Tax-Free Rollovers(p13)

You can generally roll over tax free all or any part of a distribution from a 403(b) plan to a traditional IRA or a non-Roth eligible retirement plan, except for any nonqualifying distributions, described below. You may also roll over any part of a distribution from a 403(b) plan by converting it through a direct rollover, described below, to a Roth IRA. Conversion amounts are generally includible in your taxable income in the year of the distribution from your 403(b) account. See Publication 590 for more information about conversion into a Roth IRA.

The IRS may waive the 60-day rollover period if the failure to waive such requirement would be against equity or good conscience, including cases of casualty, disaster, or other events beyond the reasonable control of an individual.

To obtain a hardship exception, you must apply to the IRS for a waiver of the 60-day rollover requirement. You apply for the waiver by following the general instructions used in requesting a letter ruling. These instructions are stated in Revenue Procedure 2010-4, which is on page 122 of Internal Revenue Bulletin 2010-1 at www.irs.gov/pub/irs-irbs/irb10-01.pdf, or see the latest annual update. You must also pay a user fee with the application. The user fee for a rollover that is less than $50,000 is $500. For rollovers that are $50,000 or more, see Revenue Procedure 2010-8, which is on page 234 of Internal Revenue Bulletin 2010-1 at www.irs.gov/pub/irs-irbs/irb10-01.pdf, or see the latest annual update.

In determining whether to grant a waiver, the IRS will consider all relevant facts and circumstances, including:

1. Whether errors were made by the financial institution;
2. Whether you were unable to complete the rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country, or postal error;
3. Whether you used the amount distributed (for example, in the case of payment by check, whether you cashed the check); and
4. How much time has passed since the date of distribution.

For additional information on rollovers, see Publication 590.

You can generally roll over tax free all or any part of a distribution from an eligible retirement plan to a 403(b) plan. Beginning January 1, 2008, distributions from tax-qualified retirement plans and tax-sheltered annuities can be converted by making a direct rollover into a Roth IRA subject to the restrictions that currently apply to rollovers from a traditional IRA into a Roth IRA. Converted amounts are generally includible in your taxable income in the year of the distribution from your 403(b) account. See Publication 590 for more information on conversion into a Roth IRA. Additionally, you can generally roll over, tax free, all or any part of a distribution from a 403(b) plan to a non-Roth eligible retirement plan, except for any nonqualifying distributions, described below.

If a distribution includes both pre-tax contributions and after-tax contributions, the portion of the distribution that is rolled over is treated as consisting first of pre-tax amounts (contributions and earnings that would be includible in income if no rollover occurred). This means that if you roll over an amount that is at least as much as the pre-tax portion of the distribution, you do not have to include any of the distribution in income.

For more information on rollovers and eligible retirement plans, see Publication 575.

The following are considered eligible retirement plans.

• Individual retirement arrangements.
• Roth IRA.
• Qualified retirement plans. (To determine if your plan is a qualified plan, ask your plan administrator.)
• 403(b) plans.
• Government eligible 457 plans.

 
If the distribution is from a designated Roth account, then the only eligible retirement plan is another designated Roth account or a Roth IRA.

You cannot roll over tax free:

• Minimum distributions (generally required to begin at age 701/2). However, see Distributions in calendar year 2009 resulting from the temporary waiver, earlier,
• Substantially equal payments over your life or life expectancy,
• Substantially equal payments over the joint lives or life expectancies of your beneficiary and you,
• Substantially equal payments for a period of 10 years or more,
• Hardship distributions, or
• Corrective distributions of excess contributions or excess deferrals, and any income allocable to the excess, or excess annual additions and any allocable gains.

You may be able to roll over the nontaxable part of a distribution (such as your after-tax contributions) made to another eligible retirement plan, traditional IRA, or Roth IRA. The transfer must be made either through a direct rollover to an eligible plan that separately accounts for the taxable and nontaxable parts of the rollover or through a rollover to a traditional IRA or Roth IRA.

If you roll over only part of a distribution that includes both taxable and nontaxable amounts, the amount you roll over is treated as coming first from the taxable part of the distribution.

You have the option of having your 403(b) plan make the rollover directly to a traditional IRA, Roth IRA, or new plan. Before you receive a distribution, your plan will give you information on this. It is generally to your advantage to choose this option because your plan will not withhold tax on the distribution if you choose it.

If you receive a distribution that qualifies to be rolled over, you can roll over all or any part of the distribution. Generally, you will receive only 80% of the distribution because 20% must be withheld. If you roll over only the 80% you receive, you must pay tax on the 20% you did not roll over. You can replace the 20% that was withheld with other money within the 60-day period to make a 100% rollover.

For tax years 1982 through 1986, employees could make deductible contributions to a 403(b) plan under the individual retirement arrangement (IRA) rules instead of deducting contributions to a traditional IRA.

If you made voluntary deductible contributions to a 403(b) plan under these traditional IRA rules, the distribution of all or part of the accumulated deductible contributions may be rolled over if it otherwise qualifies as a distribution you can roll over. Accumulated deductible contributions are the deductible contributions:

• Plus
  1. Income and gain allocable to the contributions, and
• Minus
  1. Expenses and losses allocable to the contributions, and
  2. Distributions from the contributions, income, or gain.

The portion of a distribution from a 403(b) plan transferred to a traditional IRA that was previously included in income as excess employer contributions (discussed earlier) is not an eligible rollover distribution.

Its transfer does not affect the rollover treatment of the eligible portion of the transferred amounts. However, the ineligible portion is subject to the traditional IRA contribution limits and may create an excess IRA contribution subject to a 6% excise tax (see chapter 1 of Publication 590).

You may be able to roll over tax free all or any part of an eligible rollover distribution from a 403(b) plan that you receive under a qualified domestic relations order (QDRO). If you receive the interest in the 403(b) plan as an employee's spouse or former spouse under a QDRO, all of the rollover rules apply to you as if you were the employee. You can roll over your interest in the plan to a traditional IRA or another 403(b) plan. For more information on the treatment of an interest received under a QDRO, see Publication 575.

If you are the spouse of a deceased employee, you can roll over the qualifying distribution attributable to the employee. You can make the rollover to any eligible retirement plan.

After you roll money and other property over from a 403(b) plan to an eligible retirement plan, and you take a distribution from that plan, you will not be eligible to receive the capital gain treatment or the special averaging treatment for the distribution.

If you roll over a qualifying distribution to a traditional IRA, you can, if certain conditions are satisfied, later roll the distribution into another 403(b) plan. For more information, see IRA as a holding account (conduit IRA) for rollovers to other eligible plans in chapter 1 of Publication 590.

A nonspouse beneficiary may make a direct rollover of a distribution from a 403(b) plan of a deceased participant if the rollover is a direct transfer to an inherited IRA established to receive the distribution. If the rollover is a direct trustee-to-trustee transfer to an IRA established to receive the distribution:

• The transfer will be treated as an eligible rollover distribution.
• The IRA will be considered an inherited account.
• The required minimum distribution rules that apply in instances where the participant dies before the entire interest is distributed will apply to the transferred IRA.

For more information on IRAs, see Publication 590.

The 60-day period usually allowed for completing a rollover is extended for any time that the amount distributed is a frozen deposit in a financial institution. The 60-day period cannot end earlier than 10 days after the deposit ceases to be a frozen deposit.

A frozen deposit is any deposit that on any day during the 60-day period cannot be withdrawn because:

1. The financial institution is bankrupt or insolvent, or
2. The state where the institution is located has placed limits on withdrawals because one or more banks in the state are (or are about to be) bankrupt or insolvent.