403(b) Custodial / Custodian Account

Custodial / Custodian accounts:

(a) A custodial account under 403(b)(7) is treated as an annuity contract and must satisfy the various requirements of  403(b).

In addition, the assets of a custodial account must be held by a bank or an approved non-bank trustee or custodian under  401(f). 

The assets must be invested exclusively in regulated investment company stock (e.g., mutual funds) and consequently, a custodial account may not provide life insurance. A custodial account may permit loans to participants.

(b) Both salary and non-salary reduction contributions to a custodial account are subject to certain early distribution restrictions. 

Unlike contributions to annuity contracts, excess contributions to a custodial account are subject to the excise tax under  4973. 

(c) Retirement Income Accounts - A retirement income account is defined under 403(b)(9) as a defined contribution program established and maintained by a church or related organization. 

A retirement income account may take the form of a defined benefit plan if it is grandfathered. 

A defined benefit plan which is established by a church or a convention or association of churches and is in effect on August 13, 1982, is not treated as failing to satisfy the requirements of  403(b) merely because it is a defined benefit arrangement.

Retirement income accounts are generally subject to the rules and requirements for annuity contracts. 

The funding vehicles for these accounts are varied, and include annuity contracts and custodial accounts.

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