§408 — Individual retirement accounts
153 citing cases
Statute Text — 26 U.S.C. §408
For purposes of this section, the term “individual retirement account” means a trust created or organized in the United States for the exclusive benefit of an individual or his beneficiaries, but only if the written governing instrument creating the trust meets the following requirements:
Except in the case of a rollover contribution described in subsection (d)(3) or in section 402(c), 403(a)(4), 403(b)(8), or 457(e)(16), no contribution will be accepted unless it is in cash, and contributions will not be accepted for the taxable year on behalf of any individual in excess of the amount in effect for such taxable year under section 219(b)(1)(A).
The trustee is a bank (as defined in subsection (n)) or such other person who demonstrates to the satisfaction of the Secretary that the manner in which such other person will administer the trust will be consistent with the requirements of this section.
No part of the trust funds will be invested in life insurance contracts.
The interest of an individual in the balance in his account is nonforfeitable.
The assets of the trust will not be commingled with other property except in a common trust fund or common investment fund.
Under regulations prescribed by the Secretary, rules similar to the rules of section 401(a)(9) and the incidental death benefit requirements of section 401(a) shall apply to the distribution of the entire interest of an individual for whose benefit the trust is maintained.
For purposes of this section, the term “individual retirement annuity” means an annuity contract, or an endowment contract (as determined under regulations prescribed by the Secretary), issued by an insurance company which meets the following requirements:
The contract is not transferable by the owner.
Under the contract—
the premiums are not fixed,
the annual premium on behalf of any individual will not exceed the dollar amount in effect under section 219(b)(1)(A), and
any refund of premiums will be applied before the close of the calendar year following the year of the refund toward the payment of future premiums or the purchase of additional benefits.
Under regulations prescribed by the Secretary, rules similar to the rules of section 401(a)(9) and the incidental death benefit requirements of section 401(a) shall apply to the distribution of the entire interest of the owner.
The entire interest of the owner is nonforfeitable.
Such term does not include such an annuity contract for any taxable year of the owner in which it is disqualified on the application of subsection (e) or for any subsequent taxable year. For purposes of this subsection, no contract shall be treated as an endowment contract if it matures later than the taxable year in which the individual in whose name such contract is purchased attains the applicable age (determined under section 401(a)(9)(C)(v) for the calendar year in which such taxable year begins); if it is not for the exclusive benefit of the individual in whose name it is purchased or his beneficiaries; or if the aggregate annual premiums under all such contracts purchased in the name of such individual for any taxable year exceed the dollar amount in effect under section 219(b)(1)(A).
A trust created or organized in the United States by an employer for the exclusive benefit of his employees or their beneficiaries, or by an association of employees (which may include employees within the meaning of section 401(c)(1)) for the exclusive benefit of its members or their beneficiaries, shall be treated as an individual retirement account (described in subsection (a)), but only if the written governing instrument creating the trust meets the following requirements:
The trust satisfies the requirements of paragraphs (1) through (6) of subsection (a).
There is a separate accounting for the interest of each employee or member (or spouse of an employee or member).
There is a separate accounting for any interest of an employee or member (or spouse of an employee or member) in a Roth IRA.
The assets of the trust may be held in a common fund for the account of all individuals who have an interest in the trust.
Except as otherwise provided in this subsection, any amount paid or distributed out of an individual retirement plan shall be included in gross income by the payee or distributee, as the case may be, in the manner provided under section 72.
For purposes of applying section 72 to any amount described in paragraph (1)—
all individual retirement plans shall be treated as 1 contract,
all distributions during any taxable year shall be treated as 1 distribution, and
the value of the contract, income on the contract, and investment in the contract shall be computed as of the close of the calendar year in which the taxable year begins.
For purposes of subparagraph (C), the value of the contract shall be increased by the amount of any distributions during the calendar year.
An amount is described in this paragraph as a rollover contribution if it meets the requirements of subparagraphs (A) and (B).
Paragraph (1) does not apply to any amount paid or distributed out of an individual retirement account or individual retirement annuity to the individual for whose benefit the account or annuity is maintained if—
the entire amount received (including money and any other property) is paid into an individual retirement account or individual retirement annuity (other than an endowment contract) for the benefit of such individual not later than the 60th day after the day on which he receives the payment or distribution; or
the entire amount received (including money and any other property) is paid into an eligible retirement plan for the benefit of such individual not later than the 60th day after the date on which the payment or distribution is received, except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross income (determined without regard to this paragraph).
For purposes of clause (ii), the term “eligible retirement plan” means an eligible retirement plan described in clause (iii), (iv), (v), or (vi) of section 402(c)(8)(B).
This paragraph does not apply to any amount described in subparagraph (A)(i) received by an individual from an individual retirement account or individual retirement annuity if at any time during the 1-year period ending on the day of such receipt such individual received any other amount described in that subparagraph from an individual retirement account or an individual retirement annuity which was not includible in his gross income because of the application of this paragraph.
In the case of an inherited individual retirement account or individual retirement annuity—
this paragraph shall not apply to any amount received by an individual from such an account or annuity (and no amount transferred from such account or annuity to another individual retirement account or annuity shall be excluded from gross income by reason of such transfer), and
such inherited account or annuity shall not be treated as an individual retirement account or annuity for purposes of determining whether any other amount is a rollover contribution.
An individual retirement account or individual retirement annuity shall be treated as inherited if—
the individual for whose benefit the account or annuity is maintained acquired such account by reason of the death of another individual, and
such individual was not the surviving spouse of such other individual.
If any amount paid or distributed out of an individual retirement account or individual retirement annuity would meet the requirements of subparagraph (A) but for the fact that the entire amount was not paid into an eligible plan as required by clause (i) or (ii) of subparagraph (A), such amount shall be treated as meeting the requirements of subparagraph (A) to the extent it is paid into an eligible plan referred to in such clause not later than the 60th day referred to in such clause.
For purposes of clause (i), the term “eligible plan” means any account, annuity, contract, or plan referred to in subparagraph (A).
This paragraph shall not apply to any amount to the extent such amount is required to be distributed under subsection (a)(6) or (b)(3).
For purposes of this paragraph, rules similar to the rules of section 402(c)(7) (relating to frozen deposits) shall apply.
In the case of any payment or distribution out of a simple retirement account (as defined in subsection (p)) to which section 72(t)(6)(A) applies, this paragraph shall not apply unless such payment or distribution is paid into another simple retirement account.
If—
a distribution is made from an individual retirement plan, and
a rollover contribution is made to an eligible retirement plan described in section 402(c)(8)(B)(iii), (iv), (v), or (vi) with respect to all or part of such distribution,
In the case of a distribution described in clause (i)—
section 72 shall be applied separately to such distribution,
notwithstanding the pro rata allocation of income on, and investment in, the contract to distributions under section 72, the portion of such distribution rolled over to an eligible retirement plan described in clause (i) shall be treated as from income on the contract (to the extent of the aggregate income on the contract from all individual retirement plans of the distributee), and
appropriate adjustments shall be made in applying section 72 to other distributions in such taxable year and subsequent taxable years.
then, notwithstanding paragraph (2), the rules of clause (ii) shall apply for purposes of applying section 72.
The Secretary may waive the 60-day requirement under subparagraphs (A) and (D) where the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to such requirement.
Paragraph (1) does not apply to the distribution of any contribution paid during a taxable year to an individual retirement account or for an individual retirement annuity if—
such distribution is received on or before the day prescribed by law (including extensions of time) for filing such individual’s return for such taxable year,
no deduction is allowed under section 219 with respect to such contribution, and
such distribution is accompanied by the amount of net income attributable to such contribution.
In the case of such a distribution, for purposes of section 61, any net income described in subparagraph (C) shall be deemed to have been earned and receivable in the taxable year in which such contribution is made.
In the case of any individual, if the aggregate contributions (other than rollover contributions) paid for any taxable year to an individual retirement account or for an individual retirement annuity do not exceed the dollar amount in effect under section 219(b)(1)(A), paragraph (1) shall not apply to the distribution of any such contribution to the extent that such contribution exceeds the amount allowable as a deduction under section 219 for the taxable year for which the contribution was paid—
if such distribution is received after the date described in paragraph (4),
but only to the extent that no deduction has been allowed under section 219 with respect to such excess contribution.
If employer contributions on behalf of the individual are paid for the taxable year to a simplified employee pension, the dollar limitation of the preceding sentence shall be increased by the lesser of the amount of such contributions or the dollar limitation in effect under section 415(c)(1)(A) for such taxable year.
If—
the taxpayer reasonably relies on information supplied pursuant to subtitle F for determining the amount of a rollover contribution, but
the information was erroneous,
subparagraph (A) shall be applied by increasing the dollar limit set forth therein by that portion of the excess contribution which was attributable to such information.
For purposes of this paragraph, the amount allowable as a deduction under section 219 shall be computed without regard to section 219(g).
The transfer of an individual’s interest in an individual retirement account or an individual retirement annuity to his spouse or former spouse under a divorce or separation instrument described in clause (i) of section 121(d)(3)(C) is not to be considered a taxable transfer made by such individual notwithstanding any other provision of this subtitle, and such interest at the time of the transfer is to be treated as an individual retirement account of such spouse, and not of such individual. Thereafter such account or annuity for purposes of this subtitle is to be treated as maintained for the benefit of such spouse.
Notwithstanding any other provision of this subsection or section 72(t), paragraph (1) and section 72(t)(1) shall apply to the transfer or distribution from a simplified employee pension of any contribution under a salary reduction arrangement described in subsection (k)(6) (or any income allocable thereto) before a determination as to whether the requirements of subsection (k)(6)(A)(iii) are met with respect to such contribution.
For purposes of paragraphs (4) and (5) and section 4973, any amount excludable or excluded from gross income under section 402(h) or 402(k) shall be treated as an amount allowable or allowed as a deduction under section 219.
So much of the aggregate amount of qualified charitable distributions with respect to a taxpayer made during any taxable year which does not exceed $100,000 shall not be includible in gross income of such taxpayer for such taxable year. The amount of distributions not includible in gross income by reason of the preceding sentence for a taxable year (determined without regard to this sentence) shall be reduced (but not below zero) by an amount equal to the excess of—
the aggregate amount of deductions allowed to the taxpayer under section 219 for all taxable years ending on or after the date the taxpayer attains age 70½, over
the aggregate amount of reductions under this sentence for all taxable years preceding the current taxable year.
For purposes of this paragraph, the term “qualified charitable distribution” means any distribution from an individual retirement plan (other than a plan described in subsection (k) or (p))—
which is made directly by the trustee to an organization described in section 170(b)(1)(A) (other than any organization described in section 509(a)(3) or any fund or account described in section 4966(d)(2)), and
which is made on or after the date that the individual for whose benefit the plan is maintained has attained age 70½.
A distribution shall be treated as a qualified charitable distribution only to the extent that the distribution would be includible in gross income without regard to subparagraph (A).
For purposes of this paragraph, a distribution to an organization described in subparagraph (B)(i) shall be treated as a qualified charitable distribution only if a deduction for the entire distribution would be allowable under section 170 (determined without regard to subsection (b) thereof and this paragraph).
Notwithstanding section 72, in determining the extent to which a distribution is a qualified charitable distribution, the entire amount of the distribution shall be treated as includible in gross income without regard to subparagraph (A) to the extent that such amount does not exceed the aggregate amount which would have been so includible if all amounts in all individual retirement plans of the individual were distributed during such taxable year and all such plans were treated as 1 contract for purposes of determining under section 72 the aggregate amount which would have been so includible. Proper adjustments shall be made in applying section 72 to other distributions in such taxable year and subsequent taxable years.
Qualified charitable distributions which are not includible in gross income pursuant to subparagraph (A) shall not be taken into account in determining the deduction under section 170.
A taxpayer may for a taxable year elect under this subparagraph to treat as meeting the requirement of subparagraph (B)(i) any distribution from an individual retirement account which is made directly by the trustee to a split-interest entity, but only if—
an election is not in effect under this subparagraph for a preceding taxable year,
the aggregate amount of distributions of the taxpayer with respect to which an election under this subparagraph is made does not exceed $50,000, and
such distribution meets the requirements of clauses (iii) and (iv).
For purposes of this subparagraph, the term “split-interest entity” means—
a charitable remainder annuity trust (as defined in section 664(d)(1)), but only if such trust is funded exclusively by qualified charitable distributions,
a charitable remainder unitrust (as defined in section 664(d)(2)), but only if such unitrust is funded exclusively by qualified charitable distributions, or
a charitable gift annuity (as defined in section 501(m)(5)), but only if such annuity is funded exclusively by qualified charitable distributions and commences fixed payments of 5 percent or greater not later than 1 year from the date of funding.
A distribution meets the requirements of this clause only if—
in the case of a distribution to a charitable remainder annuity trust or a charitable remainder unitrust, a deduction for the entire value of the remainder interest in the distribution for the benefit of a specified charitable organization would be allowable under section 170 (determined without regard to subsection (b) thereof and this paragraph), and
in the case of a charitable gift annuity, a deduction in an amount equal to the amount of the distribution reduced by the value of the annuity described in section 501(m)(5)(B) would be allowable under section 170 (determined without regard to subsection (b) thereof and this paragraph).
A distribution meets the requirements of this clause only if—
no person holds an income interest in the split-interest entity other than the individual for whose benefit such account is maintained, the spouse of such individual, or both, and
the income interest in the split-interest entity is nonassignable.
Notwithstanding section 664(b), distributions made from a trust described in subclause (I) or (II) of clause (ii) shall be treated as ordinary income in the hands of the beneficiary to whom the annuity described in section 664(d)(1)(A) or the payment described in section 664(d)(2)(A) is paid.
Qualified charitable distributions made to fund a charitable gift annuity shall not be treated as an investment in the contract for purposes of section 72(c).
In the case of any taxable year beginning after 2023, each of the dollar amounts in subparagraphs (A) and (F) shall be increased by an amount equal to—
such dollar amount, multiplied by
the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting “calendar year 2022” for “calendar year 2016” in subparagraph (A)(ii) thereof.
If any dollar amount increased under clause (i) is not a multiple of $1,000, such dollar amount shall be rounded to the nearest multiple of $1,000.
In the case of an individual who is an eligible individual (as defined in section 223(c)) and who elects the application of this paragraph for a taxable year, gross income of the individual for the taxable year does not include a qualified HSA funding distribution to the extent such distribution is otherwise includible in gross income.
For purposes of this paragraph, the term “qualified HSA funding distribution” means a distribution from an individual retirement plan (other than a plan described in subsection (k) or (p)) of the employee to the extent that such distribution is contributed to the health savings account of the individual in a direct trustee-to-trustee transfer.
The amount excluded from gross income by subparagraph (A) shall not exceed the excess of—
the annual limitation under section 223(b) computed on the basis of the type of coverage under the high deductible health plan covering the individual at the time of the qualified HSA funding distribution, over
in the case of a distribution described in clause (ii)(II), the amount of the earlier qualified HSA funding distribution.
Except as provided in subclause (II), an individual may make an election under subparagraph (A) only for one qualified HSA funding distribution during the lifetime of the individual. Such an election, once made, shall be irrevocable.
If a qualified HSA funding distribution is made during a month in a taxable year during which an individual has self-only coverage under a high deductible health plan as of the first day of the month, the individual may elect to make an additional qualified HSA funding distribution during a subsequent month in such taxable year during which the individual has family coverage under a high deductible health plan as of the first day of the subsequent month.
If, at any time during the testing period, the individual is not an eligible individual, then the aggregate amount of all contributions to the health savings account of the individual made under subparagraph (A)—
shall be includible in the gross income of the individual for the taxable year in which occurs the first month in the testing period for which such individual is not an eligible individual, and
the tax imposed by this chapter for any taxable year on the individual shall be increased by 10 percent of the amount which is so includible.
Subclauses (I) and (II) of clause (i) shall not apply if the individual ceased to be an eligible individual by reason of the death of the individual or the individual becoming disabled (within the meaning of section 72(m)(7)).
The term “testing period” means the period beginning with the month in which the qualified HSA funding distribution is contributed to a health savings account and ending on the last day of the 12th month following such month.
Notwithstanding section 72, in determining the extent to which an amount is treated as otherwise includible in gross income for purposes of subparagraph (A), the aggregate amount distributed from an individual retirement plan shall be treated as includible in gross income to the extent that such amount does not exceed the aggregate amount which would have been so includible if all amounts from all individual retirement plans were distributed. Proper adjustments shall be made in applying section 72 to other distributions in such taxable year and subsequent taxable years.
Any individual retirement account is exempt from taxation under this subtitle unless such account has ceased to be an individual retirement account by reason of paragraph (2) or (3). Notwithstanding the preceding sentence, any such account is subject to the taxes imposed by section 511 (relating to imposition of tax on unrelated business income of charitable, etc. organizations).
If, during any taxable year of the individual for whose benefit any individual retirement account is established, that individual or his beneficiary engages in any transaction prohibited by section 4975 with respect to such account, such account ceases to be an individual retirement account as of the first day of such taxable year. For purposes of this paragraph—
the individual for whose benefit any account was established is treated as the creator of such account,
the separate account for any individual within an individual retirement account maintained by an employer or association of employees is treated as a separate individual retirement account, and
each individual retirement plan of the individual shall be treated as a separate contract.
In any case in which any account ceases to be an individual retirement account by reason of subparagraph (A) as of the first day of any taxable year, paragraph (1) of subsection (d) applies as if there were a distribution on such first day in an amount equal to the fair market value (on such first day) of all assets in the account (on such first day).
If during any taxable year the owner of an individual retirement annuity borrows any money under or by use of such contract, the contract ceases to be an individual retirement annuity as of the first day of such taxable year. Such owner shall include in gross income for such year an amount equal to the fair market value of such contract as of such first day.
If, during any taxable year of the individual for whose benefit an individual retirement account is established, that individual uses the account or any portion thereof as security for a loan, the portion so used is treated as distributed to that individual.
If the assets of an individual retirement account or any part of such assets are used to purchase an endowment contract for the benefit of the individual for whose benefit the account is established—
to the extent that the amount of the assets involved in the purchase are not attributable to the purchase of life insurance, the purchase is treated as a rollover contribution described in subsection (d)(3), and
to the extent that the amount of the assets involved in the purchase are attributable to the purchase of life, health, accident, or other insurance, such amounts are treated as distributed to that individual (but the provisions of subsection (f) do not apply).
Any common trust fund or common investment fund of individual retirement account assets which is exempt from taxation under this subtitle does not cease to be exempt on account of the participation or inclusion of assets of a trust exempt from taxation under section 501(a) which is described in section 401(a).
This section shall be applied without regard to any community property laws.
For purposes of this section, a custodial account shall be treated as a trust if the assets of such account are held by a bank (as defined in subsection (n)) or another person who demonstrates, to the satisfaction of the Secretary, that the manner in which he will administer the account will be consistent with the requirements of this section, and if the custodial account would, except for the fact that it is not a trust, constitute an individual retirement account described in subsection (a). For purposes of this title, in the case of a custodial account treated as a trust by reason of the preceding sentence, the custodian of such account shall be treated as the trustee thereof.
The trustee of an individual retirement account and the issuer of an endowment contract described in subsection (b) or an individual retirement annuity shall make such reports regarding such account, contract, or annuity to the Secretary and to the individuals for whom the account, contract, or annuity is, or is to be, maintained with respect to contributions (and the years to which they relate), distributions aggregating $10 or more in any calendar year, and such other matters as the Secretary may require. The reports required by this subsection—
shall be filed at such time and in such manner as the Secretary prescribes, and
shall be furnished to individuals—
not later than January 31 of the calendar year following the calendar year to which such reports relate, and
in such manner as the Secretary prescribes.
In the case of a simple retirement account under subsection (p), only one report under this subsection shall be required to be submitted each calendar year to the Secretary (at the time provided under paragraph (2)) but, in addition to the report under this subsection, there shall be furnished, within 31 days after each calendar year, to the individual on whose behalf the account is maintained a statement with respect to the account balance as of the close of, and the account activity during, such calendar year.
In the case of any simplified employee pension, subsections (a)(1) and (b)(2) of this section shall be applied by increasing the amounts contained therein by the amount of the limitation in effect under section 415(c)(1)(A).
For purposes of this title, the term “simplified employee pension” means an individual retirement account or individual retirement annuity—
with respect to which the requirements of paragraphs (2), (3), (4), and (5) of this subsection are met, and
if such account or annuity is part of a top-heavy plan (as defined in section 416), with respect to which the requirements of section 416(c)(2) are met.
This paragraph is satisfied with respect to a simplified employee pension for a year only if for such year the employer contributes to the simplified employee pension of each employee who—
has attained age 21,
has performed service for the employer during at least 3 of the immediately preceding 5 years, and
received at least $450 in compensation (within the meaning of section 414(q)(4)) from the employer for the year.
For purposes of this paragraph, there shall be excluded from consideration employees described in subparagraph (A) or (C) of section 410(b)(3). For purposes of any arrangement described in subsection (k)(6), any employee who is eligible to have employer contributions made on the employee’s behalf under such arrangement shall be treated as if such a contribution was made.
The requirements of this paragraph are met with respect to a simplified employee pension for a year if for such year the contributions made by the employer to simplified employee pensions for his employees do not discriminate in favor of any highly compensated employee (within the meaning of section 414(q)).
For purposes of subparagraph (A), there shall be excluded from consideration employees described in subparagraph (A) or (C) of section 410(b)(3).
For purposes of subparagraph (A), and except as provided in subparagraph (D), employer contributions to simplified employee pensions (other than contributions under an arrangement described in paragraph (6)) shall be considered discriminatory unless contributions thereto bear a uniform relationship to the compensation (not in excess of the first $200,000) of each employee maintaining a simplified employee pension.
For purposes of subparagraph (C), the rules of section 401(l)(2) shall apply to contributions to simplified employee pensions (other than contributions under an arrangement described in paragraph (6)).
A simplified employee pension meets the requirements of this paragraph only if—
employer contributions thereto are not conditioned on the retention in such pension of any portion of the amount contributed, and
there is no prohibition imposed by the employer on withdrawals from the simplified employee pension.
The requirements of this paragraph are met with respect to a simplified employee pension only if employer contributions to such pension are determined under a definite written allocation formula which specifies—
the requirements which an employee must satisfy to share in an allocation, and
the manner in which the amount allocated is computed.
A simplified employee pension shall not fail to meet the requirements of this subsection for a year merely because, under the terms of the pension, an employee may elect to have the employer make payments—
as elective employer contributions to the simplified employee pension on behalf of the employee, or
to the employee directly in cash.
Clause (i) shall not apply to a simplified employee pension unless an election described in clause (i)(I) is made or is in effect with respect to not less than 50 percent of the employees of the employer eligible to participate.
Clause (i) shall not apply to a simplified employee pension for any year unless the deferral percentage for such year of each highly compensated employee eligible to participate is not more than the product of—
the average of the deferral percentages for such year of all employees (other than highly compensated employees) eligible to participate, multiplied by
1.25.
Clause (i) shall not apply to a simplified employee pension unless the requirements of section 401(a)(30) are met.
This paragraph shall not apply with respect to any year in the case of a simplified employee pension maintained by an employer with more than 25 employees who were eligible to participate (or would have been required to be eligible to participate if a pension was maintained) at any time during the preceding year.
Rules similar to the rules of section 401(k)(8) shall apply to any excess contribution under this paragraph. Any excess contribution under a simplified employee pension shall be treated as an excess contribution for purposes of section 4979.
For purposes of clause (i), the term “excess contribution” means, with respect to a highly compensated employee, the excess of elective employer contributions under this paragraph over the maximum amount of such contributions allowable under subparagraph (A)(iii).
For purposes of this paragraph, the deferral percentage for an employee for a year shall be the ratio of—
the amount of elective employer contributions actually paid over to the simplified employee pension on behalf of the employee for the year, to
the employee’s compensation (not in excess of the first $200,000) for the year.
This paragraph shall not apply to a simplified employee pension maintained by—
a State or local government or political subdivision thereof, or any agency or instrumentality thereof, or
an organization exempt from tax under this title.
This paragraph shall not apply with respect to any year for which the simplified employee pension does not meet such requirements as the Secretary may prescribe as are necessary to insure that excess contributions are distributed in accordance with subparagraph (C), including—
reporting requirements, and
requirements which, notwithstanding paragraph (4), provide that contributions (and any income allocable thereto) may not be withdrawn from a simplified employee pension until a determination has been made that the requirements of subparagraph (A)(iii) have been met with respect to such contributions.
For purposes of this paragraph, the term “highly compensated employee” has the meaning given such term by section 414(q).
This paragraph shall not apply to years beginning after December 31, 1996. The preceding sentence shall not apply to a simplified employee pension of an employer if the terms of simplified employee pensions of such employer, as in effect on December 31, 1996, provide that an employee may make the election described in subparagraph (A).
An individual retirement plan which is designated as a Roth IRA shall not be treated as a simplified employee pension under this subsection unless the employee elects for such plan to be so treated (at such time and in such manner as the Secretary may provide).
For purposes of this subsection and subsection (
l
)—
The terms “employee”, “employer”, and “owner-employee” shall have the respective meanings given such terms by section 401(c).
Except as provided in paragraph (2)(C), the term “compensation” has the meaning given such term by section 414(s).
The term “year” means—
the calendar year, or
if the employer elects, subject to such terms and conditions as the Secretary may prescribe, to maintain the simplified employee pension on the basis of the employer’s taxable year.
The Secretary shall adjust the $450 amount in paragraph (2)(C) at the same time and in the same manner as under section 415(d) and shall adjust the $200,000 amount in paragraphs (3)(C) and (6)(D)(ii) at the same time, and by the same amount, as any adjustment under section 401(a)(17)(B); except that any increase in the $450 amount which is not a multiple of $50 shall be rounded to the next lowest multiple of $50.
For excise tax on certain excess contributions, see section 4979.
An employer who makes a contribution on behalf of an employee to a simplified employee pension shall provide such simplified reports with respect to such contributions as the Secretary may require by regulations. The reports required by this subsection shall be filed at such time and in such manner, and information with respect to such contributions shall be furnished to the employee at such time and in such manner, as may be required by regulations.
Except as provided in this paragraph, no report shall be required under this section by an employer maintaining a qualified salary reduction arrangement under subsection (p).
The trustee of any simple retirement account established pursuant to a qualified salary reduction arrangement under subsection (p) and the issuer of an annuity established under such an arrangement shall provide to the employer maintaining the arrangement, each year a description containing the following information:
The name and address of the employer and the trustee or issuer.
The requirements for eligibility for participation.
The benefits provided with respect to the arrangement.
The time and method of making elections with respect to the arrangement.
The procedures for, and effects of, withdrawals (including rollovers) from the arrangement.
The employer shall notify each employee immediately before the period for which an election described in subsection (p)(5)(C) may be made of the employee’s opportunity to make such election. Such notice shall include a copy of the description described in subparagraph (B).
The acquisition by an individual retirement account or by an individually-directed account under a plan described in section 401(a) of any collectible shall be treated (for purposes of this section and section 402) as a distribution from such account in an amount equal to the cost to such account of such collectible.
For purposes of this subsection, the term “collectible” means—
any work of art,
any rug or antique,
any metal or gem,
any stamp or coin,
any alcoholic beverage, or
any other tangible personal property specified by the Secretary for purposes of this subsection.
For purposes of this subsection, the term “collectible” shall not include—
any coin which is—
a gold coin described in paragraph (7), (8), (9), or (10) of
section 5112(a) of title 31
, United States Code,
a silver coin described in
section 5112(e) of title 31
, United States Code,
a platinum coin described in
section 5112(k) of title 31
, United States Code, or
a coin issued under the laws of any State, or
any gold, silver, platinum, or palladium bullion of a fineness equal to or exceeding the minimum fineness that a contract market (as described in section 5 of the Commodity Exchange Act,
7 U.S.C. 7
) requires for metals which may be delivered in satisfaction of a regulated futures contract,
if such bullion is in the physical possession of a trustee described under subsection (a) of this section.
1
1 So in original. Concluding provisions probably should be part of subpar. (B).
For purposes of subsection (a)(2), the term “bank” means—
any bank (as defined in section 581),
an insured credit union (within the meaning of paragraph (6) or (7) of section 101 of the Federal Credit Union Act), and
a corporation which, under the laws of the State of its incorporation, is subject to supervision and examination by the Commissioner of Banking or other officer of such State in charge of the administration of the banking laws of such State.
Subject to the provisions of this subsection, designated nondeductible contributions may be made on behalf of an individual to an individual retirement plan.
The amount of the designated nondeductible contributions made on behalf of any individual for any taxable year shall not exceed the nondeductible limit for such taxable year.
For purposes of this paragraph—
The term “nondeductible limit” means the excess of—
the amount allowable as a deduction under section 219 (determined without regard to section 219(g)), over
the amount allowable as a deduction under section 219 (determined with regard to section 219(g)).
If a taxpayer elects not to deduct an amount which (without regard to this clause) is allowable as a deduction under section 219 for any taxable year, the nondeductible limit for such taxable year shall be increased by such amount.
For purposes of this paragraph, the term “designated nondeductible contribution” means any contribution to an individual retirement plan for the taxable year which is designated (in such manner as the Secretary may prescribe) as a contribution for which a deduction is not allowable under section 219.
Any designation under clause (i) shall be made on the return of tax imposed by chapter 1 for the taxable year.
In determining for which taxable year a designated nondeductible contribution is made, the rule of section 219(f)(3) shall apply.
Any individual who—
makes a designated nondeductible contribution to any individual retirement plan for any taxable year, or
receives any amount from any individual retirement plan for any taxable year,
shall include on his return of the tax imposed by chapter 1 for such taxable year and any succeeding taxable year (or on such other form as the Secretary may prescribe for any such taxable year) information described in subparagraph (B).
The following information is described in this subparagraph:
The amount of designated nondeductible contributions for the taxable year.
The amount of distributions from individual retirement plans for the taxable year.
The excess (if any) of—
the aggregate amount of designated nondeductible contributions for all preceding taxable years, over
the aggregate amount of distributions from individual retirement plans which was excludable from gross income for such taxable years.
The aggregate balance of all individual retirement plans of the individual as of the close of the calendar year in which the taxable year begins.
Such other information as the Secretary may prescribe.
For penalty where individual reports designated nondeductible contributions not made, see section 6693(b).
In the case of an individual who for a taxable year excludes from gross income under section 131 a qualified foster care payment which is a difficulty of care payment, if—
the deductible amount in effect for the taxable year under section 219(b), exceeds
the amount of compensation includible in the individual’s gross income for the taxable year,
the individual may elect to increase the nondeductible limit under paragraph (2) for the taxable year by an amount equal to the lesser of such excess or the amount so excluded.
For purposes of this title, the term “simple retirement account” means an individual retirement plan (as defined in section 7701(a)(37))—
with respect to which the requirements of paragraphs (3), (4), and (5) are met; and
except in the case of a rollover contribution described in subsection (d)(3)(G) or a rollover contribution otherwise described in subsection (d)(3) or in section 402(c), 403(a)(4), 403(b)(8), or 457(e)(16), which is made after the 2-year period described in section 72(t)(6), with respect to which the only contributions allowed are contributions under a qualified salary reduction arrangement.
For purposes of this subsection, the term “qualified salary reduction arrangement” means a written arrangement of an eligible employer under which—
an employee eligible to participate in the arrangement may elect to have the employer make payments—
as elective employer contributions to a simple retirement account on behalf of the employee, or
to the employee directly in cash,
the amount which an employee may elect under clause (i) for any year is required to be expressed as a percentage of compensation and may not exceed a total of the applicable dollar amount for any year,
the employer is required to make a matching contribution to the simple retirement account for any year in an amount equal to so much of the amount the employee elects under clause (i)(I) as does not exceed the applicable percentage of compensation for the year,
the employer may make nonelective contributions of a uniform percentage (up to 10 percent) of compensation for each employee who is eligible to participate in the arrangement, and who has at least $5,000 of compensation from the employer for the year, but such contributions with respect to any employee shall not exceed $5,000 for the year, and
no contributions may be made other than contributions described in clause (i), (iii), or (iv).
The compensation taken into account under clause (iv) for any year shall not exceed the limitation in effect for such year under section 401(a)(17).
An employer shall be treated as meeting the requirements of subparagraph (A)(iii) for any year if, in lieu of the contributions described in such clause, the employer elects to make nonelective contributions of 2 percent of compensation for each employee who is eligible to participate in the arrangement and who has at least $5,000 of compensation from the employer for the year. If an employer makes an election under this subparagraph for any year, the employer shall notify employees of such election within a reasonable period of time before the 60-day period for such year under paragraph (5)(C).
The compensation taken into account under clause (i) for any year shall not exceed the limitation in effect for such year under section 401(a)(17).
In the case of an employer which had more than 25 employees who received at least $5,000 of compensation from the employer for the preceding year, and which makes the election under subparagraph (E)(i)(II) for any year, clause (i) shall be applied for such year by substituting “3 percent” for “2 percent”.
For purposes of this subsection—
The term “eligible employer” means, with respect to any year, an employer which had no more than 100 employees who received at least $5,000 of compensation from the employer for the preceding year.
An eligible employer who establishes and maintains a plan under this subsection for 1 or more years and who fails to be an eligible employer for any subsequent year shall be treated as an eligible employer for the 2 years following the last year the employer was an eligible employer. If such failure is due to any acquisition, disposition, or similar transaction involving an eligible employer, the preceding sentence shall not apply.
Except as provided in subclause (IV), the term “applicable percentage” means 3 percent.
An employer may elect to apply a lower percentage (not less than 1 percent) for any year for all employees eligible to participate in the plan for such year if the employer notifies the employees of such lower percentage within a reasonable period of time before the 60-day election period for such year under paragraph (5)(C). An employer may not elect a lower percentage under this subclause for any year if that election would result in the applicable percentage being lower than the applicable percentage in more than 2 of the years in the 5-year period ending with such year.
If any year in the 5-year period described in subclause (II) is a year prior to the first year for which any qualified salary reduction arrangement is in effect with respect to the employer (or any predecessor), the employer shall be treated as if the level of the employer matching contribution was at the applicable percentage of compensation for such prior year.
In the case of an employer which had more than 25 employees who received at least $5,000 of compensation from the employer for the preceding year, and which makes the election under subparagraph (E)(i)(II) for any year, subclause (I) shall be applied for such year by substituting “4 percent” for “3 percent”.
An arrangement shall not be treated as a qualified salary reduction arrangement for any year if the employer (or any predecessor employer) maintained a qualified plan with respect to which contributions were made, or benefits were accrued, for service in any year in the period beginning with the year such arrangement became effective and ending with the year for which the determination is being made. If only individuals other than employees described in subparagraph (A) of section 410(b)(3) are eligible to participate in such arrangement, then the preceding sentence shall be applied without regard to any qualified plan in which only employees so described are eligible to participate.
For purposes of this subparagraph, the term “qualified plan” means a plan, contract, pension, or trust described in subparagraph (A) or (B) of section 219(g)(5).
For purposes of subparagraph (A)(ii), the applicable dollar amount is—
the adjusted dollar amount in the case of an eligible employer described in clause (iii) which had not more than 25 employees who received at least $5,000 of compensation from the employer for the preceding year,
the adjusted dollar amount in the case of an eligible employer described in clause (iii) which is not described in subclause (I) and which elects, at such time and in such manner as prescribed by the Secretary, the application of this subclause for the year, and
$10,000 in any other case.
For purposes of clause (i), the adjusted dollar amount is an amount equal to 110 percent of the dollar amount in effect under clause (i)(III) for calendar year 2024.
In the case of a year beginning after December 31, 2005, the Secretary shall adjust the $10,000 amount under clause (i)(III) at the same time and in the same manner as under section 415(d), except that the base period taken into account shall be the calendar quarter beginning July 1, 2004, and any increase under this subparagraph which is not a multiple of $500 shall be rounded to the next lower multiple of $500.
In the case of a year beginning after December 31, 2024, the Secretary shall adjust annually the adjusted dollar amount under clause (ii) in the manner provided under subclause (I) of this clause, except that the base period taken into account shall be the calendar quarter beginning July 1, 2023.
An eligible employer is described in this clause only if, during the 3-taxable-year period immediately preceding the 1st year the employer maintains the qualified salary reduction arrangement under this paragraph, neither the employer nor any member of any controlled group including the employer (or any predecessor of either) established or maintained any plan described in clause (i), (ii), or (iv) of section 219(g)(5)(A) with respect to which contributions were made, or benefits were accrued, for substantially the same employees as are eligible to participate in such qualified salary reduction arrangement.
Subject to the rules of clause (iii), an arrangement shall not fail to be treated as meeting the requirements of subparagraph (A)(iii) solely because under the arrangement, solely for purposes of such subparagraph, qualified student loan payments are treated as amounts elected by the employee under subparagraph (A)(i)(I) to the extent such payments do not exceed—
the applicable dollar amount under subparagraph (E) (after application of section 414(v)) for the year (or, if lesser, the employee’s compensation (as defined in section 415(c)(3)) for the year), reduced by
any other amounts elected by the employee under subparagraph (A)(i)(I) for the year.
For purposes of this subparagraph—
The term “qualified student loan payment” means a payment made by an employee in repayment of a qualified education loan (as defined in section 221(d)(1)) incurred by the employee to pay qualified higher education expenses, but only if the employee certifies to the employer making the matching contribution that such payment has been made on such a loan.
The term “qualified higher education expenses” has the same meaning as when used in section 401(m)(4)(D).
Clause (i) shall apply to an arrangement only if, under the arrangement—
matching contributions on account of qualified student loan payments are provided only on behalf of employees otherwise eligible to elect contributions under subparagraph (A)(i)(I), and
all employees otherwise eligible to participate in the arrangement are eligible to receive matching contributions on account of qualified student loan payments.
In the case of taxable years beginning after
December 31, 2024
, the $5,000 amount in subparagraph (A)(iv)(II) shall be increased by an amount equal to—
such amount, multiplied by
the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting “2023” for “2016” in subparagraph (A)(ii) thereof.
If any amount as adjusted under the preceding sentence is not a multiple of $100, such amount shall be rounded to the nearest multiple of $100.
An eligible employer which had not more than 25 employees who received at least $5,000 of compensation from the employer for 1 or more years, and which has more than 25 such employees for any subsequent year, shall be treated for purposes of subparagraph (E)(i) as having 25 such employees for the 2 years following the last year the employer had not more than 25 such employees, and not as having made the election under subparagraph (E)(i)(II) for such 2 years. Rules similar to the second sentence of subparagraph (C)(i)(II) shall apply for purposes of this subparagraph.
The requirements of this paragraph are met with respect to a simple retirement account if the employee’s rights to any contribution to the simple retirement account are nonforfeitable. For purposes of this paragraph, rules similar to the rules of subsection (k)(4) shall apply.
The requirements of this paragraph are met with respect to any simple retirement account for a year only if, under the qualified salary reduction arrangement, all employees of the employer who—
received at least $5,000 in compensation from the employer during any 2 preceding years, and
are reasonably expected to receive at least $5,000 in compensation during the year,
are eligible to make the election under paragraph (2)(A)(i) or receive the nonelective contribution described in paragraph (2)(B).
An employer may elect to exclude from the requirement under subparagraph (A) employees described in section 410(b)(3).
The requirements of this paragraph are met with respect to any simple retirement account if, under the qualified salary reduction arrangement—
an employer must—
make the elective employer contributions under paragraph (2)(A)(i) not later than the close of the 30-day period following the last day of the month with respect to which the contributions are to be made, and
make the matching contributions under paragraph (2)(A)(iii) or the nonelective contributions under paragraph (2)(B) not later than the date described in section 404(m)(2)(B),
an employee may elect to terminate participation in such arrangement at any time during the year, except that if an employee so terminates, the arrangement may provide that the employee may not elect to resume participation until the beginning of the next year, and
each employee eligible to participate may elect, during the 60-day period before the beginning of any year (and the 60-day period before the first day such employee is eligible to participate), to participate in the arrangement, or to modify the amounts subject to such arrangement, for such year.
For purposes of this subsection—
The term “compensation” means amounts described in paragraphs (3) and (8) of section 6051(a). For purposes of the preceding sentence, amounts described in section 6051(a)(3) shall be determined without regard to section 3401(a)(3).
In the case of an employee described in subparagraph (B), the term “compensation” means net earnings from self-employment determined under section 1402(a) without regard to any contribution under this subsection. The preceding sentence shall be applied as if the term “trade or business” for purposes of section 1402 included service described in section 1402(c)(6).
The term “employee” includes an employee as defined in section 401(c)(1).
The term “year” means the calendar year.
A plan shall not be treated as failing to satisfy the requirements of this subsection or any other provision of this title merely because the employer makes all contributions to the individual retirement accounts or annuities of a designated trustee or issuer. The preceding sentence shall not apply unless each plan participant is notified in writing (either separately or as part of the notice under subsection (l)(2)(C)) that the participant’s balance may be transferred without cost or penalty to another individual account or annuity in accordance with subsection (d)(3)(G).
In the case of any simple retirement account—
subsection (a)(1) shall be applied by substituting for “the amount in effect for such taxable year under section 219(b)(1)(A)” the following: “the sum of the dollar amount in effect under subsection (p)(2)(A)(ii), the employer contribution required under subsection (p)(2)(A)(iii) or (p)(2)(B)(i), whichever is applicable, and a contribution which meets the requirement of subsection (p)(2)(A)(iv) with respect to the employee”, and
subsection (b)(2)(B) shall be applied by substituting for “the dollar amount in effect under section 219(b)(1)(A)” the following: “the sum of the dollar amount in effect under subsection (p)(2)(A)(ii), the employer contribution required under subsection (p)(2)(A)(iii) or (p)(2)(B)(i), whichever is applicable, and a contribution which meets the requirement of subsection (p)(2)(A)(iv) with respect to the employee”.
Any matching contribution described in paragraph (2)(A)(iii) which is made on behalf of a self-employed individual (as defined in section 401(c)) shall not be treated as an elective employer contribution to a simple retirement account for purposes of this title.
An employer which fails to meet any applicable requirement by reason of an acquisition, disposition, or similar transaction shall not be treated as failing to meet such requirement during the transition period if—
the employer satisfies requirements similar to the requirements of section 410(b)(6)(C)(i)(II); and
the qualified salary reduction arrangement maintained by the employer would satisfy the requirements of this subsection after the transaction if the employer which maintained the arrangement before the transaction had remained a separate employer.
For purposes of this paragraph, the term “applicable requirement” means—
the requirement under paragraph (2)(A)(i) that an employer be an eligible employer;
the requirement under paragraph (2)(D) that an arrangement be the only plan of an employer; and
the participation requirements under paragraph (4).
For purposes of this paragraph, the term “transition period” means the period beginning on the date of any transaction described in subparagraph (A) and ending on the last day of the second calendar year following the calendar year in which such transaction occurs.
Subject to the requirements of this paragraph, an employer may elect (in such form and manner as the Secretary may prescribe) at any time during a year to terminate the qualified salary reduction arrangement under paragraph (2), but only if the employer establishes and maintains (as of the day after the termination date) a safe harbor plan to replace the terminated arrangement.
The terminated arrangement and safe harbor plan shall both be treated as violating the requirements of paragraph (2)(A)(ii) or section 401(a)(30) (whichever is applicable) if the aggregate elective contributions of the employee under the terminated arrangement during its last plan year and under the safe harbor plan during its transition year exceed the sum of—
the applicable dollar amount for such arrangement (determined on a full-year basis) under this subsection (after the application of section 414(v)) with respect to the employee for such last plan year multiplied by a fraction equal to the number of days in such plan year divided by 365, and
the applicable dollar amount (as so determined) under section 402(g)(1) for such safe harbor plan on such elective contributions during the transition year multiplied by a fraction equal to the number of days in such transition year divided by 365.
For purposes of this paragraph, the transition year is the period beginning after the termination date and ending on the last day of the calendar year during which the termination occurs.
For purposes of this paragraph, the term “safe harbor plan” means a qualified cash or deferred arrangement which meets the requirements of paragraph (11), (12), (13), or (16) of section 401(k).
An individual retirement plan which is designated as a Roth IRA shall not be treated as a simple retirement account under this subsection unless the employee elects for such plan to be so treated (at such time and in such manner as the Secretary may provide).
If—
a qualified employer plan elects to allow employees to make voluntary employee contributions to a separate account or annuity established under the plan, and
under the terms of the qualified employer plan, such account or annuity meets the applicable requirements of this section or section 408A for an individual retirement account or annuity,
then such account or annuity shall be treated for purposes of this title in the same manner as an individual retirement plan and not as a qualified employer plan (and contributions to such account or annuity as contributions to an individual retirement plan and not to the qualified employer plan). For purposes of subparagraph (B), the requirements of subsection (a)(5) shall not apply.
For purposes of this title, a qualified employer plan shall not fail to meet any requirement of this title solely by reason of establishing and maintaining a program described in paragraph (1).
For purposes of this subsection—
The term “qualified employer plan” has the meaning given such term by section 72(p)(4)(A)(i); except that such term shall also include an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A).
The term “voluntary employee contribution” means any contribution (other than a mandatory contribution within the meaning of section 411(c)(2)(C))—
which is made by an individual as an employee under a qualified employer plan which allows employees to elect to make contributions described in paragraph (1), and
with respect to which the individual has designated the contribution as a contribution to which this subsection applies.
For tax on excess contributions in individual retirement accounts or annuities, see section 4973.
For tax on certain accumulations in individual retirement accounts or annuities, see section 4974.
Treasury Regulations
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Treas. Reg. §1.408-1General rules
(a) In general. Section 408 prescribes rules relating to individual retirement accounts and individual retirement annuities. In addition to the rules set forth in §§ 1.408-2 and 1.408-3, relating respectively to individual retirement accounts and individual retirement annuities, the rules set forth in this section shall also apply.
(b) Exemption from tax. The individual retirement account or individual retirement annuity is exempt from all taxes under subtitle A of the Code other than the taxes imposed under section 511, relating to tax on unrelated business income of charitable, etc., organizations.
(c) Sanctions—(1) Excess contributions. If an individual retirement account or individual retirement annuity accepts and retains excess contributions, the individual on whose behalf the account is established or who is the owner of the annuity will be subject to the excise tax imposed by section 4973.
(2) Prohibited transactions by owner or beneficiary of individual retirement account—(i) Under section 408(e)(2), if, during any taxable year of the individual for whose benefit any individual retirement account is established, that individual or the individual's beneficiary engages in any transaction prohibited by section 4975 with respect to such account, such account ceases to be an individual retirement account as of the first day of such taxable year. In any case in which any individual retirement account ceases to be an individual retirement account by reason of the preceding sentence as of the first day of any taxable year, section 408(d)(1) applies as if there were a distribution on such first day in an amount equal to the fair market value (on such first day) of all assets in the account (on such first day). The preceding sentence applies even though part of the fair market value of the individual retirement account as of the first day of the taxable year is attributable to excess contributions which may be returned tax-free under section 408(d)(4) or 408(d)(5).
(ii) If the trust with which the individual engages in any transaction described in subdivision (i) of this subparagraph is established by an employer or employee association under section 408(c), only the employee who engages in the prohibited transaction is subject to disqualification of his separate account.
(3) Prohibited transaction by person other than owner or beneficiary of account. If any person other than the individual on whose behalf an individual retirement account is established or the individual's beneficiary engages in any transaction prohibited by section 4975 with respect to such account, such person shall be subject to the taxes imposed by section 4975.
(4) Pledging account as security. Under section 408(e)(4), if, during any taxable year of the individual for whose benefit an individual retirement account is established, that individual uses the account or any portion thereof as security for a loan, the portion so used is treated as distributed to that individual.
(5) Borrowing on annuity contract. Under section 408(e)(3), if during any taxable year the owner of an individual retirement annuity borrows any money under or by use of such contract, the contract ceases to be an individual retirement annuity as of the first day of such taxable year. See § 1.408-3(c).
(6) Premature distributions. If a distribution (whether a deemed distribution or an actual distribution) is made from an individual retirement account, or individual retirement annuity, to the individual for whose benefit the account was established, or who is the owner of the annuity, before the individual attains age 59
1/2 (unless the individual has become disabled within the meaning of section 72(m)(7)), the tax under Chapter 1 of the Code for the taxable year in which such distribution is received is increased under section 408(f)(1) or (f)(2). The increase equals 10 percent of the amount of the distribution which is includible in gross income for the taxable year. Except in the case of the credits allowable under section 31, 39, or 42, no credit can be used to offset the increased tax described in this subparagraph. See, however, § 1.408-4(c)(3).
(d) Limitation on contributions and benefits. An individual retirement account or individual retirement annuity is subject to the limitation on contributions and benefits imposed by section 415 for years beginning after December 31, 1975.
(e) Community property laws. Section 408 shall be applied without regard to any community property laws.
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Treas. Reg. §1.408-1(a)In general.
In general. Section 408 prescribes rules relating to individual retirement accounts and individual retirement annuities. In addition to the rules set forth in §§ 1.408-2 and 1.408-3, relating respectively to individual retirement accounts and individual retirement annuities, the rules set forth in this section shall also apply.
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Treas. Reg. §1.408-1(b)Exemption from tax.
Exemption from tax. The individual retirement account or individual retirement annuity is exempt from all taxes under subtitle A of the Code other than the taxes imposed under section 511, relating to tax on unrelated business income of charitable, etc., organizations.
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Treas. Reg. §1.408-1(c)Sanctions—(1) Excess contributions.
Sanctions—(1) Excess contributions. If an individual retirement account or individual retirement annuity accepts and retains excess contributions, the individual on whose behalf the account is established or who is the owner of the annuity will be subject to the excise tax imposed by section 4973.
(2) Prohibited transactions by owner or beneficiary of individual retirement account—(i) Under section 408(e)(2), if, during any taxable year of the individual for whose benefit any individual retirement account is established, that individual or the individual's beneficiary engages in any transaction prohibited by section 4975 with respect to such account, such account ceases to be an individual retirement account as of the first day of such taxable year. In any case in which any individual retirement account ceases to be an individual retirement account by reason of the preceding sentence as of the first day of any taxable year, section 408(d)(1) applies as if there were a distribution on such first day in an amount equal to the fair market value (on such first day) of all assets in the account (on such first day). The preceding sentence applies even though part of the fair market value of the individual retirement account as of the first day of the taxable year is attributable to excess contributions which may be returned tax-free under section 408(d)(4) or 408(d)(5).
(ii) If the trust with which the individual engages in any transaction described in subdivision (i) of this subparagraph is established by an employer or employee association under section 408(c), only the employee who engages in the prohibited transaction is subject to disqualification of his separate account.
(3) Prohibited transaction by person other than owner or beneficiary of account. If any person other than the individual on whose behalf an individual retirement account is established or the individual's beneficiary engages in any transaction prohibited by section 4975 with respect to such account, such person shall be subject to the taxes imposed by section 4975.
(4) Pledging account as security. Under section 408(e)(4), if, during any taxable year of the individual for whose benefit an individual retirement account is established, that individual uses the account or any portion thereof as security for a loan, the portion so used is treated as distributed to that individual.
(5) Borrowing on annuity contract. Under section 408(e)(3), if during any taxable year the owner of an individual retirement annuity borrows any money under or by use of such contract, the contract ceases to be an individual retirement annuity as of the first day of such taxable year. See § 1.408-3(c).
(6) Premature distributions. If a distribution (whether a deemed distribution or an actual distribution) is made from an individual retirement account, or individual retirement annuity, to the individual for whose benefit the account was established, or who is the owner of the annuity, before the individual attains age 59
1/2 (unless the individual has become disabled within the meaning of section 72(m)(7)), the tax under Chapter 1 of the Code for the taxable year in which such distribution is received is increased under section 408(f)(1) or (f)(2). The increase equals 10 percent of the amount of the distribution which is includible in gross income for the taxable year. Except in the case of the credits allowable under section 31, 39, or 42, no credit can be used to offset the increased tax described in this subparagraph. See, however, § 1.408-4(c)(3).
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Treas. Reg. §1.408-1(d)Limitation on contributions and benefits.
Limitation on contributions and benefits. An individual retirement account or individual retirement annuity is subject to the limitation on contributions and benefits imposed by section 415 for years beginning after December 31, 1975.
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Treas. Reg. §1.408-1(e)Community property laws.
Community property laws. Section 408 shall be applied without regard to any community property laws.
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Treas. Reg. §1.408-11Net income calculation for returned or recharacterized IRA contributions
(a) Net income calculation for returned IRA contributions—(1) General rule. For purposes of returned contributions under section 408(d)(4), the net income attributable to a contribution made to an IRA is determined by allocating to the contribution a pro rata portion of the earnings on the assets in the IRA during the period the IRA held the contribution. This attributable net income is calculated by using the following formula:
(2) Special rule. If an IRA is established with a contribution and no other contributions, distributions or transfers are made to or from that IRA, then the subsequent distribution of the entire account balance of the IRA pursuant to section 408(d)(4) will satisfy the requirement of that Internal Revenue Code section that the return of a contribution be accompanied by the amount of net income attributable to the contribution.
(b) Definitions. For purposes of this section the following definitions apply:
(1) Adjusted opening balance. The term adjusted opening balance means the fair market value of the IRA at the beginning of the computation period plus the amount of any contributions or transfers (including the contribution that is distributed as a returned contribution pursuant to section 408(d)(4) and recharacterizations of contributions pursuant to section 408A(d)(6)) made to the IRA during the computation period.
(2) Adjusted closing balance. The term adjusted closing balance means the fair market value of the IRA at the end of the computation period plus the amount of any distributions or transfers (including recharacterizations of contributions pursuant to section 408A(d)(6)) made from the IRA during the computation period.
(3) Computation period. The term computation period means the period beginning immediately prior to the time that the contribution being returned was made to the IRA and ending immediately prior to the removal of the contribution. If more than one contribution was made as a regular contribution and is being returned from the IRA, the computation period begins immediately prior to the time the first contribution being returned was contributed.
(4) Regular contribution. The term regular contribution means an IRA contribution made by the IRA owner that is neither a trustee-to-trustee transfer from another IRA nor a rollover from another IRA or retirement plan.
(c) Additional rules. (1) When an IRA asset is not normally valued on a daily basis, the fair market value of the asset at the beginning of the computation period is deemed to be the most recent, regularly determined, fair market value of the asset, determined as of a date that coincides with or precedes the first day of the computation period. In addition, solely for purposes of this section, notwithstanding A-3 of § 1.408A-5, recharacterized contributions are taken into account for the period they are actually held in a particular IRA.
(2) In the case of an IRA that has received more than one regular contribution for a particular taxable year, the last regular contribution made to the IRA for the year is deemed to be the contribution that is distributed as a returned contribution under section 408(d)(4), up to the amount of the contribution identified by the IRA owner as the amount distributed as a returned contribution.
(3) In the case of an individual who owns multiple IRAs, the net income calculation is performed only on the IRA containing the contribution being returned, and that IRA is the IRA that must distribute the contribution.
(d) Examples. The following examples illustrate the net income calculation under section 408(d)(4) and this section:
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Treas. Reg. §1.408-11(a)Net income calculation for returned IRA contributions—(1) General rule.
Net income calculation for returned IRA contributions—(1) General rule. For purposes of returned contributions under section 408(d)(4), the net income attributable to a contribution made to an IRA is determined by allocating to the contribution a pro rata portion of the earnings on the assets in the IRA during the period the IRA held the contribution. This attributable net income is calculated by using the following formula:
(2) Special rule. If an IRA is established with a contribution and no other contributions, distributions or transfers are made to or from that IRA, then the subsequent distribution of the entire account balance of the IRA pursuant to section 408(d)(4) will satisfy the requirement of that Internal Revenue Code section that the return of a contribution be accompanied by the amount of net income attributable to the contribution.
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Treas. Reg. §1.408-11(b)Definitions.
Definitions. For purposes of this section the following definitions apply:
(1) Adjusted opening balance. The term adjusted opening balance means the fair market value of the IRA at the beginning of the computation period plus the amount of any contributions or transfers (including the contribution that is distributed as a returned contribution pursuant to section 408(d)(4) and recharacterizations of contributions pursuant to section 408A(d)(6)) made to the IRA during the computation period.
(2) Adjusted closing balance. The term adjusted closing balance means the fair market value of the IRA at the end of the computation period plus the amount of any distributions or transfers (including recharacterizations of contributions pursuant to section 408A(d)(6)) made from the IRA during the computation period.
(3) Computation period. The term computation period means the period beginning immediately prior to the time that the contribution being returned was made to the IRA and ending immediately prior to the removal of the contribution. If more than one contribution was made as a regular contribution and is being returned from the IRA, the computation period begins immediately prior to the time the first contribution being returned was contributed.
(4) Regular contribution. The term regular contribution means an IRA contribution made by the IRA owner that is neither a trustee-to-trustee transfer from another IRA nor a rollover from another IRA or retirement plan.
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Treas. Reg. §1.408-11(c)Additional rules.
Additional rules. (1) When an IRA asset is not normally valued on a daily basis, the fair market value of the asset at the beginning of the computation period is deemed to be the most recent, regularly determined, fair market value of the asset, determined as of a date that coincides with or precedes the first day of the computation period. In addition, solely for purposes of this section, notwithstanding A-3 of § 1.408A-5, recharacterized contributions are taken into account for the period they are actually held in a particular IRA.
(2) In the case of an IRA that has received more than one regular contribution for a particular taxable year, the last regular contribution made to the IRA for the year is deemed to be the contribution that is distributed as a returned contribution under section 408(d)(4), up to the amount of the contribution identified by the IRA owner as the amount distributed as a returned contribution.
(3) In the case of an individual who owns multiple IRAs, the net income calculation is performed only on the IRA containing the contribution being returned, and that IRA is the IRA that must distribute the contribution.
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Treas. Reg. §1.408-11(d)Examples.
Examples. The following examples illustrate the net income calculation under section 408(d)(4) and this section:
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Treas. Reg. §1.408-2Individual retirement accounts
(a) In general. An individual retirement account must be a trust or a custodial account (see paragraph (d) of this section). It must satisfy the requirements of paragraph (b) of this section in order to qualify as an individual retirement account. It may be established and maintained by an individual, by an employer for the benefit of his employees (see paragraph (c) of this section), or by an employee association for the benefit of its members (see paragraph (c) of this section).
(b) Requirements. An individual retirement account must be a trust created or organized in the United States (as defined in section 7701(a)(9)) for the exclusive benefit of an individual or his beneficiaries. Such trust must be maintained at all times as a domestic trust in the United States. The instrument creating the trust must be in writing and the following requirements must be satisfied.
(1) Amount of acceptable contributions. Except in the case of a contribution to a simplified employee pension described in section 408(k) and a rollover contribution described in section 408(d)(3), 402(a)(5), 402(a)(7), 403(a)(4), 403(b)(8) or 409(b)(3)(C), the trust instrument must provide that contributions may not be accepted by the trustee for the taxable year in excess of $1,500 on behalf of any individual for whom the trust is maintained. An individual retirement account maintained as a simplified employee pension may provide for the receipt of up to $7,500 for a calendar year.
(2) Trustee. (i) The trustee must be a bank (as defined in section 408(n) and the regulations thereunder) or another person who demonstrates, in the manner described in paragraph (e) of this section, to the satisfaction of the Commissioner, that the manner in which the trust will be administered will be consistent with the requirements of section 408 and this section.
(ii) Section 11.408(a)(2)-1 of the Temporary Income Tax Regulations under the Employee Retirement Income Security Act of 1974 is superseded by this subparagraph (2).
(3) Life insurance contracts. No part of the trust funds may be invested in life insurance contracts. An individual retirement account may invest in annuity contracts which provide, in the case of death prior to the time distributions commence, for a payment equal to the sum of the premiums paid or, if greater, the cash value of the contract.
(4) Nonforfeitability. The interest of any individual on whose behalf the trust is maintained in the balance of his account must be nonforfeitable.
(5) Prohibition against commingling. (i) The assets of the trust must not be commingled with other property except in a common trust fund or common investment fund.
(ii) For purposes of this subparagraph, the term “common investment fund” means a group trust created for the purpose of providing a satisfactory diversification or investments or a reduction of administrative expenses for the individual participating trusts, and which group trust satisfies the requirements of section 408(c) (except that it need not be established by an employer or an association of employees) and the requirements of section 401(a) in the case of a group trust in which one of the individual participating trusts is an employees' trust described in section 401(a) which is exempt from tax under section 501(a).
(iii) For purposes of this subparagraph, the term “individual participating trust” means an employees' trust described in section 401(a) which is exempt from tax under section 501(a) or a trust which satisfies the requirements of section 408(a) provided that in the case of such an employees' trust, such trust would be permitted to participate in such a group trust if all the other individual participating trusts were employees' trusts described in section 401(a) which are exempt from tax under section 501(a).
(6) Distribution of interest. (i) The trust instrument must provide that the entire interest of the individual for whose benefit the trust is maintained must be distributed to him in accordance with paragraph (b)(6)(ii) or (iii) of this section.
(ii) Unless the provisions of paragraph (b)(6)(iii) of this section apply, the entire interest of the individual must be actually distributed to him not later than the close of his taxable year in which he attains age 70
1/2.
(iii) In lieu of distributing the individual's entire interest as provided in paragraph (b)(6)(ii) of this section, the interest may be distributed commencing not later than the taxable year described in such paragraph (b)(6)(ii). In such case, the trust must expressly provide that the entire interest of the individual will be distributed to the individual and the individual's beneficiaries, in a manner which satisfies the requirements of paragraph (b)(6)(v) of this section, over any of the following periods (or any combination thereof)—
(A) The life of the individual,
(B) The lives of the individual and spouse,
(C) A period certain not extending beyond the life expectancy of the individual, or
(D) A period certain not extending beyond the joint life and last survivor expectancy of the individual and spouse.
(iv) The life expectancy of the individual or the joint life and last survivor expectancy of the individual and spouse cannot exceed the period computed by use of the expected return multiples in § 1.72-9, or, in the case of payments under a contract issued by an insurance company, the period computed by use of the mortality tables of such company.
(v) If an individual's entire interest is to be distributed over a period described in paragraph (b)(6)(iii) of this section, beginning in the year the individual attains 70
1/2 the amount to be distributed each year must be not less than the lesser of the balance of the individual's entire interest or an amount equal to the quotient obtained by dividing the entire interest of the individual in the trust at the beginning of such year (including amounts not in the individual retirement account at the beginning of the year because they have been withdrawn for the purpose of making a rollover contribution to another individual retirement plan) by the life expectancy of the individual (or the joint life and last survivor expectancy of the individual and spouse (whichever is applicable)), determined in either case as of the date the individual attains age 70 in accordance with paragraph (b)(6)(iv) of this section, reduced by one for each taxable year commencing after the individual's attainment of age 70
1/2. An annuity or endowment contract issued by an insurance company which provides for non-increasing payments over one of the periods described in paragraph (b)(6)(iii) of this section beginning not later than the close of the taxable year in which the individual attains age 70
1/2 satisfies this provision. However, no distribution need be made in any year, or a lesser amount may be distributed, if beginning with the year the individual attains age 70
1/2 the aggregate amounts distributed by the end of any year are at least equal to the aggregate of the minimum amounts required by this subdivision to have been distributed by the end of such year.
(vi) If an individual's entire interest is distributed in the form of an annuity contract, then the requirements of section 408(a)(6) are satisfied if the distribution of such contract takes place before the close of the taxable year described in subdivision (ii) of this subparagraph, and if the individual's interest will be paid over a period described in subdivision (iii) of this subparagraph and at a rate which satisfies the requirements of subdivision (v) of this subparagraph.
(vii) In determining whether paragraph (b)(6)(v) of this section is satisfied, all individual retirement plans maintained for an individual's benefit (except those under which he is a beneficiary described in section 408(a)(7)) at the close of the taxable year in which he reaches age 70
1/2 must be aggregated. Thus, the total payments which such individual receives in any taxable year must be at least equal to the amount he would have been required to receive had all the plans been one plan at the close of the taxable year in which he attained age 70
1/2.
(7) Distribution upon death. (i) The trust instrument must provide that if the individual for whose benefit the trust is maintained dies before the entire interest in the trust has been distributed to him, or if distribution has been commenced as provided in paragraph (b)(6) of this section to the surviving spouse and such spouse dies before the entire interest has been distributed to such spouse, the entire interest (or the remaining part of such interest if distribution thereof has commenced) must, within 5 years after the individual's death (or the death of the surviving spouse) be distributed or applied to the purchase of an immediate annuity for this beneficiary or beneficiaries (or the beneficiary or beneficiaries of the surviving spouse) which will be payable for the life of such beneficiary or beneficiaries (or for a term certain not extending beyond the life expectancy of such beneficiary or beneficiaries) and which annuity contract will be immediately distributed to such beneficiary or beneficiaries. A contract described in the preceding sentence is not includible in gross income upon distribution. Section 1.408-4(e) provides rules applicable to the taxation of such contracts. The first sentence of this paragraph (b)(7) shall have no application if distributions over a term certain commenced before the death of the individual for whose benefit the trust was maintained and the term certain is for a period permitted under paragraph (b)(6)(iii) (C) or (D) of this section.
(ii) Each such beneficiary (or beneficiary of a surviving spouse) may elect to treat the entire interest in the trust (or the remaining part of such interest if distribution thereof has commenced) as an account subject to the distribution requirements of section 408(a)(6) and paragraph (b)(6) of this section instead of those of section 408(a)(7) and paragraph (b)(7) of this section. Such an election will be deemed to have been made if such beneficiary treats the account in accordance with the requirements of section 408(a)(6) and paragraph (b)(6) of this section. An election will be considered to have been made by such beneficiary if either of the following occurs: (A) any amounts in the account (including any amounts that have been rolled over, in accordance with the requirements of section 408(d)(3)(A)(i), into an individual retirement account, individual retirement annuity, or retirement bond for the benefit of such individual) have not been distributed within the appropriate time period required by section 408(a)(7) and paragraph (b)(7) of this section; or (B) any additional amounts are contributed to the account (or to the account, annuity, or bond to which the beneficiary has rolled such amounts over, as described in (1) above) which are subject, or deemed to be subject, to the distribution requirements of section 408(a)(6) and paragraph (b)(6) of this section.
(8) Definition of beneficiaries. The term “beneficiaries” on whose behalf an individual retirement account is established includes (except where the context indicates otherwise) the estate of the individual, dependents of the individual, and any person designated by the individual to share in the benefits of the account after the death of the individual.
(c) Accounts established by employers and certain association of employees—(1) In general. A trust created or organized in the United States (as defined in section 7701(a)(9)) by an employer for the exclusive benefit of his employees or their beneficiaries, or by an association of employees for the exclusive benefit of its members or their beneficiaries, is treated as an individual retirement account if the requirements of paragraphs (c)(2) and (c)(3) of this section are satisfied under the written governing instrument creating the trust. A trust described in the preceding sentence is for the exclusive benefit of employees or members even though it may maintain an account for former employees or members and employees who are temporarily on leave.
(2) General requirements. The trust must satisfy the requirements of paragraphs (b) (1) through (7) of this section.
(3) Special requirement. There must be a separate accounting for the interest of each employee or member.
(4) Definitions—(i) Separate accounting. For purposes of paragraph (c)(3) of this section, the term “separate accounting” means that separate records must be maintained with respect to the interest of each individual for whose benefit the trust is maintained. The assets of the trust may be held in a common trust fund, common investment fund, or common fund for the account of all individuals who have an interest in the trust.
(ii) Employee association. For purposes of this paragraph and section 408(c), the term “employee association” means any organization composed of two or more employees, including but not limited to, an employee association described in section 501(c)(4). Such association may include employees within the meaning of section 401(c)(1). There must be, however, some nexus between the employees (e.g., employees of same employer, employees in the same industry, etc.) in order to qualify as an employee association described in this subdivision (ii).
(d) Custodial accounts. For purposes of this section and section 408(a), a custodial account is treated as a trust described in section 408(a) if such account satisfies the requirements of section 408(a) except that it is not a trust and if the assets of such account are held by a bank (as defined in section 401(d)(1) and the regulations thereunder) or such other person who satisfies the requirements of paragraph (b)(2)(ii) of this section. For purposes of this chapter, in the case of a custodial account treated as a trust by reason of the preceding sentence, the custodian of such account will be treated as the trustee thereof.
(e)(1) In general. The trustee of a trust described in paragraph (b) of this section may be a person other than a bank if the person demonstrates to the satisfaction of the Commissioner that the manner in which the person will administer trusts will be consistent with the requirements of section 408. The person must demonstrate by written application that the requirements of paragraph (e)(2) to (e)(6) of this section will be met. The written application must be sent to address prescribed by the Commissioner in revenue rulings, notices, and other guidance published in the Internal Revenue Bulletin (see § 601.601(d)(2)(ii)(b) of this chapter). For procedural and administrative rules, see paragraph (e)(7) of this section.
(2) Fiduciary ability. The applicant must demonstrate in detail its ability to act within the accepted rules of fiduciary conduct. Such demonstration must include the following elements of proof:
(i) Continuity. (A) The applicant must assure the uninterrupted performance of its fiduciary duties nonwithstanding the death or change of its owners. Thus, for example, there must be sufficient diversity in the ownership of the applicant to ensure that the death or change of its owners will not interrupt the conduct of its business. Therefore, the applicant cannot be an individual.
(B) Sufficient diversity in the ownership of an incorporated applicant is demonstrated in the following circumstances:
(1) Individuals each of whom owns more than 20 percent of the voting stock in the applicant own, in the aggregate, no more than 50 percent of such stock;
(2) The applicant has issued securities registered under section 12 (b) of the Securities Exchange Act of 1934 (15 U.S.C. 78l (b)) or required to be registered under section 12(g) (1) of that Act (15 U.S.C. 78l (g)(1)); or
(3) The applicant has a parent corporation within the meaning of section 1563 (a) (1) that has issued securities registered under section 12 (b) of the Securities Exchange Act of 1934 (15 U.S.C. 78l (b)) or required to be registered under Section 12 (g) (1) of that Act (15 U.S.C. 78l (g)(1)).
(C) Sufficient diversity in the ownership of an applicant that is a partnership means that—
(1) Individuals each of whom owns more than 20 percent of the profits interest in the partnership own, in the aggregate, no more than 50 percent of such profits interest, and
(2) Individuals each of whom owns more than 20 percent of the capital interest in the partnership own, in the aggregate, no more than 50 percent of such capital interest.
(D) For purposes of this subdivision, the ownership of stock and of capital and profits interests shall be determined in accordance with the rules for constructive ownership of stock provided in section 1563 (e) and (f) (2). For this purpose, the rules for constructive ownership of stock provided in section 1563(e) and (f) (2) shall apply to a capital or profits interest in a partnership as if it were a stock interest.
(ii) Established location. The applicant must have an established place of business in the United States where it is accessible during every business day.
(iii) Fiduciary experience. The applicant must have fiduciary experience or expertise sufficient to ensure that it will be able to perform its fiduciary duties. Evidence of fiduciary experience must include proof that a significant part of the business of the applicant consists of exercising fiduciary powers similar to those it will exercise if its application is approved. Evidence of fiduciary expertise must include proof that the applicant employs personnel experienced in the administration of fiduciary powers similar to those the applicant will exercise if its application is approved.
(iv) Fiduciary responsibility. The applicant must assure compliance with the rules of fiduciary conduct set out in paragraph (e)(5) of this section.
(v) Financial responsibility. The applicant must exhibit a high degree of solvency commensurate with the obligations imposed by this paragraph. Among the factors to be taken into account are the applicant's net worth, its liquidity, and its ability to pay its debts as they come due.
(3) Capacity to account. The applicant must demonstrate in detail its experience and competence with respect to accounting for the interests of a large number of individuals (including calculating and allocating income earned and paying out distributions to payees). Examples of accounting for the interests of a large number of individuals include accounting for the interests of a large number of shareholders in a regulated investment company and accounting for the interests of a large number of variable annuity contract holders.
(4) Fitness to handle funds—(i) In general. The applicant must demonstrate in detail its experience and competence with respect to other activities normally associated with the handling of retirement funds.
(ii) Examples. Examples of activities normally associated with the handling of retirement funds include:
(A) To Receive, issue receipts for, and safely keep securities;
(B) To collect income;
(C) To execute such ownership certificates, to keep such records, make such returns, and render such statements as are required for Federal tax purposes;
(D) To give proper notification regarding all collections;
(E) To collect matured or called principal and properly report all such collections;
(F) To exchange temporary for definitive securities;
(G) To give proper notification of calls, subscription rights, defaults in principal or interest, and the formation of protective committees;
(H) To buy, sell, receive, or deliver securities on specific directions.
(5) Rules of fiduciary conduct. The applicant must demonstrate that under applicable regulatory requirements, corporate or other governing instruments, or its established operating procedures:
(i) Administration of fiduciary powers. (A)(1) The owners or directors of the applicant will be responsible for the proper exercise of fiduciary powers by the applicant. Thus, all matters pertinent thereto, including the determination of policies, the investment and disposition of property held in a fiduciary capacity, and the direction and review of the actions of all employees utilized by the applicant in the exercise of its fiduciary powers, will be the responsibility of the owners or directors. In discharging this responsibility, the owners or directors may assign to designated employees, by action duly recorded, the administration of such of the applicant's fiduciary powers as may be proper to assign.
(2) A written record will be made of the acceptance and of the relinquishment or closing out of all fiduciary accounts, and of the assets held for each account.
(3) If the applicant has the authority or the responsibility to render any investment advice with regard to the assets held in or for each fiduciary account, the advisability of retaining or disposing of the assets will be determined at least once during each period of 12 months.
(B) All employees taking part in the performance of the applicant's fiduciary duties will be adequately bonded. Nothing in this subdivision (i)(B) shall require any person to be bonded in contravention of section 412(d) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1112(d)).
(C) The applicant will employ or retain legal counsel who will be readily available to pass upon fiduciary matters and to advise the applicant.
(D) In order to segregate the performance of its fiduciary duties from other business activities, the applicant will maintain a separate trust division under the immediate supervision of an individual designated for that purpose. The trust division may utilize the personnel and facilities of other divisions of the applicant, and other divisions of the applicant may utilize the personnel and facilities of the trust division, as long as the separate identity of the trust division is preserved.
(ii) Adequacy of net worth—(A) Initial net worth requirement. In the case of applications received after January 5, 1995, no initial application will be accepted by the Commissioner unless the applicant has a net worth of not less than $250,000 (determined as of the end of the most recent taxable year). Thereafter, the applicant must satisfy the adequacy of net worth requirements of paragraph (e)(5)(ii)(B) and (C) of this section.
(B) No fiduciary account will be accepted by the applicant unless the applicant's net worth (determined as of the end of the most recent taxable year) exceeds the greater of—
(1) $100,000, or
(2) Four percent (or, in the case of a passive trustee described in paragraph (e)(6)(i)(A) of this section, two percent) of the value of all of the assets held by the applicant in fiduciary accounts (determined as of the most recent valuation date).
(C) The applicant will take whatever lawful steps are necessary (including the relinquishment of fiduciary accounts) to ensure that its net worth (determined as of the close of each taxable year) exceeds the greater of—
(1) $50,000, or
(2) Two percent (or, in the case of a passive trustee described in paragraph (e)(6)(i)(A) of this section, one percent) of the value of all of the assets held by the applicant in fiduciary accounts (determined as of the most recent valuation date).
(D) Assets held by members of SIPC—(1) For purposes of satisfying the adequacy-of-net-worth requirement of this paragraph, a special rule is provided for nonbank trustees that are members of the Securities Investor Protection Corporation (SIPC) created under the Securities Investor Protection Act of 1970 (SIPA)(15 U.S.C. 78aaa et seq., as amended). The amount that the net worth of a nonbank trustee that is a member of SIPC must exceed is reduced by two percent for purposes of paragraph (e)(5)(ii)(B)(2), and one percent for purposes of paragraph (e)(5)(ii)(C)(2), of the value of assets (determined on an account-by-account basis) held for the benefit of customers (as defined in 15 U.S.C. 78fff-2(e)(4)) in fiduciary accounts by the nonbank trustee to the extent of the portion of each account that does not exceed the dollar limit on advances described in 15 U.S.C. 78fff-3(a), as amended, that would apply to the assets in that account in the event of a liquidation proceeding under the SIPA.
(2) The provisions of this special rule for assets held in fiduciary accounts by members of SIPC are illustrated in the following example.
(E) The applicant will determine the value of the assets held by it in trust at least once in each calendar year and no more than 18 months after the preceding valuation. The assets will be valued at their fair market value, except that the assets of an employee pension benefit plan to which section 103(b)(3)(A) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1023(b)(3)(A)) applies will be considered to have the value stated in the most recent annual report of the plan.
(iii) Audits. (A) At least once during each period of 12 months, the applicant will cause detailed audits of the fiduciary books and records to be made by a qualified public accountant. At that time, the applicant will ascertain whether the fiduciary accounts have been administered in accordance with law, this paragraph, and sound fiduciary principles. The audits shall be conducted in accordance with generally accepted auditing standards, and shall involve whatever tests of the fiduciary books and records of the applicant are considered necessary by the qualified public accountant.
(B) In the case of an applicant which is regulated, supervised, and subject to periodic examination by a State or Federal agency, such applicant may adopt an adequate continuous audit system in lieu of the periodic audits required by paragraph (e)(5)(iii)(A) of this section.
(C) A report of the audits and examinations required under this subdivision, together with the action taken thereon, will be noted in the fiduciary records of the applicant.
(iv) Funds awaiting investment or distribution. Funds held in a fiduciary capacity by the applicant awaiting investment or distribution will not be held uninvested or undistributed any longer than is reasonable for the proper management of the account.
(v) Custody of investments. (A) Except for investments pooled in a common investment fund in accordance with the provisions of paragraph (e)(5)(vi) of this section and for investments of accounts established under section 408(q) on or after August 1, 2003, the investments of each account will not be commingled with any other property.
(B) Assets of accounts requiring safekeeping will be deposited in an adequate vault. A permanent record will be kept of assets deposited in or withdrawn from the vault.
(vi) Common investment funds. The assets of an account may be pooled in a common investment fund (as defined in paragraph (e)(5)(viii)(C) of this section) if the applicant is authorized under applicable law to administer a common investment fund and if pooling the assets in a common investment fund is not in contravention of the plan documents or applicable law. The common investment fund must be administered as follows:
(A) Each common investment fund must be established and maintained in accordance with a written agreement, containing appropriate provisions as to the manner in which the fund is to be operated, including provisions relating to the investment powers and a general statement of the investment policy of the applicant with respect to the fund; the allocation of income, profits and losses; the terms and conditions governing the admission or withdrawal of participations in the funds; the auditing of accounts of the applicant with respect to the fund; the basis and method of valuing assets held by the fund, setting forth specific criteria for each type of asset; the minimum frequency for valuation of assets of the fund; the period following each such valuation date during which the valuation may be made (which period in usual circumstances may not exceed 10 business days); the basis upon which the fund may be terminated; and such other matters as may be necessary to define clearly the rights of participants in the fund. A copy of the agreement must be available at the principal office of the applicant for inspection during all business hours, and upon request a copy of the agreement must be furnished to the employer, the plan administrator, any participant or beneficiary of an account, or the individual for whose benefit the account is established or that individual's beneficiary.
(B) All participations in the common investment fund must be on the basis of a proportionate interest in all of the investments.
(C) Not less frequently than once during each period of 3 months the applicant must determine the value of the assets in the fund as of the date set for the valuation of assets. No participation may be admitted to or withdrawn from the fund except (1) on the basis of such valuation and (2) as of such valuation date. No participation may be admitted to or withdrawn from the fund unless a written request for or notice of intention of taking such action has been entered on or before the valuation date in the fiduciary records of the applicant. No request or notice may be canceled or countermanded after the valuation date.
(D)(1) The applicant must at least once during each period of 12 months cause an adequate audit to be made of the common investment fund by a qualified public accountant.
(2) The applicant must at least once during each period of 12 months prepare a financial report of the fund which, based upon the above audit, must contain a list of investments in the fund showing the cost and current value of each investment; a statement for the period since the previous report showing purchases, with cost; sales, with profit or loss; any other investment changes; income and disbursements; and an appropriate notation as to any investments in default.
(3) The applicant must transmit and certify the accuracy of the financial report to the administrator of each plan participating in the common investment fund within 120 days after the end of the plan year.
(E) When participations are withdrawn from a common investment fund, distributions may be made in cash or ratably in kind, or partly in cash and partly in kind: Provided, That all distributions as of any one valuation date must be made on the same basis.
(F) If for any reason an investment is withdrawn in kind from a common investment fund for the benefit of all participants in the fund at the time of such withdrawal and such investment is not distributed ratably in kind, it must be segregated and administered or realized upon for the benefit ratably of all participants in the common investment fund at the time of withdrawal.
(vii) Books and records. (A) The applicant must keep its fiduciary records separate and distinct from other records. All fiduciary records must be so kept and retained for as long as the contents thereof may become material in the administration of any internal revenue law. The fiduciary records must contain full information relative to each account.
(B) The applicant must keep an adequate record of all pending litigation to which it is a party in connection with the exercise of fiduciary powers.
(viii) Definitions. For purposes of this paragraph (e)(5), and paragraph (e)(2)(v), and paragraph (e)(7) of this section—
(A) The term “account” or “fiduciary account” means a trust described in section 401(a) (including a custodial account described in section 401(f)), a custodial account described in section 403(b)(7), or an individual retirement account described in section 408(a) (including a custodial account described in section 408(h)).
(B) The term “plan administrator” means an administrator as defined in § 1.414(g)-1.
(C) The term “common investment fund” means a trust that satisfies the following requirements:
(1) The trust consists of all or part of the assets of several accounts that have been established with the applicant, and
(2) The trust is described in section 401(a) and is exempt from tax under section 501(a), or is a trust that is created for the purpose of providing a satisfactory diversification of investments or a reduction of administrative expenses for the participating accounts and that satisfies the requirements of section 408(c).
(D) The term “fiduciary records” means all matters which are written, transcribed, recorded, received or otherwise come into the possession of the applicant and are necessary to preserve information concerning the acts and events relevant to the fiduciary activities of the applicant.
(E) The term “qualified public accountant” means a qualified public accountant, as defined in section 103(a)(3)(D) of the Employee Retirement Income Security Act of 1974, 29 U.S.C. 1023(a)(3)(D), who is independent of the applicant.
(F) The term “net worth” means the amount of the applicant's assets less the amount of its liabilities, as determined in accordance with generally accepted accounting principles.
(6) Special rules—(i) Passive trustee. (A) An applicant that undertakes to act only as a passive trustee may be relieved of one or more of the requirements of this paragraph upon clear and convincing proof that such requirements are not germane, under all the facts and circumstances, to the manner in which the applicant will administer any trust. A trustee is a passive trustee only if under the written trust instrument the trustee has no discretion to direct the investment of the trust funds or any other aspect of the business administration of the trust, but is merely authorized to acquire and hold particular investments specified by the trust instrument. Thus, for example, in the case of an applicant that undertakes merely to acquire and hold the stock of regulated investment companies, the requirements of paragraph (e)(5)(i)(A)(3) in its place, and (i)(D), and (vi) of this section shall not apply and no negative inference shall be drawn from the applicant's failure to demonstrate its experience of competence with respect to the activities described in paragraph (e)(4)(ii)(E) to (H) of this section.
(B) The notice of approval issued to an applicant that is approved by reason of this subdivision shall state that the applicant is authorized to act only as a passive trustee.
(ii) Federal or State regulation. Evidence that an applicant is subject to Federal or State regulation with respect to one or more relevant factors shall be given weight in proportion to the extent that such regulatory standards are consonant with the requirements of section 401. Such evidence may be submitted in addition to, or in lieu of, the specific proofs required by this paragraph.
(iii) Savings account. (A) An applicant will be approved to act as trustee under this subdivision if the following requirements are satisfied:
(1) The applicant is a credit union, industrial loan company, or other financial institution designated by the Commissioner;
(2) The investment of the trust assets will be solely in deposits in the applicant;
(3) Deposits in the applicant are insured (up to the dollar limit prescribed by applicable law) by an agency or instrumentality of the United States, or by an organization established under a special statute the business of which is limited to insuring deposits in financial institutions and providing related services.
(B) Any applicant that satisfies the requirements of this subdivision is hereby approved, and (notwithstanding subparagraph (2) of this paragraph) is not required to submit a written application. This approval takes effect on the first day after December 22, 1976, on which the applicant satisfies the requirements of this subdivision, and continues in effect for so long as the applicant continues to satisfy those requirements.
(C) If deposits are insured, but not in the manner provided in paragraph (e)(6)(iii)(A)(3) of this section, the applicant must submit an application. The application, notwithstanding subparagraph (2) of this paragraph, will be limited to a complete description of the insurance of applicant's deposits. The applicant will be approved if the Commissioner approves of the applicant's insurance.
(iv) Notification of Commissioner. The applicant must notify the Commissioner in writing of any change that affects the continuing accuracy of any representation made in the application required by this paragraph, whether the change occurs before or after the applicant receives a notice of approval. The notification must be addressed to address prescribed by the Commissioner in revenue rulings, notices, and other guidance published in the Internal Revenue Bulletin (see § 601.601(d)(2)(ii)(b) of this chapter.
(v) Substitution of trustee. No applicant will be approved unless the applicant undertakes to act as trustee only under trust instruments which contain a provision to the effect that the grantor is to substitute another trustee upon notification by the Commissioner that such substitution is required because the applicant has failed to comply with the requirements of this paragraph or is not keeping such records, or making such returns, or rendering such statements as are required by forms or regulations.
(7) Procedure and administration—(i) Notice of approval. If the applicant is approved, a written notice of approval will be issued to the applicant. The notice of approval will state the day on which it becomes effective, and (except as otherwise provided therein) will remain effective until revoked. This paragraph does not authorize the applicant to accept any fiduciary account before such notice of approval becomes effective.
(ii) Notice of disapproval. If the applicant is not approved, a written notice will be furnished to the applicant containing a statement of the reasons why the applicant has not been approved.
(iii) Copy to be furnished. The applicant must not accept a fiduciary account until after the plan administrator or the person for whose benefit the account is to be established is furnished with a copy of the written notice of approval issued to the applicant. This provision is effective six months after April 20, 1979 for new accounts accepted thereafter. For accounts accepted before that date, the administrator must be notified before the later of the effective date of this provision or six months after acceptance of the account.
(iv) Grounds for revocation. The notice of approval issued to an applicant will be revoked if the Commissioner determines that the applicant is unwilling or unable to administer fiduciary accounts in a manner consistent with the requirements of this paragraph. Generally, the notice will not be revoked unless the Commissioner determines that the applicant has knowingly, willfully, or repeatedly failed to administer fiduciary accounts in a manner consistent with the requirements of this paragraph, or has administered a fiduciary account in a grossly negligent manner.
(v) Procedures for revocation. The notice of approval issued to an applicant may be revoked in accordance with the following procedures:
(A) If the Commissioner proposes to revoke the notice of approval issued to an applicant, the Commissioner will advise the applicant in writing of the proposed revocation and of the reasons therefor.
(B) Within 60 days after the receipt of such written advice, the applicant may protest the proposed revocation by submitting a written statement of facts, law, and arguments opposing such revocation to address prescribed by the Commissioner in revenue rulings, notices, and other guidance published in the Internal Revenue Bulletin (see § 601.601(d)(2)(ii)(b) of this chapter. In addition, the applicant may request a conference in the National Office.
(C) If the applicant consents to the proposed revocation, either before or after a National Office conference, or if the applicant fails to file a timely protest, the Commissioner will revoke the notice of approval that was issued to the applicant.
(D) If, after considering the applicant's protest and any information developed in conference, the Commissioner determines that the applicant is unwilling or unable to administer fiduciary accounts in a manner consistent with the requirements of this paragraph, the Commissioner will revoke the notice of approval that was issued to the applicant and will furnish the applicant with a written statement of findings on which the revocation is based.
(E) If at any time the Commissioner determines that immediate action is necessary to protect the interest of the Internal Revenue Service or of any fiduciary account, the notice of approval issued to the applicant will be suspended at once, pending a final decision to be based on the applicant's protest and any information developed in conference.
(8) Special rules for governmental units—(i) In general. A governmental unit that seeks to qualify as a nonbank trustee of a deemed IRA that is part of its qualified employer plan must demonstrate to the satisfaction of the Commissioner that it is able to administer the trust in a manner that is consistent with the requirements of section 408. The demonstration must be made by written application to the Commissioner. Notwithstanding the requirement of paragraph (e)(1) of this section that a person must demonstrate by written application that the requirements of paragraphs (e)(2) through (e)(6) of this section will be met in order to qualify as a nonbank trustee, a governmental unit that maintains a plan qualified under section 401(a), 403(a), 403(b) or 457 need not demonstrate that all of these requirements will be met with respect to any individual retirement accounts maintained by that governmental unit pursuant to section 408(q). For example, a governmental unit need not demonstrate that it satisfies the net worth requirements of paragraph (e)(3)(ii) of this section if it demonstrates instead that it possesses taxing authority under applicable law. The Commissioner, in his discretion, may exempt a governmental unit from certain other requirements upon a showing that the governmental unit is able to administer the deemed IRAs in the best interest of the participants. Moreover, in determining whether a governmental unit satisfies the other requirements of paragraphs (e)(2) through (e)(6) of this section, the Commissioner may apply the requirements in a manner that is consistent with the applicant's status as a governmental unit.
(ii) Governmental unit. For purposes of this special rule, the term governmental unit means a state, political subdivision of a state, and any agency or instrumentality of a state or political subdivision of a state.
(iii) Additional rules. The Commissioner may in revenue rulings, notices, or other guidance of general applicability provide additional rules for governmental units seeking approval as nonbank trustees.
(iv) Effective/applicability date. This section is applicable for written applications made on or after June 18, 2007. The rules in this section also may be relied on for applications submitted on or after August 1, 2003 (or such earlier application as the Commissioner deems appropriate) and before June 18, 2007.
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Treas. Reg. §1.408-2(a)In general.
In general. An individual retirement account must be a trust or a custodial account (see paragraph (d) of this section). It must satisfy the requirements of paragraph (b) of this section in order to qualify as an individual retirement account. It may be established and maintained by an individual, by an employer for the benefit of his employees (see paragraph (c) of this section), or by an employee association for the benefit of its members (see paragraph (c) of this section).
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Treas. Reg. §1.408-2(b)Requirements.
Requirements. An individual retirement account must be a trust created or organized in the United States (as defined in section 7701(a)(9)) for the exclusive benefit of an individual or his beneficiaries. Such trust must be maintained at all times as a domestic trust in the United States. The instrument creating the trust must be in writing and the following requirements must be satisfied.
(1) Amount of acceptable contributions. Except in the case of a contribution to a simplified employee pension described in section 408(k) and a rollover contribution described in section 408(d)(3), 402(a)(5), 402(a)(7), 403(a)(4), 403(b)(8) or 409(b)(3)(C), the trust instrument must provide that contributions may not be accepted by the trustee for the taxable year in excess of $1,500 on behalf of any individual for whom the trust is maintained. An individual retirement account maintained as a simplified employee pension may provide for the receipt of up to $7,500 for a calendar year.
(2) Trustee. (i) The trustee must be a bank (as defined in section 408(n) and the regulations thereunder) or another person who demonstrates, in the manner described in paragraph (e) of this section, to the satisfaction of the Commissioner, that the manner in which the trust will be administered will be consistent with the requirements of section 408 and this section.
(ii) Section 11.408(a)(2)-1 of the Temporary Income Tax Regulations under the Employee Retirement Income Security Act of 1974 is superseded by this subparagraph (2).
(3) Life insurance contracts. No part of the trust funds may be invested in life insurance contracts. An individual retirement account may invest in annuity contracts which provide, in the case of death prior to the time distributions commence, for a payment equal to the sum of the premiums paid or, if greater, the cash value of the contract.
(4) Nonforfeitability. The interest of any individual on whose behalf the trust is maintained in the balance of his account must be nonforfeitable.
(5) Prohibition against commingling. (i) The assets of the trust must not be commingled with other property except in a common trust fund or common investment fund.
(ii) For purposes of this subparagraph, the term “common investment fund” means a group trust created for the purpose of providing a satisfactory diversification or investments or a reduction of administrative expenses for the individual participating trusts, and which group trust satisfies the requirements of section 408(c) (except that it need not be established by an employer or an association of employees) and the requirements of section 401(a) in the case of a group trust in which one of the individual participating trusts is an employees' trust described in section 401(a) which is exempt from tax under section 501(a).
(iii) For purposes of this subparagraph, the term “individual participating trust” means an employees' trust described in section 401(a) which is exempt from tax under section 501(a) or a trust which satisfies the requirements of section 408(a) provided that in the case of such an employees' trust, such trust would be permitted to participate in such a group trust if all the other individual participating trusts were employees' trusts described in section 401(a) which are exempt from tax under section 501(a).
(6) Distribution of interest. (i) The trust instrument must provide that the entire interest of the individual for whose benefit the trust is maintained must be distributed to him in accordance with paragraph (b)(6)(ii) or (iii) of this section.
(ii) Unless the provisions of paragraph (b)(6)(iii) of this section apply, the entire interest of the individual must be actually distributed to him not later than the close of his taxable year in which he attains age 70
1/2.
(iii) In lieu of distributing the individual's entire interest as provided in paragraph (b)(6)(ii) of this section, the interest may be distributed commencing not later than the taxable year described in such paragraph (b)(6)(ii). In such case, the trust must expressly provide that the entire interest of the individual will be distributed to the individual and the individual's beneficiaries, in a manner which satisfies the requirements of paragraph (b)(6)(v) of this section, over any of the following periods (or any combination thereof)—
(A) The life of the individual,
(B) The lives of the individual and spouse,
(C) A period certain not extending beyond the life expectancy of the individual, or
(D) A period certain not extending beyond the joint life and last survivor expectancy of the individual and spouse.
(iv) The life expectancy of the individual or the joint life and last survivor expectancy of the individual and spouse cannot exceed the period computed by use of the expected return multiples in § 1.72-9, or, in the case of payments under a contract issued by an insurance company, the period computed by use of the mortality tables of such company.
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Treas. Reg. §1.408-2(c)Accounts established by employers and certain association of employees—(1) In general.
Accounts established by employers and certain association of employees—(1) In general. A trust created or organized in the United States (as defined in section 7701(a)(9)) by an employer for the exclusive benefit of his employees or their beneficiaries, or by an association of employees for the exclusive benefit of its members or their beneficiaries, is treated as an individual retirement account if the requirements of paragraphs (c)(2) and (c)(3) of this section are satisfied under the written governing instrument creating the trust. A trust described in the preceding sentence is for the exclusive benefit of employees or members even though it may maintain an account for former employees or members and employees who are temporarily on leave.
(2) General requirements. The trust must satisfy the requirements of paragraphs (b) (1) through (7) of this section.
(3) Special requirement. There must be a separate accounting for the interest of each employee or member.
(4) Definitions—(i) Separate accounting. For purposes of paragraph (c)(3) of this section, the term “separate accounting” means that separate records must be maintained with respect to the interest of each individual for whose benefit the trust is maintained. The assets of the trust may be held in a common trust fund, common investment fund, or common fund for the account of all individuals who have an interest in the trust.
(ii) Employee association. For purposes of this paragraph and section 408(c), the term “employee association” means any organization composed of two or more employees, including but not limited to, an employee association described in section 501(c)(4). Such association may include employees within the meaning of section 401(c)(1). There must be, however, some nexus between the employees (e.g., employees of same employer, employees in the same industry, etc.) in order to qualify as an employee association described in this subdivision (ii).
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Treas. Reg. §1.408-2(d)Custodial accounts.
Custodial accounts. For purposes of this section and section 408(a), a custodial account is treated as a trust described in section 408(a) if such account satisfies the requirements of section 408(a) except that it is not a trust and if the assets of such account are held by a bank (as defined in section 401(d)(1) and the regulations thereunder) or such other person who satisfies the requirements of paragraph (b)(2)(ii) of this section. For purposes of this chapter, in the case of a custodial account treated as a trust by reason of the preceding sentence, the custodian of such account will be treated as the trustee thereof.
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Treas. Reg. §1.408-2(e)§1.408-2(e)
(1) In general. The trustee of a trust described in paragraph (b) of this section may be a person other than a bank if the person demonstrates to the satisfaction of the Commissioner that the manner in which the person will administer trusts will be consistent with the requirements of section 408. The person must demonstrate by written application that the requirements of paragraph (e)(2) to (e)(6) of this section will be met. The written application must be sent to address prescribed by the Commissioner in revenue rulings, notices, and other guidance published in the Internal Revenue Bulletin (see § 601.601(d)(2)(ii)(b) of this chapter). For procedural and administrative rules, see paragraph (e)(7) of this section.
(2) Fiduciary ability. The applicant must demonstrate in detail its ability to act within the accepted rules of fiduciary conduct. Such demonstration must include the following elements of proof:
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Treas. Reg. §1.408-2(i)Administration of fiduciary powers.
Administration of fiduciary powers. (A)(1) The owners or directors of the applicant will be responsible for the proper exercise of fiduciary powers by the applicant. Thus, all matters pertinent thereto, including the determination of policies, the investment and disposition of property held in a fiduciary capacity, and the direction and review of the actions of all employees utilized by the applicant in the exercise of its fiduciary powers, will be the responsibility of the owners or directors. In discharging this responsibility, the owners or directors may assign to designated employees, by action duly recorded, the administration of such of the applicant's fiduciary powers as may be proper to assign.
(2) A written record will be made of the acceptance and of the relinquishment or closing out of all fiduciary accounts, and of the assets held for each account.
(3) If the applicant has the authority or the responsibility to render any investment advice with regard to the assets held in or for each fiduciary account, the advisability of retaining or disposing of the assets will be determined at least once during each period of 12 months.
(B) All employees taking part in the performance of the applicant's fiduciary duties will be adequately bonded. Nothing in this subdivision (i)(B) shall require any person to be bonded in contravention of section 412(d) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1112(d)).
(C) The applicant will employ or retain legal counsel who will be readily available to pass upon fiduciary matters and to advise the applicant.
(D) In order to segregate the performance of its fiduciary duties from other business activities, the applicant will maintain a separate trust division under the immediate supervision of an individual designated for that purpose. The trust division may utilize the personnel and facilities of other divisions of the applicant, and other divisions of the applicant may utilize the personnel and facilities of the trust division, as long as the separate identity of the trust division is preserved.
(ii) Adequacy of net worth—(A) Initial net worth requirement. In the case of applications received after January 5, 1995, no initial application will be accepted by the Commissioner unless the applicant has a net worth of not less than $250,000 (determined as of the end of the most recent taxable year). Thereafter, the applicant must satisfy the adequacy of net worth requirements of paragraph (e)(5)(ii)(B) and (C) of this section.
(B) No fiduciary account will be accepted by the applicant unless the applicant's net worth (determined as of the end of the most recent taxable year) exceeds the greater of—
(1) $100,000, or
(2) Four percent (or, in the case of a passive trustee described in paragraph (e)(6)(i)(A) of this section, two percent) of the value of all of the assets held by the applicant in fiduciary accounts (determined as of the most recent valuation date).
(C) The applicant will take whatever lawful steps are necessary (including the relinquishment of fiduciary accounts) to ensure that its net worth (determined as of the close of each taxable year) exceeds the greater of—
(1) $50,000, or
(2) Two percent (or, in the case of a passive trustee described in paragraph (e)(6)(i)(A) of this section, one percent) of the value of all of the assets held by the applicant in fiduciary accounts (determined as of the most recent valuation date).
(D) Assets held by members of SIPC—(1) For purposes of satisfying the adequacy-of-net-worth requirement of this paragraph, a special rule is provided for nonbank trustees that are members of the Securities Investor Protection Corporation (SIPC) created under the Securities Investor Protection Act of 1970 (SIPA)(15 U.S.C. 78aaa et seq., as amended). The amount that the net worth of a nonbank trustee that is a member of SIPC must exceed is reduced by two percent for purposes of paragraph (e)(5)(ii)(B)(2), and one percent for purposes of paragraph (e)(5)(ii)(C)(2), of the value of assets (determined on an account-by-account basis) held for the benefit of customers (as defined in 15 U.S.C. 78fff-2(e)(4)) in fiduciary accounts by the nonbank trustee to the extent of the portion of each account that does not exceed the dollar limit on advances described in 15 U.S.C. 78fff-3(a), as amended, that would apply to the assets in that account in the event of a liquidation proceeding under the SIPA.
(2) The provisions of this special rule for assets held in fiduciary accounts by members of SIPC are illustrated in the following example.
(E) The applicant will determine the value of the assets held by it in trust at least once in each calendar year and no more than 18 months after the preceding valuation. The assets will be valued at their fair market value, except that the assets of an employee pension benefit plan to which section 103(b)(3)(A) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1023(b)(3)(A)) applies will be considered to have the value stated in the most recent annual report of the plan.
(iii) Audits. (A) At least once during each period of 12 months, the applicant will cause detailed audits of the fiduciary books and records to be made by a qualified public accountant. At that time, the applicant will ascertain whether the fiduciary accounts have been administered in accordance with law, this paragraph, and sound fiduciary principles. The audits shall be conducted in accordance with generally accepted auditing standards, and shall involve whatever tests of the fiduciary books and records of the applicant are considered necessary by the qualified public accountant.
(B) In the case of an applicant which is regulated, supervised, and subject to periodic examination by a State or Federal agency, such applicant may adopt an adequate continuous audit system in lieu of the periodic audits required by paragraph (e)(5)(iii)(A) of this section.
(C) A report of the audits and examinations required under this subdivision, together with the action taken thereon, will be noted in the fiduciary records of the applicant.
(iv) Funds awaiting investment or distribution. Funds held in a fiduciary capacity by the applicant awaiting investment or distribution will not be held uninvested or undistributed any longer than is reasonable for the proper management of the account.
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Treas. Reg. §1.408-2(v)Procedures for revocation.
Procedures for revocation. The notice of approval issued to an applicant may be revoked in accordance with the following procedures:
(A) If the Commissioner proposes to revoke the notice of approval issued to an applicant, the Commissioner will advise the applicant in writing of the proposed revocation and of the reasons therefor.
(B) Within 60 days after the receipt of such written advice, the applicant may protest the proposed revocation by submitting a written statement of facts, law, and arguments opposing such revocation to address prescribed by the Commissioner in revenue rulings, notices, and other guidance published in the Internal Revenue Bulletin (see § 601.601(d)(2)(ii)(b) of this chapter. In addition, the applicant may request a conference in the National Office.
(C) If the applicant consents to the proposed revocation, either before or after a National Office conference, or if the applicant fails to file a timely protest, the Commissioner will revoke the notice of approval that was issued to the applicant.
(D) If, after considering the applicant's protest and any information developed in conference, the Commissioner determines that the applicant is unwilling or unable to administer fiduciary accounts in a manner consistent with the requirements of this paragraph, the Commissioner will revoke the notice of approval that was issued to the applicant and will furnish the applicant with a written statement of findings on which the revocation is based.
(E) If at any time the Commissioner determines that immediate action is necessary to protect the interest of the Internal Revenue Service or of any fiduciary account, the notice of approval issued to the applicant will be suspended at once, pending a final decision to be based on the applicant's protest and any information developed in conference.
(8) Special rules for governmental units—(i) In general. A governmental unit that seeks to qualify as a nonbank trustee of a deemed IRA that is part of its qualified employer plan must demonstrate to the satisfaction of the Commissioner that it is able to administer the trust in a manner that is consistent with the requirements of section 408. The demonstration must be made by written application to the Commissioner. Notwithstanding the requirement of paragraph (e)(1) of this section that a person must demonstrate by written application that the requirements of paragraphs (e)(2) through (e)(6) of this section will be met in order to qualify as a nonbank trustee, a governmental unit that maintains a plan qualified under section 401(a), 403(a), 403(b) or 457 need not demonstrate that all of these requirements will be met with respect to any individual retirement accounts maintained by that governmental unit pursuant to section 408(q). For example, a governmental unit need not demonstrate that it satisfies the net worth requirements of paragraph (e)(3)(ii) of this section if it demonstrates instead that it possesses taxing authority under applicable law. The Commissioner, in his discretion, may exempt a governmental unit from certain other requirements upon a showing that the governmental unit is able to administer the deemed IRAs in the best interest of the participants. Moreover, in determining whether a governmental unit satisfies the other requirements of paragraphs (e)(2) through (e)(6) of this section, the Commissioner may apply the requirements in a manner that is consistent with the applicant's status as a governmental unit.
(ii) Governmental unit. For purposes of this special rule, the term governmental unit means a state, political subdivision of a state, and any agency or instrumentality of a state or political subdivision of a state.
(iii) Additional rules. The Commissioner may in revenue rulings, notices, or other guidance of general applicability provide additional rules for governmental units seeking approval as nonbank trustees.
(iv) Effective/applicability date. This section is applicable for written applications made on or after June 18, 2007. The rules in this section also may be relied on for applications submitted on or after August 1, 2003 (or such earlier application as the Commissioner deems appropriate) and before June 18, 2007.
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Treas. Reg. §1.408-3Individual retirement annuities
(a) In general. An individual retirement annuity is an annuity contract or endowment contract (described in paragraph (e)(1) of this section) issued by an insurance company which is qualified to do business under the law of the jurisdiction in which the contract is sold and which satisfies the requirements of paragraph (b) of this section. A participation certificate in a group contract issued by an insurance company described in this paragraph will be treated as an individual retirement annuity if the contract satisfies the requirements of paragraph (b) of this section; the certificate of participation sets forth the requirements of paragraphs (1) through (5) of section 408 (b); the contract provides for a separate accounting of the benefit allocable to each participant-owner; and the group contract is for the exclusive benefit of the participant owners and their beneficiaries. For purposes of this title, a participant-owner of a group contract described in this paragraph shall be treated as the owner of an individual retirement annuity. A contract will not be treated as other than an individual retirement annuity merely because it provides for waiver of premium on disability. An individual retirement annuity contract which satisfies the requirements of section 408 (b) need not be purchased under a trust if the requirements of paragraph (b) of this section are satisfied. An individual retirement endowment contract may not be held under a trust which satisfies the requirements of section 408 (a). Distribution of the contract is not a taxable event. Distributions under the contract are includible in gross income in accordance with the provisions of § 1.408-4 (e).
(b) Requirements—(1) Transferability. The annuity or the endowment contract must not be transferable by the owner. An annuity or endowment contract is transferable if the owner can transfer any portion of his interest in the contract to any person other than the issuer thereof. Accordingly, such a contract is transferable if the owner can sell, assign, discount, or pledge as collateral for a loan or as security for the performance of an obligation or for any other purpose his interest in the contract to any person other than the issuer thereof. On the other hand, a contract is not to be considered transferable merely because the contract contains: a provision permitting the individual to designate a beneficiary to receive the proceeds in the event of his death, a provision permitting the individual to elect a joint and survivor annuity, or other similar provisions.
(2) Annual premium. Except in the case of a contribution to a simplified employee pension described in section 408 (k), the annual premium on behalf of any individual for the annuity or the endowment contract cannot exceed $1,500. Any refund of premiums must be applied before the close of the calendar year following the year of the refund toward the payment of future premiums or the purchase of additional benefits.
(3) Distribution. The entire interest of the owner must be distributed to him in the same manner and over the same period as described in § 1.408-2 (b) (6).
(4) Distribution upon death. If the owner dies before the entire interest has been distributed to him, or if distribution has commenced to the surviving spouse, the remaining interest must be distributed in the same manner, over the same period, and to the same beneficiaries as described in § 1.408-2 (b) (7).
(5) Nonforfeitability. The entire interest of the owner in the annuity or endowment contract must be nonforfeitable.
(6) Flexible premium. [Reserved]
(c) Disqualification. If during any taxable year the owner of an annuity borrows any money under the annuity or endowment contract or by use of such contract (including, but not limited to, pledging the contract as security for any loan), such contract will cease to be an individual retirement annuity as of the first day of such taxable year, and will not be an individual retirement annuity at any time thereafter. If an annuity or endowment contract which constitutes an individual retirement annuity is disqualified as a result of the preceding sentence, an amount equal to the fair market value of the contract as of the first day of the taxable year of the owner in which such contract is disqualified is deemed to be distributed to the owner. Such owner shall include in gross income for such year an amount equal to the fair market value of such contract as of such first day. The preceding sentence applies even though part of the fair market value of the individual retirement annuity as of the first day of the taxable year is attributable to excess contributions which may be returned tax-free under section 408(d)(4) or 408(d)(5).
(d) Premature distribution tax on deemed distribution. If the individual has not attained age 59
1/2 before the beginning of the year in which the disqualification described in paragraph (c) of this section occurs, see section 408(f)(2) for additional tax on premature distributions.
(e) Endowment contracts—(1) Additional requirement for endowment contracts. No contract providing life insurance protection issued by a company described in paragraph (a) of this section shall be treated as an endowment contract for purposes of this section if—
(i) Such contract matures later than the taxable year in which the individual in whose name the contract is purchased attains the age of 70
1/2;
(ii) Such contract is not for the exclusive benefit of such individual or his beneficiaries;
(iii) Premiums under the contract may increase over the term of the contract;
(iv) When all premiums are paid when due, the case value of such contract at maturity is less than the death benefit payable under the contract at any time before maturity;
(v) The death benefit does not, at some time before maturity, exceed the greater of the cash value or the sum of premiums paid under the contract;
(vi) Such contract does not provide for a cash value;
(vii) Such contract provides that the life insurance element of such contract may increase over the term of such contract, unless such increase is merely because such contract provides for the purchase of additional benefits;
(viii) Such contract provides insurance other than life insurance and waiver of premiums upon disability; or
(ix) Such contract is issued after November 6, 1978.
(2) Treatment of proceeds under endowment contract upon death of individual. In the case of the payment of a death benefit under an endowment contract upon the death of the individual in whose name the contract is purchased, the portion of such payment which is equal to the cash value immediately before the death of such individual is not excludable from gross income under section 101(a) and is treated as a distribution from an individual retirement annuity. The remaining portion, if any, of such payment constitutes current life insurance protection and is excludable under section 101(a). If a death benefit is paid under an endowment contract at a date or dates later than the death of the individual, section 101(d) is applicable only to the portion of the benefit which is attributable to the amount excludable under section 101(a).
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Treas. Reg. §1.408-3(a)In general.
In general. An individual retirement annuity is an annuity contract or endowment contract (described in paragraph (e)(1) of this section) issued by an insurance company which is qualified to do business under the law of the jurisdiction in which the contract is sold and which satisfies the requirements of paragraph (b) of this section. A participation certificate in a group contract issued by an insurance company described in this paragraph will be treated as an individual retirement annuity if the contract satisfies the requirements of paragraph (b) of this section; the certificate of participation sets forth the requirements of paragraphs (1) through (5) of section 408 (b); the contract provides for a separate accounting of the benefit allocable to each participant-owner; and the group contract is for the exclusive benefit of the participant owners and their beneficiaries. For purposes of this title, a participant-owner of a group contract described in this paragraph shall be treated as the owner of an individual retirement annuity. A contract will not be treated as other than an individual retirement annuity merely because it provides for waiver of premium on disability. An individual retirement annuity contract which satisfies the requirements of section 408 (b) need not be purchased under a trust if the requirements of paragraph (b) of this section are satisfied. An individual retirement endowment contract may not be held under a trust which satisfies the requirements of section 408 (a). Distribution of the contract is not a taxable event. Distributions under the contract are includible in gross income in accordance with the provisions of § 1.408-4 (e).
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Treas. Reg. §1.408-3(b)Requirements—(1) Transferability.
Requirements—(1) Transferability. The annuity or the endowment contract must not be transferable by the owner. An annuity or endowment contract is transferable if the owner can transfer any portion of his interest in the contract to any person other than the issuer thereof. Accordingly, such a contract is transferable if the owner can sell, assign, discount, or pledge as collateral for a loan or as security for the performance of an obligation or for any other purpose his interest in the contract to any person other than the issuer thereof. On the other hand, a contract is not to be considered transferable merely because the contract contains: a provision permitting the individual to designate a beneficiary to receive the proceeds in the event of his death, a provision permitting the individual to elect a joint and survivor annuity, or other similar provisions.
(2) Annual premium. Except in the case of a contribution to a simplified employee pension described in section 408 (k), the annual premium on behalf of any individual for the annuity or the endowment contract cannot exceed $1,500. Any refund of premiums must be applied before the close of the calendar year following the year of the refund toward the payment of future premiums or the purchase of additional benefits.
(3) Distribution. The entire interest of the owner must be distributed to him in the same manner and over the same period as described in § 1.408-2 (b) (6).
(4) Distribution upon death. If the owner dies before the entire interest has been distributed to him, or if distribution has commenced to the surviving spouse, the remaining interest must be distributed in the same manner, over the same period, and to the same beneficiaries as described in § 1.408-2 (b) (7).
(5) Nonforfeitability. The entire interest of the owner in the annuity or endowment contract must be nonforfeitable.
(6) Flexible premium. [Reserved]
-
Treas. Reg. §1.408-3(c)Disqualification.
Disqualification. If during any taxable year the owner of an annuity borrows any money under the annuity or endowment contract or by use of such contract (including, but not limited to, pledging the contract as security for any loan), such contract will cease to be an individual retirement annuity as of the first day of such taxable year, and will not be an individual retirement annuity at any time thereafter. If an annuity or endowment contract which constitutes an individual retirement annuity is disqualified as a result of the preceding sentence, an amount equal to the fair market value of the contract as of the first day of the taxable year of the owner in which such contract is disqualified is deemed to be distributed to the owner. Such owner shall include in gross income for such year an amount equal to the fair market value of such contract as of such first day. The preceding sentence applies even though part of the fair market value of the individual retirement annuity as of the first day of the taxable year is attributable to excess contributions which may be returned tax-free under section 408(d)(4) or 408(d)(5).
-
Treas. Reg. §1.408-3(d)Premature distribution tax on deemed distribution.
Premature distribution tax on deemed distribution. If the individual has not attained age 59
1/2 before the beginning of the year in which the disqualification described in paragraph (c) of this section occurs, see section 408(f)(2) for additional tax on premature distributions.
-
Treas. Reg. §1.408-3(e)Endowment contracts—(1) Additional requirement for endowment contracts.
Endowment contracts—(1) Additional requirement for endowment contracts. No contract providing life insurance protection issued by a company described in paragraph (a) of this section shall be treated as an endowment contract for purposes of this section if—
153 Citing Cases
(3) Disaster area.—For purposes of this subsection, the term “disaster area” has the meaning given such term under subparagraph (B) of section 165(i)(5) with respect to a Federally declared disaster (as defined in subparagraph (A) of such section).
202, 206 (2009) (describing the treatment of Roth individual retirement accounts under section 408A), aff’d, 679 F.3d 1109 (9th Cir.
Thus, the rule enunciated in Walquist does not apply here.
McNulty’s receipt of each purchase of the AE coins paid for with her IRA funds was a taxable distribution pursuant to section 408(d).
408A(c) and (d). - 8 - [*8] (1) errors committed by a financial institution * * *; (2) inability to complete a rollover due to death, disability, hospitalization, incar- ceration, restrictions imposed by a foreign country or postal error; (3) the use ofthe amount distributed (for example, in the case of payment by check, whether the check was
which elected to be taxed under now-repealed sections 921-927.4 WGA's FSCs were located in Bermuda and managed by a company called Quail Street Management (Quail Street).5 To participate in WGA's FSC/individual retirement account (IRA) program, the individual shareholders or owners ofWGA's corporate or passthrough members had to have self-directed section 408 IRAs (traditional IRAs), which the shareholders or owners used to purchase stock in one ofWGA's FSCs.
which elected to be taxed under now-repealed sections 921-927.4 WGA's FSCs were located in Bermuda and managed by a company called Quail Street Management (Quail Street).5 To participate in WGA's FSC/individual retirement account (IRA) program, the individual shareholders or owners ofWGA's corporate or passthrough members had to have self-directed section 408 IRAs (traditional IRAs), which the shareholders or owners used to purchase stock in one ofWGA's FSCs.
Respondent's Argument Respondent's position is that none ofthe distributions petitioner received in 2013 from the JPMorgan IRAs met the requirements ofthe section 408(d)(6) exception. First, respondent argues that petitioner did not transfer any interest in his IRAs to Ms. Kirkpatrick: No IRA was opened in her name, nor was there any transfer offunds from petitioner's IRAs to any IRA owned by Ms. Kirkpatrick. Respondent points out that this Court in the past has held that section 408(d)(6) does
408A(c)(1), (d)(1); Taproot Admin. Servs., Inc. v. ¹6 We were, however, a bit ambiguous. In the introduction to our analysis we described the Commissioner's argument that his agent was "required" to mail notice to the indirect partners, and then said "we agree." The Janssons argue this supports their position. We disagree, because we did not h
408A(c)(1), (d)(1); Taproot Admin. Servs., Inc. v. ¹6 We were, however, a bit ambiguous. In the introduction to our analysis we described the Commissioner's argument that his agent was "required" to mail notice to the indirect partners, and then said "we agree." The Janssons argue this supports their position. We disagree, because we did not h
due date * * * for filing the return oftax." Phrases similar to this appear through- out the Code. See, e.g., sec. 172(b)(3) (providing that an election shall be made "by the due date (including extensions oftime) for filing the taxpayer's return"); sec. 408A(d)(7) ("[T]he due date * * * is the date prescribed by law (including extensions oftime) for filing the taxpayer's return[.]"). In this tax context, it - 17 - seems clear that the phrase "with extensions" must modify "due date" and must ref
408A(c)(1), (d)(1); Taproot Admin. Servs., Inc. v. ¹6 We were, however, a bit ambiguous. In the introduction to our analysis we described the Commissioner's argument that his agent was "required" to mail notice to the indirect partners, and then said "we agree." The Janssons argue this supports their position. We disagree, because we did not h
408A(c)(1), (d)(1); Taproot Admin. Servs., Inc. v. ¹6 We were, however, a bit ambiguous. In the introduction to our analysis we described the Commissioner's argument that his agent was "required" to mail notice to the indirect partners, and then said "we agree." The Janssons argue this supports their position. We disagree, because we did not h
Roth IRAs and Section 4973 Congress authorized the Roth IRA, a type ofindividual retirement account, with the enactment ofsection 408A in the Taxpayer ReliefAct of 1997, Pub.
Roth IRAs and Section 4973 Congress authorized the Roth IRA, a type ofindividual retirement account, with the enactment ofsection 408A in the Taxpayer ReliefAct of 1997, Pub.
The instant cases are distinguishable from Hellweg. Like the Commissioner in Hellweg, respondent does not object to the transaction on the basis ofsection 482 or section 408(c)(2)(A).
The instant cases are distinguishable from Hellweg. Like the Commissioner in Hellweg, respondent does not object to the transaction on the basis ofsection 482 or section 408(c)(2)(A).
The instant cases are distinguishable from Hellweg. Like the Commissioner in Hellweg, respondent does not object to the transaction on the basis ofsection 482 or section 408(c)(2)(A).
The instant cases are distinguishable from Hellweg. Like the Commissioner in Hellweg, respondent does not object to the transaction on the basis ofsection 482 or section 408(c)(2)(A).
The instant cases are distinguishable from Hellweg. Like the Commissioner in Hellweg, respondent does not object to the transaction on the basis ofsection 482 or section 408(c)(2)(A).
337, 340 (1996) (citing and discussing the legislative history underlying section 408(f), the statutorypredecessorto section 72(t)); Milner v.
408(d)(3)(A)(i) and (ii); see also Schoofv. Commissioner, 110 T.C. 1, 7 (1998). Such distributions and repayments are commonly referred to as "rollover contributions". Sec. 408(d)(3). Taxpayers may also make partial rollover contributions ofless than the full amount ofa distribution from an IRA ifany portion ofthose funds is paid into a qualifying retirement plan not later than the 60th day after the day of receipt ofthe distribution. Sec. 408(d)(3)(D). Section 408(d)(3)(B) limits a taxpayer fro
3The parties do not raise section 408(d)(6), which provides that a transfer of an individual's IRA to a former spouse, pursuantto a divorce or separation agreement, is not a taxable transfer. For section 408(d)(6) to apply, "(1) [t]here must be a transfer ofthe IRA participant's 'interest' in the IRA to his spouse or former spouse, and (2) such transfer must have been made under a section 71(b)(2) divorce or separation instrument." Bunney v. Commissioner, 114 T.C. 259, 264-265 (2000). Because th
Rollover Contributions Under Section 408(d)(3) In general, any amount paid or distributed out ofan individual retirement plan is included in the gross income ofthe payee or distributee as provided in section 72. Sec. 408(d)(1); Arnold v. Commissioner, 111 T.C. 250, 253 (1998). This general rule does not apply to a rollover contribution.
ollover contribution under section 408(d)(3)(A)(ii), and the first distribution should not be included in his gross income. The opinion of the Court makes it abundantly clear that there is no rule that overrides the rollover treatment allowed under section 408. The opinion cites section 401(a)(31), which relates to the qualification of a plan, not the tax treatment of a rollover. The opinion cites section 402, which relates to rollovers from exempt trusts, not rollovers from IRAs. In fact, the o
- 13 - Under section 408, the benefit ofthe traditional IRA is thus deferral ofincome tax liability on retirement investment gains.5 Mr.
Stat. at 3061, the taxpay fi ed timely motions to reconsider and to vacate, which - 9 - [*9] the Court granted, see Alioto v. Commissioner, T.C. Memo. 2008-185 ("We agree that the Court correctly applied the caselaw as it existed at the time the Court issued Alioto I [Alioto v. Commissioner, T.C. Memo. 2006-1999]; however, we disag
fthe taxable year in which the prohibited transaction occurred, Mr. Ellis' IRA ceased to be an "eligible retirement plan" under section 402 and the fair market value ofthe IRA was deemed distributed to him on the first day ofthat taxable year under section 408. Respondent determined that a prohibited transaction under section 4975 occurred at one ofthe followingpoints: (1) when Mr. Ellis caused his IRA to engage in the sale and exchange ofmembership interests in CST in tax year 2005; (2) when Mr
at 3061, the taxpayer filed timely motions to reconsider and to vacate, which the Court granted, see Alioto v. Commissioner, T.C. Memo. 2008-185 ("We agree that the Court correctly applied the caselaw as it existed at the time the Court issued Alioto I; however, we disagree that the motion for reconsideration should be denied. A
Roth IRAs in General Congress authorized the Roth IRA, a type ofa retirement account, with the enactment ofsection 408A ofthe TaxpayerReliefAct of 1997(Pub.
Therefore, we hold that the burden ofproofdoes not shift to respondent.
Roth IRAs in General Congress authorized the Roth IRA, a type ofa retirement account, with the enactment ofsection 408A ofthe TaxpayerReliefAct of 1997(Pub.
(2) An eligible retirement plan is an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408 (b), an annuity plan described in Code Section 403(a), or a qualified trust described in Code Section 401(a), that accepts the distributee's eligible rollover distribution.
However, a distribution is not includable in gross income if the entire amount of the distribution received by an individual is paid into a qualified IRA for the benefit of that individual within 60.days of the distribution. ,This type of recontribution, known as a "rollover contribution", may. occur outside of the 60- day require
This case is distinguishable from Michael C.
408A(a) , (c) (1) , (d) (1) , and (2) (A) ; see also Taproot Admin. Servs., Inc. v. Commissioner, supra at 206. 4 - : he graduated with a 'degree-in Applied Mechanics . Additionally,a Mr. Swanson finished a 2-year extension course at UCLA, where he received a certificatet in business management. During his career, Mr. Swanson worked at? Hughe
408A(a), (c) (1), (d) (1), (2) (A):; Taproot Admin. Servs., Inc. v. Commissioner, 133 T.C. 202, 206 (2009). Mr. Paschall spent his entire career until his 1996 retirement working at North American Aviation, which eventually became Rockwell International. Petitioner wife, Joan L Paschall, has a degree in secretarialtscience and from 1985 throu
vidence in the record, it appears that the annuity payments in question were paid out of an individual retirement account (IRA).. Such distributions must be included in the distributee's gross income pursuant to the annuity rules of section 72.4 See sec. 408 (d). Those rules generally include in the annuitant's gross income any amount received as an annuity, sec. 72(a), but allow tax-free recovery of the annuitant's "investment in the contract", sec. 72 (b). The excludable portion of amounts rec
Whether Petitioner Is Entitled to a $1,900 Deduction for Contributions to a SEP Account for the 2005 Tax Year Contributions by an employer to an individual retirement account or annuity meeting certain requirements described in section 408 (k) qualify as a SEP plan and may be deducted .
Section 408 governs the treatment of IRAs.
20, we disagree with the majority about its significance as a window into the mind o f Congress on the general eligibility of S-corporation shareholders to hold their stock in IRAs .
408, Congress reinstated our jurisdiction to review the Commissioner’s determinations under section 6015(f) where no deficiency has been asserted. While a taxpayer’s delay in applying for relief under section 6015(f) is a factor to be considered in applying the “all the facts and circumstances” test of section 6015(f), the Secretary must be re
ther legal form. They can be custodial accounts. In that case, they must be treated as trusts in order to qualify as IRAS. See sec. 408(h). In other words, a custodial account IRA must be treated as a trust in order for it to qualify as an IRA under section 408. D. Parties’ Arguments Petitioner has two arguments. First, petitioner argues that “a custodial account qualifying as an IRA also meets the qualifications to be a shareholder of an S corporation.” According to petitioner, the beneficiary
3061. Because this case involves tax liabilities remaining unpaid after Dec. 20, 2006, sec. 6015(e) as amended by TRHCA applies. However, our jurisdiction in this case does not depend upon sec. 6015(e) as amended because this is not a stand-alone case for relief solely under sec. 6015(f), and a deficiency in tax has been asserte
3061, the Tax Court now has jurisdiction over the case at bar. The fact that the parties agree that the Court has jurisdiction over these issues is not sufficient to provide us with such jurisdiction; the Court still must determine that Congress has granted us jurisdiction. See Evans Publg., Inc. v. Commissioner, 119 T.C. 242, 2
408(a), 120 Stat . 3061 (TRHCA sec . 408) .4 This amendment applies "with respect to liability for taxes arising or remaining unpaid on or after the date of the enactment of this Act ." Id. sec . 408(c), 120 Stat . 3062 . TRHCA was enacted on December 20, 2006 . See 120 Stat. 2922 . Respondent asserts that the amendment to former section 6015(e)(1) does not apply to the setting at hand because petitioner paid her 1996 Federal income tax before December 20, 2006, and thus on or after that date pe
Section 408 is not one w of the provisions listed in section 318(b) and is not in the same subchapter of the Code as section 318 . For the reasons stated, respondent's determination is sustained. To reflect the foregoing, Decision will be entered for respondent .
3061, 3062 (TRHCA section 408), Congress amended section 6015(e) to confer jurisdiction on this Court over stand-alone requests for equitable relief under section 6015(f), effective for tax liabilities arising or remaining unpaid on or after December 20, 2006 .
Because Congress’s use of the word “taxes” in TRHCA section 408(c) is in the setting of Federal income tax and of various amendments that trhca section 408 made directly to section 6015, we believe that Congress’s intent for the meaning of the word “taxes” is best gleaned from Congress’s understanding of the firmly established meaning of that word as used in the Code (and, as discussed below, applicable to section 6015(f)) when TRHCA was enacted.
SERVED MAY 3 0 2007 - 4 - and properly treated under section 408A(d)(6) petitioner's IRA earnings as not includable in petitioner's 2001 income .
3061 (within a matter of months, Congress reinstated our jurisdiction to review the Commissioner’s determinations under sec. 6015(f) as we originally had held in Ewing v. Commissioner, 118 T.C. 494 (2002), revd. 439 F.3d 1009 (9th Cir. 2006); Billings v. Commissioner, 127 T.C. 7 (2006) (abandoning Ewing); Bartman v. Commissioner
3061. - 20 - reported on petitioner’s joint returns for taxable years 1998, 1999, and 2000 and assessed based on those returns, but not paid, only section 6015(f) is applicable. See sec. 6015(b)(1) and (c)(1); Washington v. Commissioner, 120 T.C. 137, 146-147 (2003). Section 6015(f) provides, in pertinent part, that a taxpayer
3061, amended section 6015(e)(1) to provide that this Court may review the Commissioner’s denial of relief under section 6015(f) in cases where no deficiency has been asserted.5 Accordingly, this Court has jurisdiction to review respondent’s determination that petitioner is not entitled to relief under section 6015(f) from tax r
3062. As of the date of enactment, there remained an unpaid liability for tax (continued...) - 2 - Code as in effect at the time the petition was filed. Unless otherwise indicated, subsequent section references are to the Internal Revenue Code of 1986 as amended. The decision to be entered is not reviewable by any other court,
3061, amended sec. 6015(e)(1) to give the Tax Court jurisdiction to determine the appropriate relief available to a taxpayer under sec. 6015, including relief under sec. 6015(f) in cases where no deficiency has been determined for the tax year. The amendment applies with respect to liability for taxes arising or remaining unpaid
3061 , amended section 6015 (e)(1) to provide that this Court may review the Commissioner' s denial of relief under section 6015 (f) in cases where no deficiency has been asserted . The amendment applies - 10 - with respect to liability for taxes arising or remaining unpaid on or after the December 20, 2006, date of enactment
A are not deductible, but qualified distributions generally are not subject to tax . Sec . 408A(c)(1), (d) . We discuss the taxation of Roth IRA distributions in greater detail below . because the taxpayer qualifies as a first-time homebuyer under section 408A(d)(2) . Respondent examined petitioners' 2003 Federal income tax return and issued a notice of proposed adjustments, commonly referred to as a 30-day letter, in August 2005 . Respondent proposed to include the distributions in gross income
3061, Congress reinstated our jurisdiction to review the Commissioner’s determinations under section 6015(f) with respect to tax liability remaining unpaid on or after December 20, 2006. By Order dated January 10, 2007, we ordered the parties, including intervenor, to file responses addressing the Court’s jurisdiction in this ca
3061, Congress reinstated our - 7 - jurisdiction to review the Commissioner’s determinations under section 6015(f) with respect to tax liability remaining unpaid on or after December 20, 2006. Upon order of the Court, the parties certified that petitioner’s liability for tax years 1998 and 1999 remained unpaid as of December 20
RA. Accordingly, when Mrs. Colombell receives distributions from her IRA, she will be entitled to recover $3,500 tax free, consistent with applicable law. Any income on that investment would continue to accrue in a tax-deferred manner. See generally sec. 408. - 5 - contribution for that year may be further limited.4 See sec. 219(a), (g)(1), and (5)(A)(i). An “active participant” is defined by section 219(g)(5) as an individual: (A) who is an active participant in-- (i) a plan described in sectio
v. United States, supra at 1428; Estate of Newhouse v. Commissioner, 94 T. C. 193, (cid:16)042 218, (1990) .4 I. Estate Tax Consequences Applicable to IRAs An IRA is a trust created for the "exclusive benefit of an individual or his beneficiaries." Sec. 408 (a) and (h) . An IRA can hold various types of assets, including stocks, bonds, mutual funds, and certificates of deposit. IRA owners may withdraw the assets in their IRAs; however, there is a 10-percent additional tax on early withdrawals su
As the legislative history of section 408(f), the predecessor to section 72(t), explains, the - 6 - purpose of the 10-percent additional tax was to discourage early distributions from retirement plans because “Premature distributions frustrate the intention of saving for retirement”.
This conclusion is further supported by the statutory definition of individual retirement plans, which includes plans described in section 408 but not those described in section 401(k).
General Rules In general, section 408 governs the treatment of IRAs.
408A(d)(1); sec. 1.408A-6, Q&A-1(b), Income Tax Regs. Distributions from a Roth IRA that are made within 5 years after an individual made the first contribution to that Roth IRA are not qualified distributions. Sec. 408A(d)(2)(B). Petitioner had withdrawn all funds from her Roth IRA by September 21, 1999. Because this distribution occurred les
n”); sec. 451(h)(2)(A) (“a qualified prize (or remaining portion thereof)”); sec. 148(f)(3) (“the remaining balance”); sec. 6340(c)(3) (“the remaining balance of such liability”); sec. 263A(d)(2)(B)(ii) (“any part of the remaining equity interest”); sec. 408A(d)(3)(E)(ii) (“all remaining amounts””); sec. 904(f)(3)(A)(i) (“the remaining amount”); sec. 996(a)(2) (“the remaining 1/17th of such amount”); sec. 565(f)(1) (“all the remaining earnings and profits”); section 732(c)(1)(B) (“to the extent
Moreover, unlike petitioners in the present case, the taxpayers in Larotonda never 5(...continued) incompatible with the intent thereof-- * * * * * * * (37) Individual Retirement Plan.–-The term “individual retirement plan” means-- (A) an individual retirement account described in section 408(a), and (B) an individual retirement annuity described in section 408(b).
- 2 - After concessions by petitioner, the issue for decision is whether, under section 408, distributions to petitioner from two qualified pension plans with his former employer are includable in gross income in an amount in excess of the amount reported on petitioner's 2000 Federal income tax return.2 Some of the facts were stipulated.
408(d)(1); sec. 1.408-4(a), Income Tax Regs. This rule does not apply, however, to any amount distributed from an IRA to the individual for whose benefit the account is maintained if the entire amount is paid into an IRA for the benefit of such individual not later than 60 days after the distribution.
We disagree with petitioners’ contention.
We disagree with petitioners’ contention.
Unlike the taxpayer in Powell, the taxpayer in Karem had elected the multi- year averaging method then available under former section 402(e) for computing the tax due on lump-sum distributions. As a result, the distributions were subject to former section 402(e)(4)(G), which provided that “the provisions of this subsection * * * shall be applied without regard to community property laws.” Consistent with these opinions, we hold that section 402(g) precludes taxation of petitioner’s former spouse
Section 408(g), as discussed below, provides explicitly that section 408 (the statutory provision governing IRA requirements and the tax-ability of IRA distributions) “shall be applied without regard to any community property laws”.
Baker was also age 59-1/2 or older at the time of his distribution, we hold that he is not liable for the sec.
Baker was also age 59-1/2 or older at the time of his distribution, we hold that he is not liable for the sec.
Baker was also age 59-1/2 or older at the time of his distribution, we hold that he is not liable for the sec.
Baker was also age 59-1/2 or older at the time of his distribution, we hold that he is not liable for the sec.
Baker was also age 59-1/2 or older at the time of his distribution, we hold that he is not liable for the sec.
Baker was also age 59-1/2 or older at the time of his distribution, we hold that he is not liable for the sec.
Baker was also age 59-1/2 or older at the time of his distribution, we hold that he is not liable for the sec.
Baker was also age 59-1/2 or older at the time of his distribution, we hold that he is not liable for the sec.
Baker was also age 59-1/2 or older at the time of his distribution, we hold that he is not liable for the sec.
Baker was also age 59-1/2 or older at the time of his distribution, we hold that he is not liable for the sec.
Baker was also age 59-1/2 or older at the time of his distribution, we hold that he is not liable for the sec.
Baker was also age 59-1/2 or older at the time of his distribution, we hold that he is not liable for the sec.
The letter is addressed to “mfs Financial Service Inc” (mfs) of Boston, Massachusetts, and states in part: In our opinion, the amendment to the form of the prototype trust, custodial account or annuity contract identified above does not adversely affect its acceptability under section 408 of the Internal Revenue Code.
Section 408(a) defines an IRA as "a trust created or organized in the United States for the exclusive benefit of an individual or his beneficiaries" (emphasis added) which meets certain other - 9 - requirements set forth in that section.6 Regulations under section 408 further clarify that such a trust "must be maintained at all times as a domestic trust in the United States." Sec.
ing 1992. On the Form W-2 provided to petitioner by the State of Nebraska and attached to the 1992 return, there is an "X" in the box for pension plan. During 1992, petitioner contributed $2,250 to individual retirement accounts (IRA's) described in section 408. On the 1992 return, petitioners claimed a deduction of $2,250 for the contributions to the IRA's. In the notice of deficiency, respondent disallowed the IRA deduction and provided the following explanation: We didn't allow your deduction
were paid by Worldwide to IRA #1 during the taxable years 1986 through 1988: Paid Date Fiscal Year Amount 4/8/86 12/31/86 $244,576 2/10/87 12/31/87 126,155 12/29/87 12/31/87 100,519 (continued...) - 6 - Worldwide received preferential treatment,4 and the dividends paid to IRA #1 were tax deferred pursuant to section 408.
o had been named president of Worldwide, directed, with Florida National’s consent, that Worldwide pay dividends to ira #1. Commissions paid to Worldwide received preferential treatment, and the dividends paid to ira #1 were tax deferred pursuant to section 408. Thus, the net effect of these transactions was to defer recognition of dividend income that otherwise would have flowed through to any shareholders of the DISC. In 1988, IRA #1 was transferred from Florida National Bank to First Florida