[MarciaA]

If I leave my 403B (TDA) to my son, will he be able to hold on to it in his name?
Can he roll it over into an IRA without paying taxes?

[sschullo]

Hi Marcia,
403b is part of any estate planning and you can leave it to anyone you wish. As I understand the tax consequences of inheriting a 403b is that your son will have to take it out of the tax deferred status and pay taxes on the entire amount. To avoid this scenario, you can rollover the 403b into an IRA and then your son can take it out gradually over time and not pay a huge tax consequence. However, you have to qualify to make this rollover: 55+ and separated from service/job change, disabled or 59.5.
I believe this is the situation, but I am no tax expert. Perhaps someone else can provide more information.
Steve

[Michael Devault]

The same rules for non-spousal beneficiaries that apply to IRAs also apply to 403(b) accounts. If your son is named as beneficiary, at your death he will have two options.

First, he can take a full distribution of your account by December 31 of the year containing the fifth anniversary of your death. When the distribution occurs, he will have to include it in his gross income for income tax purposes.

Second, he can take distributions over his life expectancy, if those distributions begin by December 31 in the year following that of your death. This will enable him to spread the distribution over a greater period of time, which may reduce taxes.

He will not, however, be able to continue the deferral of taxes by keeping it as an IRA or 403(b) in his own name.

Hope this helps.

[Herb]

Mike Devault' s comments are accurate, as always. His remarks should be listened to, always. His response points out the importance of correct beneficiary designations. Many people may wish to pass their retirement accounts to their children, and by-pass their spouse. There can be many valid reasons for doing that. As Mike points out so well, the net result of this choice can mean additional tax payments on the part of the non-spousal beneficiary, and a loss of tax deferral for an inhereted retirement account. It is important, in my opinion, to understand the implications of one's beneficary choices; because choices like this can be easily changed while the plan participant is alive, but "extraordinarily" difficult to change once the participant dies.

Consider the following: What is the implication of giving retirement funds to a child who is under-age?
What is the situation when the Contingent receives the account, and not the Primary beneficary?


Hope this helps,

Herb Hussey

[sschullo]

Hi Michael,
Clarification: Is what I said in my previous post accurate?
I am in a similar situation and I was told to convert my 403b to an IRA as soon as I retire so my beneficially does not have to take a full distribution. If it remains in the 403b then as you say, "can take a full distribution of your account by December 31 of the year containing the fifth anniversary of your death." When you say "can" means that there might be other options.
Thanks,
Steve

[Michael Devault]

Steve:

The distribution rules for 403(b)s and IRAs are the same. So there is really no advantange in rolling the 403(b) into an IRA from the standpoint of required distributions.

A non spousal beneficiary has two options:

1. Take a complete distribution by December 31 of the year containing the fifth anniversary of death, or
2. Take distributions over their life expectancy beginning December 31 of the year following death.

Unless one of these options is excercised, they will be subject to a substantial tax penalty for not taking their required minimum distributions.

I hope this is of benefit to you.

Mike

[sschullo]

Mike,
One thing that Herb and I and others can agree is that you provide excellant technical information.
Thank you,
Steve