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403(b) custodial accounts


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Hi,

Does a non-ERISA 403(b) account that let's participants invest in custodial accounts need a plan document or does each employee just fill out a custodial agreement and that is it? Having a hard time finding the answer. Any help is greatly appreciated.

Thanks!

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The IRS does not require a plan document. Still, I think a plan document is good practice. The arrangement must meet certain requirements in IRC Section 403(b), and I think it's a good idea to adopt a plan that meets those requirements and describes what's going on. If the employer is not a government, then you need to be careful that the plan document does not cause the plan to be subject to ERISA.

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Some employers refuse to prepare a written plan document because of liability risk or investment issues which would result from plan sponsorship but will allow the employees to make salary reduction contributions to a 403(b) custodial account. The employer's only involvement is to permit salary reduction. The custodial account contains the provisions which will be found in the plan document. If the custodial account is drafted properly there is no need for a plan document.

mjb

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