Q. My client exchanged a 403(b)(7) custodial account to a 403(b)(1) annuity where the receiving provider applied pre-59½ withdrawal restrictions to the entire account value. Some of that account consisted of employer contributions; the rest from elective deferrals. My understanding is that employer contributions do not have withdrawal restrictions for contracts issued before Jan. 1, 2009; thus, the employer contribution portion of the exchanged account should be unrestricted. Am I right?
A. No. The unrestricted employer contributions apply only to 403(b)(1) annuities. The entire value in a 403(b)(7) custodial account is restricted (and has been since custodial accounts carried those pre-59½ withdrawal restrictions, since their introduction in 1974).
04/02/2015
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