4075 / When must distributions begin from a tax sheltered annuity?
Tax sheltered annuities, including custodial accounts and church retirement income contracts, are subject to minimum distribution rules set forth in IRC Section 401(a)(9), both in form and operation.1 Except as described below and in Q 4078 to Q 4084, Section 403(b) contracts are treated as IRAs for purposes of applying the minimum distribution requirements.2 Regulations finalized in 2007 address a number of issues concerning the application of these rules to tax sheltered annuities.3
If a custodian has adequate records to distinguish between amounts accruing before January 1, 1987, known as the pre-1987 account balance, and amounts accruing after December 31, 1986, known as the post-1986 account balance, which includes earnings on the pre-1987 account balance, the minimum distribution requirements are imposed only on the post-1986 account balance.4
The issuer or custodian of the contract must be able to identify the pre-1987 balance, maintain accurate records of changes in it, and provide information on request to the participant or beneficiaries with respect to the contract. If the issuer or custodian does not keep these records, the entire balance will be treated as subject to IRC Section 401(a)(9).5