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New Guidance Provided on Terminating 403(b) Plans

New guidance has been issued by the Department of the Treasury and the Internal Revenue Service for employers and employees with terminating 403(b) plans. The guidance is aimed specifically at plans that fund benefits through 403(b)(7) custodial accounts.

This new guidance was driven by changes provided in the Setting Every Community Up for Retirement Enhancement Act of 2019—also known as the SECURE Act.

Details are laid out in Revenue Ruling 2020-23. It provides that 403(b) retirement plans funded through individual or group 403(b)(7) custodial accounts can be terminated through the distribution of individual custodial accounts.

If a distributed custodial account continues to comply with certain requirements, then no portion of the distributed custodial account can be included in gross income until amounts are actually paid out of the account to a participant or a beneficiary.

The IRS has also issued Notice 2020-80, which requests comments on the application of annuity and spousal rights provisions that relate to distributions in certain plans described in Revenue Ruling 2020-23.

Source: IR-2020-251

Bob Williams

Forget genes; I’ve got words in my DNA. Communication has been part of who I am nearly all my life. From a long career in radio news to another one in newspapers – and a University of Georgia journalism degree sandwiched between the two – language has been my life. I’ve also been fortunate to have learned the tax business from the ground up here at Drake, starting with 1040.com online forms some years ago before moving on to work on the Web. In all things tax-ish, we aim to give you tools you can use.

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