September 05, 2010

Housing Designation of 403(b) Plan Retirement Distributions

Question 1:

An investment advisor "once heard regarding 403(b) plans that distributions from such plans could not qualify for the housing allowance." Later, he "came across several tax sources that say 403(b)(9) distributions may qualify for housing allowance [designation] (the "nine" apparently being the distinguishing characteristic)."

Can 403(b) distributions qualify for housing designation?

Answer 1:

Distributions from 403(b) plans qualify for housing designation. I point readers of this blog to my posting of October 28, 2009:

Retired Minister Continued Support from His Congregation

Question 2:

How does a 403(b)(9) differ from traditional 403(b) plans?

Answer 2:

Section 403(b)(1) describes TSAs (also known as 403(b) plans) as annuities (Tax-Sheltered Annuities). Section 403(b)(9)(a)(i) clarifies that “a retirement income account shall be treated as an annuity contract described in [section 403(b)]." Section 9 simply indicates that annuities are not the only form of permissible 403(b) plan investments.

2 comments:

  1. Corey, How can I show the distributions from a 403(b) are tax-free housing allowance when the mutual fund or insurance company sends out a 1099 showing a taxable distribution? I have a letter from the church permitting it to be used for housing in my retirement but they set up the 403(b) directly through American Funds.

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  2. We have found it best to include the full taxable distribution on Form 1040, Line 16b (Pensions and annuities). Then on Line 21 (Other Income), indicate the description "Housing - Revenue Ruling 62-117" and subtract the permissible amount of housing allowance. In other words, the permissible amount of housing allowance will be a negative number in Line 21.

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