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403(b) Plan Terminations

As provided for in the SECURE Act, the Treasury was issued a directive to provide guidance regarding distributions of assets in-kind in the event of 403(b) plan termination. On November 5, 2020, The IRS and U.S. Department of Treasury issued followed suit. Such retirement plans funded through individual or group 403(b)(7) custodial accounts can be terminated through the distribution of individual custodial accounts (ICAs), generally absent a participant or beneficiary election for distribution. Guidance is retroactively effective for tax years after 12/31/2008. If a distributed custodial account continues to comply with certain requirements in effect at the time of the account distribution, no portion of the distributed custodial account would be included in gross income until such amounts are actually paid out of the account to a participant or beneficiary. The employer has no “material retained rights” under the distributed ICA after distribution.

www.planadviser.com; November 6, 2020.
www.groom.com; November 19, 2020.