403b Pre 1987
Client age 82 has 500,000 in a 403b of which 100,000 is pre 1987 dollars. She has only taken out RMD meaning she has never been subject to the rule that says that any distributions in excess of rmd are deemed to have come from pre 1987 first. A few questions:
1) If the next rmd in 2010 is 30,000 for example how is that amount apportioned between pre 1987 and post 1986? If for example we assumed account did not grow a single penny how much would be in each bucket?
2) Does the above matter at all. IE when you are over age 75 is there any benefit at all to having pre 1987 dollars
3) is there any give up to rolling to a TIRA in terms of pre 1987 dollars or more generally any give up in rolling from 403b to IRA?
Permalink Submitted by Alan Spross on Fri, 2009-05-08 01:58
Chuck,
As you suspected, once client reaches 75, the different buckets are no longer material, and do not affect the RMD at all. There would also be no affect should a beneficiary inherit the account. Likewise, no reason not to do the IRA rollover either. 2009 would be a good year for the rollover, since a rollover would not trigger a plan holdback of the RMD at a time of the year where the client does not want the RMD distributed.
Permalink Submitted by charles lore on Sat, 2009-05-09 14:19
Allan thanks for the help. BTW I am looking for an IRS doc, publication, code, ruling or whatever, that says in somewhat simple terms that minimal distribution rules are applicable to IRA’s and retirement plans such as 403b’s. Ideally is there a doc you can point me to thats may say something like the following:
IRS Pub, code, XYZ
“The following minimum distribution rules pertain to all IRA’s, 401k’s , p/s plans , 403b lans etc….
The reason for this is that the client wants something of authority that in effect says that there is no give up of benefits as it pertains to these rules by going to an IRA. I know there s not but I’d like to show him without giving him many confusing publications. I know somewhere there has to be something that says both are treated the same and if anyone in my travels can put their finger on it I know you can Allan.
Thank you again,
Chuck
Permalink Submitted by Alan Spross on Sat, 2009-05-09 18:16
Chuck,
The IRS Regs are the best authority, and att’d is the basic Reg. If you want more detail, there is reference in this one to other Sections that drill down deeper:
http://www.taxalmanac.org/index.php/Treasury_Regulations%2C_Subchapter_A…
Permalink Submitted by charles lore on Wed, 2009-05-13 03:01
Alan thanks for the help. You led me on a path where I found this…
(e) Minimum required distributions for eligible plans–(1) In general. Under
section 403(b)(10), a section 403(b) contract must meet the minimum distribution
requirements of section 401(a)(9) (in both form and operation). See section 401(a)(9)
for these requirements.
(2) Treatment as IRAs. For purposes of applying the distribution rules of section
401(a)(9) to section 403(b) contracts, the minimum distribution rules applicable to
individual retirement annuities described in section 408(b) and individual retirement
accounts described in section 408(a) apply to section 403(b) contracts. Consequently,
except as otherwise provided in paragraphs (e)(3) through (e)(5) of this section, the
distribution rules in section 401(a)(9) are applied to section 403(b) contracts in
accordance with the provisions in §1.408-8 for purposes of determining req
This is from 403 b regs and is exactly what I was looking for. Interestingly in I found out that pre 1987 funds DO make a difference for someone over 71.
Here is how.. This client was born June 1927. The 403b provider , a state university told me that her rmd would be less in an IRA than the 403b. In the 403b for the pre 1987 money a factor of 16 is used as a divisor and for post 1986 funds 17.1 is used off the uniform table.The shorter assumed life expectancy factor for pre 1987 translates to about 1,000 more in rmd.. a selling point to roll to a TIRA. Maybe you know where the 16 factor comes from.. I dont .
Chuck
Permalink Submitted by Alan Spross on Wed, 2009-05-13 04:12
Chuck,
Thanks for jogging my memory on this. The 403b RMD Regs do indeed exempt the pre 87 accruals from the requirements of 401a(9)b providing that all the proper record keeping is maintained. However, those pre 87 accruals were still subject to RMDs using the 1987 IRS Regs, and you will find that table in the following link along with the 16 divisor for age 82:
http://www.pgdc.com/pgdc/article/2001/04/simplifying-required-minimum-di…
Because the shorter life expectancies contemplated in the 1987 table resulted in higher RMDs, the benefits of preserving the pre 87 balance disappeared after age 75 because the RMDs became higher. I guess that is why I forgot about the different tables. They start about 5% more at age 75, get close to 7% more at 82 and continue to rise. This would make any benefits of doing the extra accounting moot as far as I can see. So while there is a definite benefit through age 74, it stops at that point.
I do not know why a 403b participant on RMDs cannot opt out of these computations, since the Regs clearly state that using the 2002 RMD Regs on the entire balance is appropriate. Likewise, this amounts to extra tracking of balances for plan administrators for no additional benefit starting at age 75. I have not heard of any situations where a plan locked a 403b owner into the bifurcated RMD calculations, so this probably does not happen very often.