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Post-Employment 403(b) Establishment

Q: A public school district wishes to buy out the contract of a key employee using post-employment non-elective contributions to the 403(b) plan; however, the employee, who left in June 2015, had not established a 403(b) account while he was working. Can he establish one now, after he left the job?

A: Federal Income Tax Code Section 403(b)(1) says that a 403(b) contract can be purchased “for an employee.” I did discuss this with a senior staffer at the IRS, who said that FORMER employees would not be eligible to set up a brand new account — so, it would appear the answer is “no.”