Tech Talk - Question 3

Q. My client, who is age 55, and is retiring from the Texas Public School System. She has elected a partial lump sum from the Texas Retirement System. She does not have a 403(b) account (and is no longer actively employed); however, she has a 457(b) account with her school district. Can she establish a 403(b) account post-employment to receive the rollover from TRS?  Or, can she rollover the lump sum distribution to her 457(b) plan?

A. Code Section 403(b)(1) states that a contract can be established “for an employee.” Since she is no longer an employee, she cannot establish a 403(b) account. However, as long as the 457(b) plan document accepts rollovers into the plan (as most do), she can rollover the TRS distribution to the 457(b) plan. She should plan to do that as a direct rollover to avoid the 20 percent mandatory federal income tax withholding which would apply if she receives the distribution directly, and, within 60 days rolls it over!  \

04/14/2014