26 U.S.C. § 408 : US Code - Section 408: Individual retirement accounts

Search 26 U.S.C. § 408 : US Code - Section 408: Individual retirement accounts

(a) Individual retirement account
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:
(1) Except in the case of a rollover contribution described in
subsection (d)(3) in (!1) 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).
(2) 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.
(3) No part of the trust funds will be invested in life
insurance contracts.
(4) The interest of an individual in the balance in his account
is nonforfeitable.
(5) The assets of the trust will not be commingled with other
property except in a common trust fund or common investment fund.
(6) 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.
(b) Individual retirement annuity
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:
(1) The contract is not transferable by the owner.
(2) Under the contract -
(A) the premiums are not fixed,
(B) the annual premium on behalf of any individual will not
exceed the dollar amount in effect under section 219(b)(1)(A),
and
(C) 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.
(3) 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.
(4) 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 age 70
1/2 ; 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).
(c) Accounts established by employers and certain associations of
employees
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:
(1) The trust satisfies the requirements of paragraphs (1)
through (6) of subsection (a).
(2) There is a separate accounting for the interest of each
employee or member (or spouse of an employee or member).
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.
(d) Tax treatment of distributions
(1) In general
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.
(2) Special rules for applying section 72
For purposes of applying section 72 to any amount described in
paragraph (1) -
(A) all individual retirement plans shall be treated as 1
contract,
(B) all distributions during any taxable year shall be
treated as 1 distribution, and
(C) 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.
(3) Rollover contribution
An amount is described in this paragraph as a rollover
contribution if it meets the requirements of subparagraphs (A)
and (B).
(A) In general
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 -
(i) 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
(ii) 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).
(B) Limitation
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.
(C) Denial of rollover treatment for inherited accounts, etc.
(i) In general
In the case of an inherited individual retirement account
or individual retirement annuity -
(I) 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
(II) 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.
(ii) Inherited individual retirement account or annuity
An individual retirement account or individual retirement
annuity shall be treated as inherited if -
(I) the individual for whose benefit the account or
annuity is maintained acquired such account by reason of
the death of another individual, and
(II) such individual was not the surviving spouse of such
other individual.
(D) Partial rollovers permitted
(i) In general
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.
(ii) Eligible plan
For purposes of clause (i), the term "eligible plan" means
any account, annuity, contract, or plan referred to in
subparagraph (A).
(E) Denial of rollover treatment for required distributions
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).
(F) Frozen deposits
For purposes of this paragraph, rules similar to the rules of
section 402(c)(7) (relating to frozen deposits) shall apply.
(G) Simple retirement accounts
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) applies, this paragraph shall not apply unless
such payment or distribution is paid into another simple
retirement account.
(H) Application of section 72
(i) In general
If -
(I) a distribution is made from an individual retirement
plan, and
(II) 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,
then, notwithstanding paragraph (2), the rules of clause (ii)
shall apply for purposes of applying section 72.
(ii) Applicable rules
In the case of a distribution described in clause (i) -
(I) section 72 shall be applied separately to such
distribution,
(II) 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
(III) appropriate adjustments shall be made in applying
section 72 to other distributions in such taxable year and
subsequent taxable years.
(I) Waiver of 60-day requirement
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.
(4) Contributions returned before due date of return
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 -
(A) 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,
(B) no deduction is allowed under section 219 with respect to
such contribution, and
(C) 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.
(5) Distributions of excess contributions after due date for
taxable year and certain excess rollover contributions
(A) In general
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 -
(i) if such distribution is received after the date
described in paragraph (4),
(ii) 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.
(B) Excess rollover contributions attributable to erroneous
information
If -
(i) the taxpayer reasonably relies on information supplied
pursuant to subtitle F for determining the amount of a
rollover contribution, but
(ii) 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).
(6) Transfer of account incident to divorce
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 subparagraph (A) of section 71(b)(2) 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.
(7) Special rules for simplified employee pensions or simple
retirement accounts
(A) Transfer or rollover of contributions prohibited until
deferral test met
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.
(B) Certain exclusions treated as deductions
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.
(e) Tax treatment of accounts and annuities
(1) Exemption from tax
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).
(2) Loss of exemption of account where employee engages in
prohibited transaction
(A) In general
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 -

(i) the individual for whose benefit any account was
established is treated as the creator of such account, and
(ii) 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.
(B) Account treated as distributing all its assets
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).
(3) Effect of borrowing on annuity contract
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.
(4) Effect of pledging account as security
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) Purchase of endowment contract by individual retirement
account
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 -
(A) 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
(B) 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).
(6) Commingling individual retirement account amounts in certain
common trust funds and common investment funds
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).
[(f) Repealed. Pub. L. 99-514, title XI, Sec. 1123(d)(2), Oct. 22,
1986, 100 Stat. 2475]
(g) Community property laws
This section shall be applied without regard to any community
property laws.
(h) Custodial accounts
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.
(i) Reports
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 -
(1) shall be filed at such time and in such manner as the
Secretary prescribes, and
(2) shall be furnished to individuals -
(A) not later than January 31 of the calendar year following
the calendar year to which such reports relate, and
(B) 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.
(j) Increase in maximum limitations for simplified employee
pensions
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).
(k) Simplified employee pension defined
(1) In general
For purposes of this title, the term "simplified employee
pension" means an individual retirement account or individual
retirement annuity -
(A) with respect to which the requirements of paragraphs (2),
(3), (4), and (5) of this subsection are met, and
(B) 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.
(2) Participation requirements
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 -
(A) has attained age 21,
(B) has performed service for the employer during at least 3
of the immediately preceding 5 years, and
(C) 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.
(3) Contributions may not discriminate in favor of the highly
compensated, etc.
(A) In general
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)).
(B) Special rules
For purposes of subparagraph (A), there shall be excluded
from consideration employees described in subparagraph (A) or
(C) of section 410(b)(3).
(C) Contributions must bear uniform relationship to total
compensation
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.
(D) Permitted disparity
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)).
(4) Withdrawals must be permitted
A simplified employee pension meets the requirements of this
paragraph only if -
(A) employer contributions thereto are not conditioned on the
retention in such pension of any portion of the amount
contributed, and
(B) there is no prohibition imposed by the employer on
withdrawals from the simplified employee pension.
(5) Contributions must be made under written allocation formula
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 -
(A) the requirements which an employee must satisfy to share
in an allocation, and
(B) the manner in which the amount allocated is computed.
(6) Employee may elect salary reduction arrangement
(A) Arrangements which qualify
(i) In general
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 -
(I) as elective employer contributions to the simplified
employee pension on behalf of the employee, or
(II) to the employee directly in cash.
(ii) 50 percent of eligible employees must elect
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.
(iii) Requirements relating to deferral percentage
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 -
(I) the average of the deferral percentages for such year
of all employees (other than highly compensated employees)
eligible to participate, multiplied by
(II) 1.25.
(iv) Limitations on elective deferrals
Clause (i) shall not apply to a simplified employee pension
unless the requirements of section 401(a)(30) are met.
(B) Exception where more than 25 employees
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.
(C) Distributions of excess contributions
(i) In general
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.
(ii) Excess contribution
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).
(D) Deferral percentage
For purposes of this paragraph, the deferral percentage for
an employee for a year shall be the ratio of -
(i) the amount of elective employer contributions actually
paid over to the simplified employee pension on behalf of the
employee for the year, to
(ii) the employee's compensation (not in excess of the
first $200,000) for the year.
(E) Exception for State and local and tax-exempt pensions
This paragraph shall not apply to a simplified employee
pension maintained by -
(i) a State or local government or political subdivision
thereof, or any agency or instrumentality thereof, or
(ii) an organization exempt from tax under this title.
(F) Exception where pension does not meet requirements
necessary to insure distribution of excess contributions
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 -
(i) reporting requirements, and
(ii) 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.
(G) Highly compensated employee
For purposes of this paragraph, the term "highly compensated
employee" has the meaning given such term by section 414(q).
(H) Termination
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).
(7) Definitions
For purposes of this subsection and subsection (l) -
(A) Employee, employer, or owner-employee
The terms "employee", "employer", and "owner-employee" shall
have the respective meanings given such terms by section
401(c).
(B) Compensation
Except as provided in paragraph (2)(C), the term
"compensation" has the meaning given such term by section
414(s).
(C) Year
The term "year" means -
(i) the calendar year, or
(ii) 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.
(8) Cost-of-living adjustment
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.
(9) Cross reference
For excise tax on certain excess contributions, see section
4979.
(l) Simplified employer reports
(1) In general
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.
(2) Simple retirement accounts
(A) No employer reports
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).
(B) Summary description
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:
(i) The name and address of the employer and the trustee or
issuer.
(ii) The requirements for eligibility for participation.
(iii) The benefits provided with respect to the
arrangement.
(iv) The time and method of making elections with respect
to the arrangement.
(v) The procedures for, and effects of, withdrawals
(including rollovers) from the arrangement.
(C) Employee notification
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).
(m) Investment in collectibles treated as distributions
(1) In general
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.
(2) Collectible defined
For purposes of this subsection, the term "collectible" means -

(A) any work of art,
(B) any rug or antique,
(C) any metal or gem,
(D) any stamp or coin,
(E) any alcoholic beverage, or
(F) any other tangible personal property specified by the
Secretary for purposes of this subsection.
(3) Exception for certain coins and bullion
For purposes of this subsection, the term "collectible" shall
not include -
(A) any coin which is -
(i) a gold coin described in paragraph (7), (8), (9), or
(10) of section 5112(a) of title 31, United States Code,
(ii) a silver coin described in section 5112(e) of title
31, United States Code,
(iii) a platinum coin described in section 5112(k) of title
31, United States Code, or
(iv) a coin issued under the laws of any State, or
(B) 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 7 of the Commodity
Exchange Act, 7 U.S.C. 7) (!2) 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.
(n) Bank
For purposes of subsection (a)(2), the term "bank" means -
(1) any bank (as defined in section 581),
(2) an insured credit union (within the meaning of paragraph
(6) or (7) of section 101 of the Federal Credit Union Act), and
(3) 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.
(o) Definitions and rules relating to nondeductible contributions
to individual retirement plans
(1) In general
Subject to the provisions of this subsection, designated
nondeductible contributions may be made on behalf of an
individual to an individual retirement plan.
(2) Limits on amounts which may be contributed
(A) In general
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.
(B) Nondeductible limit
For purposes of this paragraph -
(i) In general
The term "nondeductible limit" means the excess of -
(I) the amount allowable as a deduction under section 219
(determined without regard to section 219(g)), over
(II) the amount allowable as a deduction under section
219 (determined with regard to section 219(g)).
(ii) Taxpayer may elect to treat deductible contributions as
nondeductible
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.
(C) Designated nondeductible contributions
(i) In general
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.
(ii) Designation
Any designation under clause (i) shall be made on the
return of tax imposed by chapter 1 for the taxable year.
(3) Time when contributions made
In determining for which taxable year a designated
nondeductible contribution is made, the rule of section 219(f)(3)
shall apply.
(4) Individual required to report amount of designated
nondeductible contributions
(A) In general
Any individual who -
(i) makes a designated nondeductible contribution to any
individual retirement plan for any taxable year, or
(ii) 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).
(B) Information required to be supplied
The following information is described in this subparagraph:
(i) The amount of designated nondeductible contributions
for the taxable year.
(ii) The amount of distributions from individual retirement
plans for the taxable year.
(iii) The excess (if any) of -
(I) the aggregate amount of designated nondeductible
contributions for all preceding taxable years, over
(II) the aggregate amount of distributions from
individual retirement plans which was excludable from gross
income for such taxable years.
(iv) 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.
(v) Such other information as the Secretary may prescribe.
(C) Penalty for reporting contributions not made
For penalty where individual reports designated nondeductible
contributions not made, see section 6693(b).
(p) Simple retirement accounts
(1) In general
For purposes of this title, the term "simple retirement
account" means an individual retirement plan (as defined in
section 7701(a)(37)) -
(A) with respect to which the requirements of paragraphs (3),
(4), and (5) are met; and
(B) with respect to which the only contributions allowed are
contributions under a qualified salary reduction arrangement.
(2) Qualified salary reduction arrangement
(A) In general
For purposes of this subsection, the term "qualified salary
reduction arrangement" means a written arrangement of an
eligible employer under which -
(i) an employee eligible to participate in the arrangement
may elect to have the employer make payments -
(I) as elective employer contributions to a simple
retirement account on behalf of the employee, or
(II) to the employee directly in cash,
(ii) 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,
(iii) 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, and
(iv) no contributions may be made other than contributions
described in clause (i) or (iii).
(B) Employer may elect 2-percent nonelective contribution
(i) In general
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).
(ii) Compensation limitation
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).
(C) Definitions
For purposes of this subsection -
(i) Eligible employer
(I) In general
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.
(II) 2-year grace period
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.
(ii) Applicable percentage
(I) In general
The term "applicable percentage" means 3 percent.
(II) Election of lower percentage
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 3 percent in more
than 2 of the years in the 5-year period ending with such
year.
(III) Special rule for years arrangement not in effect
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 3 percent of compensation for such
prior year.
(D) Arrangement may be only plan of employer
(i) In general
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.
(ii) Qualified plan
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).
(E) Applicable dollar amount; cost-of-living adjustment
(i) In general
For purposes of subparagraph (A)(ii), the applicable dollar
amount shall be the amount determined in accordance with the
following table:
For years The applicable
beginning in dollar amount:
calendar year:
2002 $7,000
2003 $8,000
2004 $9,000
2005 or thereafter $10,000.
(ii) Cost-of-living adjustment
In the case of a year beginning after December 31, 2005,
the Secretary shall adjust the $10,000 amount under clause
(i) 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.
(3) Vesting requirements
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.
(4) Participation requirements
(A) In general
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 -
(i) received at least $5,000 in compensation from the
employer during any 2 preceding years, and
(ii) 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).
(B) Excludable employees
An employer may elect to exclude from the requirement under
subparagraph (A) employees described in section 410(b)(3).
(5) Administrative requirements
The requirements of this paragraph are met with respect to any
simple retirement account if, under the qualified salary
reduction arrangement -
(A) an employer must -
(i) 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
(ii) 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),
(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
(C) 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.
(6) Definitions
For purposes of this subsection -
(A) Compensation
(i) In general
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).
(ii) Self-employed
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).
(B) Employee
The term "employee" includes an employee as defined in
section 401(c)(1).
(C) Year
The term "year" means the calendar year.
(7) Use of designated financial institution
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).
(8) Coordination with maximum limitation under subsection (a)
In the case of any simple retirement account, subsections
(a)(1) and (b)(2) shall be applied by substituting "the sum of
the dollar amount in effect under paragraph (2)(A)(ii) of this
subsection and the employer contribution required under
subparagraph (A)(iii) or (B)(i) of paragraph (2) of this
subsection, whichever is applicable" for "the dollar amount in
effect under section 219(b)(1)(A)".
(9) Matching contributions on behalf of self-employed individuals
not treated as elective employer contributions
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.
(10) Special rules for acquisitions, dispositions, and similar
transactions
(A) In general
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 -
(i) the employer satisfies requirements similar to the
requirements of section 410(b)(6)(C)(i)(II); and
(ii) 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.
(B) Applicable requirement
For purposes of this paragraph, the term "applicable
requirement" means -
(i) the requirement under paragraph (2)(A)(i) that an
employer be an eligible employer;
(ii) the requirement under paragraph (2)(D) that an
arrangement be the only plan of an employer; and
(iii) the participation requirements under paragraph (4).
(C) Transition period
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.
(q) Deemed IRAs under qualified employer plans
(1) General rule
If -
(A) a qualified employer plan elects to allow employees to
make voluntary employee contributions to a separate account or
annuity established under the plan, and
(B) 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.
(2) Special rules for qualified employer plans
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).
(3) Definitions
For purposes of this subsection -
(A) Qualified employer plan
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).
(B) Voluntary employee contribution
The term "voluntary employee contribution" means any
contribution (other than a mandatory contribution within the
meaning of section 411(c)(2)(C)) -
(i) 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
(ii) with respect to which the individual has designated
the contribution as a contribution to which this subsection
applies.
(r) Cross references
(1) For tax on excess contributions in individual retirement
accounts or annuities, see section 4963.
(2) For tax on certain accumulations in individual retirement
accounts or annuities, see section 4974.