How do changes brought about by COVID-19 affect my 403(b)/TSA?
There are a couple of changes in the CARES Act of 2020 of which you may want to take advantage.
- First, the “Required Minimum Distribution” (RMD, see below) has been waived for 2020. This means there will be no penalty should you not take the otherwise required distribution for tax year 2020.
- Second, should you be considered a “person affected by COVID-19”, you would be able to access funds in your account without incurring an IRS penalty. The CARES Act of 2020 expires at the end of December, so if this is a course of action you would like to explore, please contact us to start the process.
What happens to my account when I retire?
403(b) accounts continue to earn interest until you choose how and when to take the money out. There is no penalty, fee or other cost associated with this eventuality. While you will not be able to make further contributions (they must be payroll deductions), there is no obligation to take your money out until the year you turn 72. (See “What is an RMD?”, below.)
What happens to my account if I stop working for my employer?
403(b) accounts continue to earn interest until you choose how and when to take the money out. There is no penalty, fee or other cost associated with this event. While you will not be able to make further contributions, there is no obligation to take your money out until the year you turn 72. (See “What is an RMD?”, below.) Also, you may be eligible to start receiving distributions upon seperation of service. (See “How do I get money out of my 403(b)/TSA?”, below.)
How do I change the amount I am contributing to my 403(b)/TSA?
Please contact us to help you work through the process.
What is an RMD?
“RMD” is short for “Required Minimum Distribution”. For tax deferred plans like the 403(b), the IRS requires policy owners start taking withdrawals from their accounts in the year they turn 72. The amount that must be withdrawn is based on an IRS calculation and can be computed by your 403(b) providing company. If you are approaching age 72, or if you have received correspondence from the company regarding RMD, please contact the company to complete your Minimum Distribution Election Form. (Please note: The age of RMD Election was raised by the SECURE Act of 2019 from 70 1/2 to 72. Please contact us with any questions.)
Note: The tax penalties for not setting up your RMD are substantial.
Can I put money from other qualified accounts into my 403(b)?
Yes. Your 403(b) providing company has the appropriate forms. Please contact their customer service department to learn how.
How can I get money out of my 403(b)/TSA?
If you have reached the age of 59 1/2, or if you have retired after your 55th birthday, call the company to request a 403(b) Withdrawal Request. Under current law, you may be required to provide an approved distribution request from your employer’s TPA. This approved request is then submitted to the company along with the company’s completed and notarized withdrawal request form. The TPA for Las Cruces Public Schools has changed numerous times. Please contact your employer for current contact information, or contact us to assist you with this process. The distribution options available to you include: lump sum, systematic withdrawal of interest only, systematic withdrawal of a set amount, or locked into annuity payments for life. (Warning: Jimmy Lou, Inc. recommends the “annuity” option for specific situations only. It is an irrevocable decision.)
Company-specific contact information is provided in the “Annuity Service” box.
What if I’m not 59 1/2 yet?
If you have separated from service, the process to make a withdrawal is the same as if you had retired (see, above); however, you will most likely incur an IRS penalty tax for early withdrawal.
If you are still employed there is a hardship provision which might allow for withdrawal. To receive money from you r 403(b)/TSA under the hardship withdrawal provision, please:
- Request 403(b) Withdrawal Request from the company.
- Request 403(b) Hardship Withdrawal form (contact us to proceed).
- Submit completed, notarized 403(b) Withdrawal Request with documentation supporting your petition for financial hardship to the company.
- Submit completed 403(b) Hardship Withdrawal form to your employers third party administrator (TPA) with documentation supporting your petition for financial hardship and request that Omni forward approval notice and documentation to your 403(b) provider company.
What has qualified in the past as a financial hardship?
The six circumstances deemed by the IRS to be an “immediate and heavy financial need” are:
- Medical expenses for the employee, spouse and/or dependents.
- Costs associated with the purchase of a principal residence.
- Tuition expenses associated with the employee, spouse or dependents.
- Payments necessary to prevent eviction or foreclosure.
- Burial/funeral expenses for employee, spouse or dependents.
- Repair of damage to employee’s principal residence.
The third-party administrator reserves the authority to adjudicate whether or not a withdrawal is allowable under financial hardship as defined by the IRS. Please contact Omni Financial with any questions you may have.
Can I borrow from my 403(b)/TSA?
If you are still employed, you cannot. If you have separated from service you may request a loan using the appropriate form provided by your 403(b) company. A letter from your employer on official letterhead verifying your separation from service must accompany any loan request forms.
I received a notice from the company that my term life insurance premium is going to go up… a lot. What’s going on?
Term life insurance is designed to provide insurance for a specific period of time at an affordable cost. As the end of your “term” approaches, you should receive a notice from the company. If you choose to continue being insured at the end of your term, the premium will become very expensive and continue to rise on an annual basis with each passing policy anniversary date. There is a much better option should you wish to continue coverage beyond the contract’s term. One added benefit of term life insurance is the ability to convert it to permanent insurance at standard rates for age without evidence of health. The term conversion option is available as long as the insured has not reached the age of 70. Yes, the premium will be higher than the original term insurance, but the insured will not need to prequalify by demonstrating good health. If converting the entire face amount is cost prohibitive, a reduced face amount can be converted to control the ongoing cost. Call your company’s customer service line and ask about “term conversion”. They will be able to provide you with all of the specifics. Once you’ve reviewed your insurable interests, you should have a better idea about how your life insurance fits with your current financial plans and obligations.
How do I report 403(b) distributions for tax puposes?
The company will send you a federal 1099 form at the end of the year to file with your taxes. 403(b) distributions are required to withhold 20% and this will be represented on your 1099 form. You may elect to withhold a different amount not less than 20%. You may also elect to have an amount withheld for state income taxes, if applicable.
How do I update my information with the company?
Please contact us or call the company to receive a Service Request Form or Beneficiary Designation Form. By submitting a completed form, you will be able to update your name, address and beneficiaries. Please keep your address updated to continue to receive statements.
Do the answers to these questions apply to everyone, or just clients of Jimmy Lou, Inc.?
Answers to these questions are intended for clients of Jimmy Lou, Inc. While some of the information provided may apply to others, it is not intended as a general public resource.