Ask the Experts – Can In-Service Distributions Be Rolled Over?

“Our 403(b) plan allows for in-service distributions. What is the income taxation of such distributions, and can such distributions be rolled over to another retirement plan or IRA as is the case with distributions at retirement/termination of employment?”

Stacey Bradford, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:

The answers is “It depends.” If the in-service distribution, otherwise known as a distribution while actively employed with the plan sponsor, is a qualifying distribution from a Roth account or a distribution of after-tax contributions then the distribution is not subject to income tax. However, all other distributions would be taxable income to the recipient. Also, if the participant is not yet 59 ½ years of age or older, a 10% premature distribution penalty would apply to otherwise taxable distributions, in addition to any income taxes owed.

As for whether such distributions can be rolled over, most in-service distributions can indeed be rolled over to another retirement plan or IRA. However, if a participant is taking a hardship distribution or a required minimum distribution (though those are not required until after the later of age 70 ½ or retirement) those are NOT eligible for rollover.

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.