Transfer of Interest in 403(b) Contract

If you transfer all or part of your interest from a 403(b) account to another 403(b) account, the transfer is tax free. However, this treatment applies only if the transferred interest is subject to the same or stricter distribution restrictions. This rule applies regardless of whether you are a current employee, a former employee, or a beneficiary of a former employee.

Transfers that do not satisfy this rule are plan distributions and are generally taxable as ordinary income.

Tax-free transfers for certain cash distributions. 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.

• Reinvest the cash in an annuity contract or account issued by another insurance company.
• Withdraw all the cash to which you are entitled in full settlement of your contract rights or the maximum permitted by the state.
• Reinvest the cash distribution into another annuity contract or account issued by another insurance company or single custodial account 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.
• Reinvest in an annuity contract or account subject to the same or stricter distribution restrictions as the original contract.

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.

1. A copy of the statement you gave the new insurer.
2. A statement that includes:
1. The words ELECTION UNDER REV. PROC. 92-44,
2. The name of the company that issued the new contract, and
3. The new policy number.

Direct trustee-to-trustee transfer. If you make a direct trustee-to-trustee transfer after December 31, 2001, 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.

Permissive service credit. Permissive service credit means credit for a period of service recognized by your defined benefit governmental plan, only if you voluntarily contribute to your 403(b) plan an amount that does not exceed the amount necessary to fund the benefit attributable to the period of service and that is in addition to the regular employee contribution, if any, under the plan.

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