Minimum Distributions from 403(b)

[Guest DLearning]

Treas. Reg. § 1.403(b)-3 Q&A 4 provides that for purposes of calculating a participant's required minimum distribution (RMD) from more than one 403(b) plan/annuity, a participant can total the minimum amount from each 403(b) and take the total minimum distribution from any one of the 403(b) plans/annuities (rather than taking a portion of the total minimum distribution from each plan/annuity). Does anyone know whether a plan or annuity contract must specifically provide that a person's total RMD for the year may be taken from its plan or annuity contract or is this something the participant can decide to do? In this case, the plan and applicable annuity contracts are silent on this point. (At most, the annuity contracts state that minimum distributions must be made in accordance with the provisions of IRC § 401(a)(9).) Does silence on this issue mean that a person must take a portion of the total RMD from each of the plans/annuity contracts? When the participant (who is now retired) called her former employer, she was told that she could not take her total RMD from just one of the annuities (because that was not a permitted distribuition option), but had to take a portion of the total RMD from each annuity. Is there any authority one way or the other?

Also, would it be easier to avoid this hassle by rolling over the participant's 403(b) accounts into a "rollover IRA"?

Thank you.

[Michael Devault]

Publication 575 (for preparing 2003 returns) says, in relevant part, the following on page 31:

"However, if you have more than one tax-sheltered annuity account, you can total the required distributions and then satisfy the requirement by taking distributions from any one (or more) of the tax-sheltered annuities."

There is an advantage in keeping the monies as 403(b) accounts: If there was an account balance as of December 31, 1986, that balance is not subject to required minimum distributions at age 70-1/2. Distributions can be deferred until age 75, if desired. This advantage is lost if the 403(b) accounts are rolled to an IRA.

Hope this helps.

[Guest DLearning]

Thank you Mr. Devault, your response is very helpful.

The language in Publication 575 seems to suggest that the participant can decide whether or not to take his or her required minimum distribution from one or more of the annuities. I think this makes sense since it is the participant who would be subject to penalties for not complying with the minumum distribution rules. Have you encountered any situations in which an employer has denied such a request (i.e., to take the minimum distribution from one account) on the grounds that it is not specifically permitted by the provisions of the plan or annuity contract?

Thank you.

[Michael Devault]

I have never encountered a situation as you describe. 403(b) contracts are owned by the employee, not the employer. In all of my experiences, the insurance companies have acted as the employee asks.

I have seen one instance where a third party administrator suggested that distributions be taken from each of several separate annuity contracts. However, it was just a suggestion: the TPA understood that they had no actual control over the matter. The TPA also never gave an explanation as to why they made the suggestion they did.

Hope this is of some benefit to you. Happy holidays!

[Guest DLearning]

Thank you very much for your responses. They were very helpful and I really appreciate it.