If you transfer all or part of your interest from a 403(b) contract to another 403(b) contract (held in the same plan), the transfer is tax free, and is referred to as a contract exchange. This was previously known as a 90-24 transfer. A contract exchange is similar to a 90-24 transfer with one major difference. Previously, you were able to accomplish the transfer without your employer’s involvement. After September 24, 2007, all such transfers are accomplished through a contract exchange requiring your employer’s involvement. In addition, the plan must provide for the exchange and the transferred interest must be subject to the same or stricter distribution restrictions. Finally, your accumulated benefit after the exchange must be equal to what it was before the exchange.
Transfers that do not satisfy this rule are plan distributions and are generally taxable as ordinary income. taxmap/pubs/p571-022.htm#en_us_publink1000239829
You may also transfer part or all of your interest from a 403(b) plan to another 403(b) plan if you are an employee (or were formerly employed) by the employer of the plan to which you would like to transfer. Both the initial plan and the receiving plan must provide for transfers. Your accumulated benefit after the transfer must be at least equal to what it was before the transfer. The new plan’s restrictions on distributions must be the same or stricter than those of the original plan.taxmap/pubs/p571-022.htm#en_us_publink1000239750
A tax-free transfer may also apply to a cash distribution of your 403(b) account from an insurance company that is subject to a rehabilitation, conservatorship, insolvency, or similar state proceeding. To receive tax-free treatment, you must do all of the following:
- Withdraw all the cash to which you are entitled in full settlement of your contract rights or, if less, the maximum permitted by the state.
- Reinvest the cash distribution in a single policy or contract issued by another insurance company or in a single custodial account subject to the same or stricter distribution restrictions as the original contract not later than 60 days after you receive the cash distribution.
- Assign all future distribution rights to the new contract or account for investment in that contract or account if you received an amount that is less than what you are entitled to because of state restrictions.
In addition to the preceding requirements, you must provide the new insurer with a written statement containing all of the following information:
- The gross amount of cash distributed under the old contract.
- The amount of cash reinvested in the new contract.
- Your investment in the old contract on the date you receive your first cash distribution.
Also, you must attach the following items to your timely filed income tax return in the year you receive the first distribution of cash.
- A copy of the statement you gave the new insurer.
- A statement that includes:
- The words ELECTION UNDER REV. PROC. 92-44,
- The name of the company that issued the new contract, and
- The new policy number.
If you make a direct trustee-to-trustee transfer, from your governmental 403(b) account to a defined benefit governmental plan, it may not be includible in gross income.
The transfer amount is not includible in gross income if it is made to:
- Purchase permissive service credits, or
- Repay contributions and earnings that were previously refunded under a forfeiture of service credit under the plan, or under another plan maintained by a state or local government employer within the same state.
For distributions beginning after December 31, 2006, after-tax contributions can be rolled over between a 403(b) plan and a defined benefit plan, IRA, or a defined contribution plan. If the rollover is to or from a 403(b) plan, it must occur through a direct trustee-to-trustee transfer.taxmap/pubs/p571-022.htm#en_us_publink1000239753
A permissive service credit is credit for a period of service recognized by a defined benefit governmental plan, only if you voluntarily contribute to the plan an amount that does not exceed the amount necessary to fund the benefit attributable to the period of service and the amount contributed is in addition to the regular employee contribution, if any, under the plan.
Permissive service credit may also include service credit for up to 5 years where there is no performance of service, or service credited to provide an increased benefit for service credit which a participant is receiving under the plan.
Check with your plan administrator as to the type and extent of service that may be purchased by this transfer.