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Rabbi Trust Plan

Capturing all of your employer contributions

You may find that your employer’s contributions to your 403(b) retirement account are nearing or surpassing the annual IRS employer contribution limit. To allow your employer to contribute more than the IRS limit each year, RPB offers a Rabbi Trust.

A Rabbi Trust is a non-qualified deferred compensation plan in which funds are invested in an irrevocable trust and held for the benefit of employees for retirement purposes. While the funds are intended for your retirement—like your 403(b) account—there are important differences that RPB is here to help you understand.

Details, benefits, and important considerations

As you consider how to incorporate the Rabbi Trust into your retirement savings plan, we suggest that you discuss the strict distribution and tax rules with a tax professional to ensure that you fully understand the impact on your finances when you retire.

While the Rabbi Trust is available to all RPB plan participants, contributions are only made by employers if their contributions exceed the IRS 403(b) contribution limit for a calendar year.

This is because a non-qualified deferred compensation arrangement—like a Rabbi Trust—holds a portion of an employee’s compensation to be received at a later date than when the income was earned. Taxes on the money are deferred until it is withdrawn.

Keep in mind that because employer contributions to the Rabbi Trust are considered deferred wages—and wages are subject to FICA tax—non-clergy participants should pay FICA tax in the calendar year the contribution is made. Otherwise, FICA tax will have to be paid on the entire distribution (including earnings) when the money is withdrawn.

To simplify the process, RPB automatically allocates the appropriate portion of the contribution to a Rabbi Trust account in the participant’s name based on annual IRS limits.

You can’t take a distribution from a Rabbi Trust account until you’re at least 65 and are no longer working for an RPB-eligible employer.

You can’t take early withdrawals, including a loan or hardship, and distributions from the Rabbi Trust can’t be rolled over to a 403(b) or IRA account.

Distributions are also handled differently based on when the contributions to your Rabbi Trust account were made. The IRS requires that Rabbi Trust contributions made up until December 31, 2004 must be treated separately from contributions made after January 1, 2005. RPB maintains separate accounts for both types of Rabbi Trust plans to ensure that participants can take distributions correctly, as the distribution rules are different.

For both types of Rabbi Trust accounts, the money in your account will be paid out over five years unless you tell us otherwise.

You can defer your distributions by completing and submitting the RPB Distribution Election form. The length of time you can defer your distributions varies based on when the funds were contributed. Take a look at the Rabbi Trust Distribution Rules Table below for more information.

There are different annual minimum distribution amounts based on whether the contributions were made before or after January 1, 2005.

Because the Rabbi Trust is a non-qualified deferred compensation plan, the distribution is classified as supplemental wages and reported on a Form W-2 Wage and Tax Statement rather than on the Form 1099-R used for retirement income.

This means that assets in the Rabbi Trust would be available to creditors’ claims if the congregation that made the Rabbi Trust contributions becomes legally insolvent. The assets are not impacted when the congregation merges with another congregation, or if the congregation has cash-flow issues.

Want more control over your Rabbi Trust distributions?

The money in your Rabbi Trust account will automatically be paid out over five years unless you elect a different payout schedule by completing the Distribution Election form. Carefully consider the timing of these distributions as you're planning to manage your tax burden in retirement.

If you're planning to withdraw contributions that were made to your account before 2005, make sure to submit the Distribution Election form before your 64th birthday. Otherwise, you have until your 65th birthday to submit the form.

Rabbi Trust distribution rules

Make sure you understand your options and obligations for distributions of assets made either before January 1, 2005 or after December 31, 2004.

Post-2004 Pre-2005

Age when first eligible for distributions

At least 65 and retired

At least 65 and retired

Mandatory Distribution age

Must begin by April 1 of the year following the year you turn 70½, even if still working

Must begin by April 1 of the year following the year you turn 70½, even if still working

Annual Minimum Distribution

Lesser of $25,000 or your account balance

Lesser of IRS Code section 402(g) limit ($19,000 for 2019) or your account balance

Default Payout Period

5 years (subject to annual minimum)

5 years (subject to annual minimum)

Other Payout Options

Instead of the default payout period, you can elect to receive your money in one lump sum or over 2 to 15 years (subject to annual minimum).

Payments can begin when 65 and retired, but are required to begin no later than April 1 of the year following the year you turn 70½.

A distribution election form is required.

Instead of the default payout period, you can elect to receive your money in one lump sum or over 2 to 15 years (subject to annual minimum).

The first payment must be deferred for five years to no later than April 1 of the year following the year you turn 70½.

A distribution election form is required.

Distribution Election Form Deadline

If you want a payout period other than the five-year default, you must submit a Distribution Election Form by December 31 of the year before you turn 65 or the year you retire (if you retire after 65).

If you want a payout period other than the five-year default, you must submit a Distribution Election Form before your 64th birthday.

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