Section 403(b) Tax-Sheltered Annuity Exclusion

§ 403. Taxation of employee annuities(a) Taxability of beneficiary under a qualified annuity plan(1) Distributee taxable under section 72If an annuity contract is purchased by an employer for an employee under a plan which meets the requirements of section 404(a)(2) (whether or not the employer deducts the amounts paid for the contract under such section), the amount actually distributed to any distributee under the contract shall be taxable to the distributee (in the year in which so distributed) under section 72 (relating to annuities). (2) Special rule for health and long-term care insuranceTo the extent provided in section 402(l), paragraph (1) shall not apply to the amount distributed under the contract which is otherwise includible in gross income under this subsection. (3) Self-employed individualsFor purposes of this subsection, the term “employee” includes an individual who is an employee within the meaning of section 401(c)(1), and the employer of such individual is the person treated as his employer under section 401(c)(4). (4) Rollover amounts(A) General ruleIf—(i) any portion of the balance to the credit of an employee in an employee annuity described in paragraph (1) is paid to him in an eligible rollover distribution (within the meaning of section 402(c)(4)), (ii) the employee transfers any portion of the property he receives in such distribution to an eligible retirement plan, and (iii) in the case of a distribution of property other than money, the amount so transferred consists of the property distributed, then such distribution (to the extent so transferred) shall not be includible in gross income for the taxable year in which paid. (B) Certain rules made applicableThe rules of paragraphs (2) through (7) and (11) and (9) of section 402(c) and section 402(f) shall apply for purposes of subparagraph (A). (5) Direct trustee-to-trustee transferAny amount transferred in a direct trustee-to-trustee transfer in accordance with section 401(a)(31) shall not be includible in gross income for the taxable year of such transfer. (6) Qualified long-term care distributionsAn annuity contract shall not fail to be subject to this subsection solely by reason of allowing distributions to which section 401(a)(39) applies. (b) Taxability of beneficiary under annuity purchased by section 501(c)(3) organization or public school(1) General ruleIf—(A) an annuity contract is purchased—(i) for an employee by an employer described in section 501(c)(3) which is exempt from tax under section 501(a), (ii) for an employee (other than an employee described in clause (i)), who performs services for an educational organization described in section 170(b)(1) (A)(ii), by an employer which is a State, a political subdivision of a State, or an agency or instrumentality of any one or more of the foregoing, or (iii) for the minister described in section 414(e)(5)(A) by the minister or by an employer,