IRAs from creditors. It might also assist in rolling it back into a future employer plan if that is desired, since some plans only accept IRA rollovers from “rollover IRAs”. It does not matter whether the direct rollover is done after separation or in service.

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