Retirement Plans Newsletter

BULLETIN
November 5, 2020

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[Official Guidance]

Text of IRS Rev. Rul. 2020-23: Distribution of Individual Custodial Accounts in Kind Upon Termination of a § 403(b) Plan (PDF)

"Issue: Whether a § 403(b) retirement plan funded through the use of § 403(b)(7) custodial accounts that takes the actions described in this revenue ruling has been terminated in accordance with the rules of § 1.403(b)-10(a), and whether distributions made to participants or beneficiaries in connection with termination of the plan are includible in gross income....

"Holding: In [two actions described in this revenue ruling], Plan A is terminated in accordance with the rules of Section 1.403(b)-10(a). Distribution of an ICA 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 [individual custodial account (ICA)], so long as the ICA maintains its status as a Section 403(b)(7) custodial account. Any other amount distributed from a custodial account to a participant or beneficiary to effectuate plan termination is 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." Icon to read more

Internal Revenue Service [IRS]

[Official Guidance]

Text of IRS Notice 2020-80: Request for Comments Regarding Protection of Annuity and Spousal Rights Under Section 205 of ERISA with Respect to a Terminating § 403(b) Plan Funded Through the Use of Custodial Accounts (PDF)

"For a Section 403(b) plan that does not have a participant to whom the annuity and spousal rights provisions of section 205 of ERISA apply, Rev. Rul. 2020-23 provides guidance allowing the distribution of an ICA in kind as part of the termination of the plan. However, issues remain regarding the application of section 205 of ERISA in connection with a distribution of an ICA in kind under section 110 of the SECURE Act for a Section 403(b) plan with at least one participant to whom section 205 of ERISA applies, including if a participant cannot be reached, a participant does not elect to waive the QJSA and QPSA form of benefit, or a married participant elects to waive the QJSA and QPSA form of benefit but the participant's spouse does not consent to the waiver.

"The Department of the Treasury and the IRS request comments on the application of ERISA section 205 annuity and spousal rights provisions in connection with a distribution in kind of an ICA under section 110 of the SECURE Act, including any administrative or other burdens that may arise and potential methods or rules that could minimize or eliminate those burdens." Icon to read more

Internal Revenue Service [IRS]

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