A Rabbi Trust is a non-qualified deferred compensation arrangement in which funds are invested in an irrevocable trust to be held for the benefit of employees for retirement purposes. The funds contributed are tax deferred in a similar manner to other tax deferred vehicles such as the RPB 403(b) plan. The name “Rabbi Trust” was established because the first IRS letter ruling with respect to this type of trust involved a rabbi; however, the Rabbi Trust is widely utilized in commercial enterprises and not-for-profit organizations.

In some instances, depending on a participant’s includable income, (generally, includable income is a participant’s salary without including parsonage) employers could make contributions that exceed the IRS maximum contribution limits for a 403(b) plan during an RPB plan year. If this occurs, the RPB will automatically place the amount that exceeds the IRS maximum contribution limits for the RPB 403(b) plan into a Rabbi Trust account in the participant’s name.

Distribution rules for Rabbi Trust accounts are not as flexible as for 403(b) accounts. A Rabbi Trust is a non-qualified deferred compensation plan; therefore, money in a Rabbi Trust is not eligible to be rolled over into qualified retirement plans such as 403(b) plans or IRAs. In addition, per IRS rules, Rabbi Trust balances and associated earnings that were a result of contributions made up until December 31, 2004 must be treated separately from those contributions made after January 1, 2005. The RPB maintains separate accounts for both types of Rabbi Trust plans so that participants can take distributions correctly from both plans. Parsonage exemptions can be claimed by clergy on distributions from both accounts.

The rules concerning distributions from the accounts are as follows:

Rules concerning distributions from Rabbi Trust Pre-2005 accounts that are from contributions and associated earnings made up until December 31, 2004:

  1. You are not eligible for a distribution until the later of your turning age 65 or retirement.
  2. Your options regarding the timing and schedule of distributions are as follows:
    1. You can elect to defer receiving distributions from your Rabbi Trust Pre-2005 account until no later than April 1st in the year following the year you turn 70 ½ regardless of your employment status. To do so you must have an election form on file with the RPB in the calendar year prior to the year you turn 65 or, if later, the calendar year prior to the year that you retire. You must specify the start date and the installment schedule (one to fifteen years).
    2. If no election form is on file with the RPB, a payout over five years (the “Default Election”) will commence in the year you are first eligible to receive a distribution, but no later than April 1st following the year you turn 70 ½.
  3. Regardless of your election, the minimum annual distribution from the Rabbi Trust is $25,000 or your account balance, whichever is less.

Rules concerning distributions from Rabbi Trust Post-2004 accounts that are from contributions and associated earnings made in or after January 1, 2005:

  1. You are not eligible for a distribution until the later of your turning age 65 or retirement.
  2. Your options regarding the timing and schedule of distributions are as follows:
    1. You can elect your start date and distribution schedule:
      1. You can elect to defer commencement of your distribution, but it must be for a minimum of five years, and distributions must commence no later than April 1st in the year following the year you turn 70 ½ regardless of your employment status.
      2. Your distribution election form must be on file with the RPB before you turn 64. It should specify the start date and the installment schedule (one to fifteen years). After you turn 64, any election form on file with the RPB will be irrevocable.
    2. If no election form is on file with the RPB, a payout over five years (the “Default Election”) will commence in the year you are first eligible to receive a distribution, but no later than the April 1st of the year following the year you turn 70 ½ regardless of your employment status.
  3. Regardless of your election, the minimum annual distribution from the Rabbi Trust Post-2004 is $18,000 (the current IRS maximum deferral amount) or your account balance, whichever is less.

While the Rabbi Trust funds are invested by the RPB and held in trust by the RPB, the actual account (contributions and earnings) is technically an asset of the congregation that contributed the funds. Congregations, however, do not have access to the money. The only time that Rabbi Trust funds could be accessed is if the congregation becomes legally insolvent. Under those circumstances, assets in the Rabbi Trust would be available to the claims of creditors of the congregation that contributed the funds.



FAQs Related to Rabbi Trust

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