Section 403(b) Arrangements (Portfolio 388)


Jon Hughes


Montgomery McCracken Walker & Rhoads LLP


Jim Olson


Schnader Harrison Segal & Lewis LLP

At a glance

I. Introduction
II. Eligibility for Section 403(b) Arrangements
III. Funding Section 403(b) Arrangements
IV. Requirements for Section 403(b) Arrangements
V. Tax Incentives
VI. Distributions
VII. Correction of Section 403(b) Arrangement Compliance Failures


Bloomberg Tax Portfolio, Section 403(b) Arrangements, No. 388, examines the three varieties of §403(b) arrangements available under the I.R.C. (i.e., annuity contracts, custodial accounts, and church-maintained retirement income plans).

Although often used as retirement plans for employees of public schools (including employees of state colleges and universities), hospitals, and other tax-exempt organizations, §403(b) arrangements may also be used by individual employees of these organizations as an advantageous means of saving for retirement on a tax-sheltered basis. Thus, in addition to focusing on the complex rules limiting the contributions that may be excluded, or deducted, from an eligible employee's gross income, the Portfolio identifies the employees who are eligible for §403(b) arrangements, discusses the different arrangements, the applicable tax and ERISA rules, including the distribution rules and tax incentives, and how errors can be corrected.

Related Tax Management Portfolios include 361 T.M., Reporting and Disclosure Under ERISA, 370 T.M., Distributions from Qualified Plans — Taxation and Qualification, 373 T.M., Employee Benefits for Tax-Exempt Organizations and 392 T.M., Withholding, Social Security and Unemployment Taxes on Compensation.

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