3890. When may a participant roll over permitted distributions from a Section 403(b) tax sheltered annuity?Nuco Employeercline202015-07-20T17:54:00Z2015-07-20T17:54:00Z38654933Albany Law School4111578714Site Map/Individual Retirement Plans/Rollover/Tax Shelter Annuity (From)Site Map/Retirement Plans/Rollover/Tax Shelter Annuity (From) individual retirement account annuity2005-01-24T00:00:00ZTaxFactsDefaultArticle116960459-00-tf1.xml461.00;#2296;#1802;#0x010100C568DB52D9D0A14D9B2FDCC96666E9F2007948130EC3DB064584E219954237AF3900242457EFB8B24247815D688C526CD44D009C4E67E972694125ABDA91AC61F5E51FTax Facts 1Under what circumstances may a participant roll over permitted distributions from a Section 403(b) tax sheltered annuity?62000.0000000000TaxFactsDefaultArticle2010-01-20T13:35:22ZSBMEDIA\bwagner3890. When may a participant roll over permitted distributions from a Section 403(b) tax sheltered annuity?For distributions received from tax sheltered annuities, any portion of the balance to the credit of an employee that is paid to the employee in the form of an eligible rollover distribution (Q 3882) and transferred to an eligible retirement plan (Q 3883) is not includable in income by the employee. Rollover distributions from tax sheltered annuities may be made to another tax sheltered annuity, an IRA, a qualified plan, a Section 403(a) plan, and an eligible Section 457 governmental plan (provided the IRC Section 457 plan agrees to separately account for such funds)..IRC Secs. 402(c)(1), 403(b)(8). A rollover to a Roth IRA generally is a taxable event (Q 3617).A trustee-to-trustee transfer from a Section 403(b) plan to a defined benefit governmental plan that is used to purchase permissive service credits will be excluded from income..IRC Sec. 403(b)(13). The Tax Court has disallowed rollover treatment for such a transfer..See Tolliver v. Comm., TC Memo 1991-460. A proper rollover was not achieved where a taxpayer invested a tax sheltered annuity distribution in a certificate of deposit.. Adamcewicz v. Comm., TC Memo 1994-361.Distributions excepted from the term eligible rollover distribution include any: (1)distribution that is part of a series of substantially equal payments made over the life or life expectancy of the employee or the joint lives or life expectancies of the employee and his or her designated beneficiary, (2)distribution made for a specified period of ten years or more, (3)distribution that is a required minimum distribution under IRC Section 401(a)(9), and (4)hardship distribution..IRC Secs. 402(c)(4), 408(b)(8)(B).Regulations specify other items not considered to be eligible rollover distributions, including any portion of a distribution excludable from gross income (although this has been modified by subsequent legislation), the Table 2001 or P.S. 58 cost of life insurance (Q 3935), and corrective distributions of excess deferrals (Q 3921) and excess employer matching contributions (Q 3913)..Treas. Regs. §§1.402(c)-2, A-3 & A-4, 1.403(b)-2, A-1. Treasury Regulation Sections 1.402(c)-2, A-9, and 1.401(a)(31)-1 provide guidance on the treatment of plan loans for purposes of the rollover and withholding rules.A distribution of property other than money is treated the same way. The amount transferred equals the value of the property distributed..IRC Sec. 402(c)(1)(C).The maximum amount that may be rolled over generally is the amount that would be includable in income if not rolled over..IRC Sec. 402(c)(2). After-tax contributions can be rolled over to a traditional IRA or transferred in a direct trustee-to-trustee transfer to a defined contribution plan, provided the plan separately accounts for after-tax contributions. After-tax contributions, including nondeductible contributions to a traditional IRA, may not be rolled over from a traditional IRA into a qualified plan, Section 403(b) tax sheltered annuity, or eligible Section 457 governmental plan. Rollover amounts will be treated as first consisting of taxable amounts..IRC Secs. 402(c)(2), 403(b)(8)(B).See Q 3882.02 for the new rules that allow a taxpayer to roll pre-tax and after-tax contributions into separate accounts in a single distribution.The IRS has indicated that a direct rollover may not be made of amounts that are not eligible for distribution from a Section 403(b) annuity due to the distribution restrictions of IRC Section 403(b)(11) (i.e., distributions payable only when the employee attains age 59½, dies, or becomes disabled). These amounts may be transferred between tax sheltered annuities if the requirements of the regulations can be met..Treas. Reg. §1.403(b)-10. Reaching a similar conclusion, a federal district court held that funds in a tax sheltered annuity attributable to a salary reduction agreement were not eligible for rollover treatment unless the requirements of IRC Section 403(b)(11) were satisfied (Q 3910)..Frank v. Aaronson, 1996 U.S. Dist. LEXIS 15617. Funds subject to distribution requirements may be transferable to another tax sheltered annuity in a direct transfer (Q 3931). A deemed distribution under IRC Section 72(p) is not eligible to be rolled over to an eligible retirement plan. .Treas. Reg. §1.72(p)-1, A-12.If funds are not distributed in a direct rollover, a rollover generally must be completed within sixty days after the distribution is received (Q 3895)..IRC Sec. 402(c)(3). The IRS has the authority to waive the sixty day requirement where failure to waive it would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to the requirement..IRC Sec. 402(c)(3)(B). Guidance on the requirements for this hardship waiver has been issued..See Rev. Proc. 2003-16, 2003-1 CB 359.Unless a rollover is done by means of a direct rollover, the distribution amount will be subject to a mandatory income tax withholding rate of 20 percent (Q 3884, Q 3887)..IRC Secs. 403(b)(10), 3405(c)(1).