Distribution of In Kind Amounts from a 403(b) Plan

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Ernie Guerriero, CLU®, ChFC®, CEBS, CPCU®, CPC®, CMS, AIF®, RICP®, CPFA

The IRS just issued Revenue Ruling 2020-23 (modifying Revenue Ruling 2011-7).  The issue is whether a §403(b) retirement plan funded with custodial accounts, and whether distributions made to participants or beneficiaries in connection with termination of the plan are includible in gross income if distributed in-kind.

The Holding of the Rule is for a distribution of an individual custodial account in kind to a participant or beneficiary is not includible in gross income until amounts are actually paid to the participant or beneficiary out of the custodial account, provided the custodial account maintains its status as a §403(b)(7) custodial account.  The Rule went on further to state that if there are other amounts distributed from a custodial account to a participant or beneficiary to effectuate plan termination, those amounts are includible in gross income, except to the extent the amount is rolled over to an IRA or other eligible retirement plan by a direct rollover or by a transfer made within 60 days.

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