Does a 403(b) Have to Be Rolled Over to an Inherited IRA by 12/31 of the Year Following a Death?

by Jack Ori

A 403(b) is a type of retirement savings account in which participants deposit pretax dollars every pay period. Normally, participants begin receiving distributions from the account when they reach age 70 1/2. If a participant dies before reaching this age, the surviving spouse might be able to roll the funds over to a retirement account. Otherwise, spouses and other beneficiaries must receive distributions from the plan starting the year following the account holder's death.

Effective Date

You must begin receiving distributions from a 403(b) plan in April of the year after the account holder's turns 70 1/2. If the participant dies after he reaches this age, the beneficiary must accept distributions over the course of the beneficiary's expected lifespan. If the spouse was the beneficiary, the spouse may roll over distributions to her IRA except for any required withdrawals throughout the year.

December 31 Rule

If the plan participant dies before reaching the age of 70 1/2, the beneficiary may have to start getting distributions from the plan following December 31 of the year of death. If the participant would have been 70 1/2 in the year of his death, spouses have until December 31 of the following year to begin receiving distributions. Otherwise, a spouse can wait until the year the participant would have been 70 1/2. However, non-spousal beneficiaries must begin receiving distributions at the end of the year following the year of the participant's death.

Rolling Over Death Benefits

Spouses may roll over death benefits into their own IRA. They have until the date that they are required to begin receiving distributions to elect to roll over the benefits. Spouses can also receive a lump sum distribution and then deposit it into their IRA. However, if a spouse receives a distribution, taxes may be withheld from it before the spouse gets the check.

Sole Beneficiary

A spouse must be the sole beneficiary of a 403(b) plan to take advantage of special rules, such as the right to roll over funds to an IRA, or the right to wait until the participant turns 70 1/2 before receiving distributions. If there is more than one beneficiary listed on the plan, the spouse and other beneficiaries must all follow the distribution rules for non spouses.

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