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1040z

1040z 8. 1040z   Distributions and Rollovers Table of Contents DistributionsMinimum Required Distributions No Special 10-Year Tax Option Transfer of Interest in 403(b) ContractAfter-tax contributions. 1040z Permissive service credit. 1040z Tax-Free RolloversHardship exception to rollover rules. 1040z Eligible retirement plans. 1040z Nonqualifying distributions. 1040z Second rollover. 1040z Gift Tax Distributions Permissible distributions. 1040z   Generally, a distribution cannot be made from a 403(b) account until the employee: Reaches age 59½, Has a severance from employment, Dies, Becomes disabled, In the case of elective deferrals, encounters financial hardship, or Has a qualified reservist distribution. 1040z In most cases, the payments you receive or that are made available to you under your 403(b) account are taxable in full as ordinary income. 1040z In general, the same tax rules apply to distributions from 403(b) plans that apply to distributions from other retirement plans. 1040z These rules are explained in Publication 575. 1040z Publication 575 also discusses the additional tax on early distributions from retirement plans. 1040z Retired public safety officers. 1040z   If you are an eligible retired public safety officer, distributions of up to $3,000, made directly from your 403(b) plan to pay accident, health, or long-term care insurance, are not included in your taxable income. 1040z The premiums can be for you, your spouse, or your dependents. 1040z   A public safety officer is a law enforcement officer, fire fighter, chaplain, or member of a rescue squad or ambulance crew. 1040z   For additional information, see Publication 575. 1040z Distribution for active reservist. 1040z   The 10% penalty for early withdrawals will not apply to a qualified reservist distribution attributable to elective deferrals from a 403(b) plan. 1040z A qualified reservist distribution is a distribution that is made: To an individual who is a reservist or national guardsman and who was ordered or called to active duty for a period in excess of 179 days or for an indefinite period; and During the period beginning on the date of the order or call to duty and ending at the close of the active duty period. 1040z Minimum Required Distributions You must receive all, or at least a certain minimum, of your interest accruing after 1986 in the 403(b) plan by April 1 of the calendar year following the later of the calendar year in which you become age 70½, or the calendar year in which you retire. 1040z Check with your employer, plan administrator, or provider to find out whether this rule also applies to pre-1987 accruals. 1040z If not, a minimum amount of these accruals must begin to be distributed by the later of the end of the calendar year in which you reach age 75 or April 1 of the calendar year following retirement. 1040z For each year thereafter, the minimum distribution must be made by the last day of the year. 1040z If you do not receive the required minimum distribution, you are subject to a nondeductible 50% excise tax on the difference between the required minimum distribution and the amount actually distributed. 1040z No Special 10-Year Tax Option A distribution from a 403(b) plan does not qualify as a lump-sum distribution. 1040z This means you cannot use the special 10-year tax option to calculate the taxable portion of a 403(b) distribution. 1040z For more information, see Publication 575. 1040z Transfer of Interest in 403(b) Contract Contract exchanges. 1040z   If you transfer all or part of your interest from a 403(b) contract to another 403(b) contract (held in the same plan), the transfer is tax free, and is referred to as a contract exchange. 1040z This was previously known as a 90-24 transfer. 1040z A contract exchange is similar to a 90-24 transfer with one major difference. 1040z Previously, you were able to accomplish the transfer without your employer’s involvement. 1040z After September 24, 2007, all such transfers are accomplished through a contract exchange requiring your employer’s involvement. 1040z In addition, the plan must provide for the exchange and the transferred interest must be subject to the same or stricter distribution restrictions. 1040z Finally, your accumulated benefit after the exchange must be equal to what it was before the exchange. 1040z   Transfers that do not satisfy this rule are plan distributions and are generally taxable as ordinary income. 1040z Plan-to-plan transfers. 1040z   You may also transfer part or all of your interest from a 403(b) plan to another 403(b) plan if you are an employee of (or were formerly employed by) the employer of the plan to which you would like to transfer. 1040z Both the initial plan and the receiving plan must provide for transfers. 1040z Your accumulated benefit after the transfer must be at least equal to what it was before the transfer. 1040z The new plan’s restrictions on distributions must be the same or stricter than those of the original plan. 1040z Tax-free transfers for certain cash distributions. 1040z   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. 1040z To receive tax-free treatment, you must do all of the following: Withdraw all the cash to which you are entitled in full settlement of your contract rights or, if less, the maximum permitted by the state. 1040z Reinvest the cash distribution in a single policy or contract issued by another insurance company or in a single custodial account subject to the same or stricter distribution restrictions as the original contract not later than 60 days after you receive the cash distribution. 1040z 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. 1040z   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. 1040z The amount of cash reinvested in the new contract. 1040z Your investment in the old contract on the date you receive your first cash distribution. 1040z   Also, you must attach the following items to your timely filed income tax return in the year you receive the first distribution of cash. 1040z A copy of the statement you gave the new insurer. 1040z A statement that includes: The words ELECTION UNDER REV. 1040z PROC. 1040z 92-44, The name of the company that issued the new contract, and The new policy number. 1040z Direct trustee-to-trustee transfer. 1040z   If you make a direct trustee-to-trustee transfer, from your governmental 403(b) account to a defined benefit governmental plan, it may not be includible in gross income. 1040z   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. 1040z After-tax contributions. 1040z   For distributions beginning after December 31, 2006, after-tax contributions can be rolled over between a 403(b) plan and a defined benefit plan, IRA, or a defined contribution plan. 1040z If the rollover is to or from a 403(b) plan, it must occur through a direct trustee-to-trustee transfer. 1040z Permissive service credit. 1040z   A permissive service credit is credit for a period of service recognized by a defined benefit governmental plan only if you voluntarily contribute to the plan an amount that does not exceed the amount necessary to fund the benefit attributable to the period of service and the amount contributed is in addition to the regular employee contribution, if any, under the plan. 1040z   A permissive service credit may also include service credit for up to 5 years where there is no performance of service, or service credited to provide an increased benefit for service credit which a participant is receiving under the plan. 1040z   Check with your plan administrator as to the type and extent of service that may be purchased by this transfer. 1040z Tax-Free Rollovers You can generally roll over tax free all or any part of a distribution from a 403(b) plan to a traditional IRA or a non-Roth eligible retirement plan, except for any nonqualifying distributions, described later. 1040z You may also roll over any part of a distribution from a 403(b) plan by converting it through a direct rollover, described below, to a Roth IRA. 1040z Conversion amounts are generally includible in your taxable income in the year of the distribution from your 403(b) account. 1040z See Publication 590 for more information about conversion into a Roth IRA. 1040z Note. 1040z A participant is required to roll over distribution amounts received within 60 days in order for the amount to be treated as nontaxable. 1040z Distribution amounts that are rolled over within the 60 days are not subject to the 10% early distribution penalty. 1040z Rollovers to and from 403(b) plans. 1040z   You can generally roll over tax free all or any part of a distribution from an eligible retirement plan to a 403(b) plan. 1040z Beginning January 1, 2008, distributions from tax-qualified retirement plans and tax-sheltered annuities can be converted by making a direct rollover into a Roth IRA subject to the restrictions that currently apply to rollovers from a traditional IRA into a Roth IRA. 1040z Converted amounts are generally includible in your taxable income in the year of the distribution from your 403(b) account. 1040z See Publication 590 for more information on conversion into a Roth IRA. 1040z   If a distribution includes both pre-tax contributions and after-tax contributions, the portion of the distribution that is rolled over is treated as consisting first of pre-tax amounts (contributions and earnings that would be includible in income if no rollover occurred). 1040z This means that if you roll over an amount that is at least as much as the pre-tax portion of the distribution, you do not have to include any of the distribution in income. 1040z   For more information on rollovers and eligible retirement plans, see Publication 575. 1040z If you roll over money or other property from a 403(b) plan to an eligible retirement plan, see Publication 575 for information about possible effects on later distributions from the eligible retirement plan. 1040z Hardship exception to rollover rules. 1040z   The IRS may waive the 60-day rollover period if the failure to waive such requirement would be against equity or good conscience, including cases of casualty, disaster, or other events beyond the reasonable control of an individual. 1040z   To obtain a hardship exception, you must apply to the IRS for a waiver of the 60-day rollover requirement. 1040z You apply for the waiver by following the general instructions used in requesting a letter ruling. 1040z These instructions are stated in Revenue Procedure 2013-4, 2013-1 I. 1040z R. 1040z B. 1040z 126 available at www. 1040z irs. 1040z gov/irb/2013-01_IRB/ar09. 1040z html, or see the latest annual update. 1040z You must also pay a user fee with the application. 1040z The user fee for a rollover that is less than $50,000 is $500. 1040z For rollovers that are $50,000 or more, see Revenue Procedure 2013-8, 2013-1 I. 1040z R. 1040z B. 1040z 237 available at www. 1040z irs. 1040z gov/irb/2013-01_IRB/ar13. 1040z html, or see the latest annual update. 1040z   In determining whether to grant a waiver, the IRS will consider all relevant facts and circumstances, including: Whether errors were made by the financial institution; Whether you were unable to complete the rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country, or postal error; Whether you used the amount distributed (for example, in the case of payment by check, whether you cashed the check); and How much time has passed since the date of distribution. 1040z   For additional information on rollovers, see Publication 590. 1040z Eligible retirement plans. 1040z   The following are considered eligible retirement plans. 1040z Individual retirement arrangements. 1040z Roth IRA. 1040z 403(b) plans. 1040z Government eligible 457 plans. 1040z Qualified retirement plans. 1040z  If the distribution is from a designated Roth account, then the only eligible retirement plan is another designated Roth account or a Roth IRA. 1040z Nonqualifying distributions. 1040z   You cannot roll over tax free: Minimum required distributions (generally required to begin at age 70½), Substantially equal payments over your life or life expectancy, Substantially equal payments over the joint lives or life expectancies of your beneficiary and you, Substantially equal payments for a period of 10 years or more, Hardship distributions, or Corrective distributions of excess contributions or excess deferrals, and any income allocable to the excess, or excess annual additions and any allocable gains. 1040z Rollover of nontaxable amounts. 1040z    You may be able to roll over the nontaxable part of a distribution (such as your after-tax contributions) made to another eligible retirement plan, traditional IRA, or Roth IRA. 1040z The transfer must be made either through a direct rollover to an eligible plan that separately accounts for the taxable and nontaxable parts of the rollover or through a rollover to a traditional IRA or Roth IRA. 1040z   If you roll over only part of a distribution that includes both taxable and nontaxable amounts, the amount you roll over is treated as coming first from the taxable part of the distribution. 1040z Direct rollovers of 403(b) plan distributions. 1040z   You have the option of having your 403(b) plan make the rollover directly to a traditional IRA, Roth IRA, or new plan. 1040z Before you receive a distribution, your plan will give you information on this. 1040z It is generally to your advantage to choose this option because your plan will not withhold tax on the distribution if you choose it. 1040z Distribution received by you. 1040z   If you receive a distribution that qualifies to be rolled over, you can roll over all or any part of the distribution. 1040z Generally, you will receive only 80% of the distribution because 20% must be withheld. 1040z If you roll over only the 80% you receive, you must pay tax on the 20% you did not roll over. 1040z You can replace the 20% that was withheld with other money within the 60-day period to make a 100% rollover. 1040z Voluntary deductible contributions. 1040z   For tax years 1982 through 1986, employees could make deductible contributions to a 403(b) plan under the individual retirement arrangement (IRA) rules instead of deducting contributions to a traditional IRA. 1040z   If you made voluntary deductible contributions to a 403(b) plan under these traditional IRA rules, the distribution of all or part of the accumulated deductible contributions may be rolled over if it otherwise qualifies as a distribution you can roll over. 1040z Accumulated deductible contributions are the deductible contributions: Plus Income allocable to the contributions, Gain allocable to the contributions, and Minus Expenses and losses allocable to the contributions, and Distributions from the contributions, income, or gain. 1040z Excess employer contributions. 1040z   The portion of a distribution from a 403(b) plan transferred to a traditional IRA that was previously included in income as excess employer contributions (discussed earlier) is not an eligible rollover distribution. 1040z   Its transfer does not affect the rollover treatment of the eligible portion of the transferred amounts. 1040z However, the ineligible portion is subject to the traditional IRA contribution limits and may create an excess IRA contribution subject to a 6% excise tax (see chapter 1 of Publication 590). 1040z Qualified domestic relations order. 1040z   You may be able to roll over tax free all or any part of an eligible rollover distribution from a 403(b) plan that you receive under a qualified domestic relations order (QDRO). 1040z If you receive the interest in the 403(b) plan as an employee's spouse or former spouse under a QDRO, all of the rollover rules apply to you as if you were the employee. 1040z You can roll over your interest in the plan to a traditional IRA or another 403(b) plan. 1040z For more information on the treatment of an interest received under a QDRO, see Publication 575. 1040z Spouses of deceased employees. 1040z   If you are the spouse of a deceased employee, you can roll over the qualifying distribution attributable to the employee. 1040z You can make the rollover to any eligible retirement plan. 1040z   After you roll money and other property over from a 403(b) plan to an eligible retirement plan, and you take a distribution from that plan, you will not be eligible to receive the capital gain treatment or the special averaging treatment for the distribution. 1040z Second rollover. 1040z   If you roll over a qualifying distribution to a traditional IRA, you can, if certain conditions are satisfied, later roll the distribution into another 403(b) plan. 1040z For more information, see IRA as a holding account (conduit IRA) for rollovers to other eligible plans in chapter 1 of Publication 590. 1040z Nonspouse beneficiary. 1040z   A nonspouse beneficiary may make a direct rollover of a distribution from a 403(b) plan of a deceased participant if the rollover is a direct transfer to an inherited IRA established to receive the distribution. 1040z If the rollover is a direct trustee-to-trustee transfer to an IRA established to receive the distribution: The transfer will be treated as an eligible rollover distribution. 1040z The IRA will be considered an inherited account. 1040z The required minimum distribution rules that apply in instances where the participant dies before the entire interest is distributed will apply to the transferred IRA. 1040z    For more information on IRAs, see Publication 590. 1040z Frozen deposits. 1040z   The 60-day period usually allowed for completing a rollover is extended for any time that the amount distributed is a frozen deposit in a financial institution. 1040z The 60-day period cannot end earlier than 10 days after the deposit ceases to be a frozen deposit. 1040z   A frozen deposit is any deposit that on any day during the 60-day period cannot be withdrawn because: The financial institution is bankrupt or insolvent, or The state where the institution is located has placed limits on withdrawals because one or more banks in the state are (or are about to be) bankrupt or insolvent. 1040z Gift Tax If, by choosing or not choosing an election, or option, you provide an annuity for your beneficiary at or after your death, you may have made a taxable gift equal to the value of the annuity. 1040z Joint and survivor annuity. 1040z   If the gift is an interest in a joint and survivor annuity where only you and your spouse have the right to receive payments, the gift will generally be treated as qualifying for the unlimited marital deduction. 1040z More information. 1040z   For information on the gift tax, see Publication 559, Survivors, Executors, and Administrators. 1040z Prev  Up  Next   Home   More Online Publications
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1040z It is critical that business owners correctly determine whether the individuals providing services are employees or independent contractors. 1040z Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors. 1040z Select the Scenario that Applies to You: 1040z I am an independent contractor or in business for myself 1040z If you are a business owner or contractor who provides services to other businesses, then you are generally considered self-employed. For more information on your tax obligations if you are self-employed (an independent contractor), see our Self-Employed Tax Center. 1040z I hire or contract with individuals to provide services to my business 1040z If you are a business owner hiring or contracting with other individuals to provide services, you must determine whether the individuals providing services are employees or independent contractors. Follow the rest of this page to find out more about this topic and what your responsibilities are. 1040z Determining Whether the Individuals Providing Services are Employees or Independent Contractors 1040z Before you can determine how to treat payments you make for services, you must first know the business relationship that exists between you and the person performing the services. The person performing the services may be - 1040z An independent contractor 1040z An employee (common-law employee) 1040z A statutory employee 1040z A statutory nonemployee 1040z In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered. 1040z Common Law Rules 1040z Facts that provide evidence of the degree of control and independence fall into three categories: 1040z Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job? 1040z Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.) 1040z Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business? 1040z Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another. 1040z The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination. 1040z Form SS-8 1040z If, after reviewing the three categories of evidence, it is still unclear whether a worker is an employee or an independent contractor, Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding (PDF) can be filed with the IRS. The form may be filed by either the business or the worker. The IRS will review the facts and circumstances and officially determine the worker’s status. 1040z Be aware that it can take at least six months to get a determination, but a business that continually hires the same types of workers to perform particular services may want to consider filing the Form SS-8 (PDF).