26 USC 408 - Individual retirement accounts

U.S Code last checked for updates: Nov 23, 2024

§ 408.

Individual retirement accounts

(a)

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) 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).

(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)

(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 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).

(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).

(3)

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.

(d)

Tax treatment of distributions

(1)

In general

(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

(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

(ii)

Eligible plan

(E)

Denial of rollover treatment for required distributions

(F)

Frozen deposits

(G)

Simple retirement accounts

(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

(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

(7)

Special rules for simplified employee pensions or simple retirement accounts

(A)

Transfer or rollover of contributions prohibited until deferral test met

(B)

Certain exclusions treated as deductions

(8)

Distributions for charitable purposes

(A)

In general

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—

(i)

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

(ii)

the aggregate amount of reductions under this sentence for all taxable years preceding the current taxable year.

(B)

Qualified charitable distribution

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))—

(i)

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

(ii)

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).

(C)

Contributions must be otherwise deductible

(D)

Application of section 72

(E)

Denial of deduction

(F)

One-time election for qualified charitable distribution to split-interest entity

(i)

In general

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—

(I)

an election is not in effect under this subparagraph for a preceding taxable year,

(II)

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

(III)

such distribution meets the requirements of clauses (iii) and (iv).

(ii)

Split-interest entity

For purposes of this subparagraph, the term “split-interest entity” means—

(I)

a charitable remainder annuity trust (as defined in section 664(d)(1)), but only if such trust is funded exclusively by qualified charitable distributions,

(II)

a charitable remainder unitrust (as defined in section 664(d)(2)), but only if such unitrust is funded exclusively by qualified charitable distributions, or

(III)

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.

(iii)

Contributions must be otherwise deductible

A distribution meets the requirements of this clause only if—

(I)

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

(II)

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).

(iv)

Limitation on income interests

A distribution meets the requirements of this clause only if—

(I)

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

(II)

the income interest in the split-interest entity is nonassignable.

(v)

Special rules

(I)

Charitable remainder trusts

(II)

Charitable gift annuities

(G)

Inflation adjustment

(i)

In general

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—

(I)

such dollar amount, multiplied by

(II)

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.

(ii)

Rounding

(9)

Distribution for health savings account funding

(A)

In general

(B)

Qualified HSA funding distribution

(C)

Limitations

(i)

Maximum dollar limitation

The amount excluded from gross income by subparagraph (A) shall not exceed the excess of—

(I)

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

(II)

in the case of a distribution described in clause (ii)(II), the amount of the earlier qualified HSA funding distribution.

(ii)

One-time transfer

(I)

In general

(II)

Conversion from self-only to family coverage

(D)

Failure to maintain high deductible health plan coverage

(i)

In general

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)—

(I)

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

(II)

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.

(ii)

Exception for disability or death

(iii)

Testing period

(E)

Application of section 72

(e)

Tax treatment of accounts and annuities

(1)

Exemption from tax

(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,

(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, and

(iii)

each individual retirement plan of the individual shall be treated as a separate contract.

(B)

Account treated as distributing all its assets

(3)

Effect of borrowing on annuity contract

(4)

Effect of pledging account as security

(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

[(f)

Repealed. Pub. L. 99–514, title XI, § 1123(d)(2), Oct. 22, 1986, 100 Stat. 2475]

(g)

Community property laws

(h)

Custodial accounts

(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

(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

(B)

Special rules

(C)

Contributions must bear uniform relationship to total compensation

(D)

Permitted disparity

(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

(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

(B)

Exception where more than 25 employees

(C)

Distributions of excess contributions

(i)

In general

(ii)

Excess contribution

(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

(H)

Termination

(7)

Roth contribution election

(8)

Definitions

For purposes of this subsection and subsection (l)—

(A)

Employee, employer, or owner-employee

(B)

Compensation

(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.

(9)

Cost-of-living adjustment

(10)

Cross reference

(l)

Simplified employer reports

(1)

In general

(2)

Simple retirement accounts

(A)

No employer reports

(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

(m)

Investment in collectibles treated as distributions

(1)

In general

(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 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

 So in original. Concluding provisions probably should be part of subpar. (B).

(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

(2)

Limits on amounts which may be contributed

(A)

In general

(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

(C)

Designated nondeductible contributions

(i)

In general

(ii)

Designation

(3)

Time when contributions made

(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

(5)

Special rule for difficulty of care payments excluded from gross income

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—

(A)

the deductible amount in effect for the taxable year under section 219(b), exceeds

(B)

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.

(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)

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.

(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,

(iv)

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

(v)

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).

(B)

Employer may elect 2-percent nonelective contribution

(i)

In general

(ii)

Compensation limitation

(iii)

Special rule for electing larger employers

(C)

Definitions

For purposes of this subsection—

(i)

Eligible employer

(I)

In general

(II)

2-year grace period

(ii)

Applicable percentage

(I)

In general

(II)

Election of lower percentage

(III)

Special rule for years arrangement not in effect

(IV)

Special rule for electing larger employers

(D)

Arrangement may be only plan of employer

(i)

In general

(ii)

Qualified plan

(E)

Applicable dollar amount; cost-of-living adjustment

(i)

In general

For purposes of subparagraph (A)(ii), the applicable dollar amount is—

(I)

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,

(II)

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

(III)

$10,000 in any other case.

(ii)

Adjusted dollar amount

(iii)

Cost-of-living adjustment

(I)

Certain large employers

(II)

Other employers

(iv)

Employer has not had another plan within 3 years

(F)

Matching contributions for qualified student loan payments

(i)

In general

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—

(I)

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

(II)

any other amounts elected by the employee under subparagraph (A)(i)(I) for the year.

(ii)

Qualified student loan payment

For purposes of this subparagraph—

(I)

In general

(II)

Qualified higher education expenses

(iii)

Applicable rules

Clause (i) shall apply to an arrangement only if, under the arrangement—

(I)

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

(II)

all employees otherwise eligible to participate in the arrangement are eligible to receive matching contributions on account of qualified student loan payments.

(G)

Adjustment for inflation

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—

(i)

such amount, multiplied by

(ii)

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.

(H)

2-year grace period

(3)

Vesting requirements

(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

(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

(ii)

Self-employed

(B)

Employee

(C)

Year

(7)

Use of designated financial institution

(8)

Coordination with maximum limitation

In the case of any simple retirement account—

(A)

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

(B)

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”.

(9)

Matching contributions on behalf of self-employed individuals not treated as elective employer contributions

(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

(11)

Replacement of simple retirement accounts with safe harbor plans during plan year

(A)

In general

(B)

Combined limits on contributions

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—

(i)

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

(ii)

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.

(C)

Transition year

(D)

Safe harbor plan

(12)

Roth contribution election

(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

(3)

Definitions

For purposes of this subsection—

(A)

Qualified employer plan

(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 4973.

(2)

For tax on certain accumulations in individual retirement accounts or annuities, see section 4974.

(Added Pub. L. 93–406, title II, § 2002(b), Sept. 2, 1974, 88 Stat. 959; amended Pub. L. 94–455, title XV, § 1501(b)(2), (5), (10), title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1735–1737, 1834; Pub. L. 95–600, title I, §§ 152(a), (b), 156(c)(1), (3), 157(c)(1), (d)(1), (e)(1)(A), (g)(3), (h)(2), title VII, § 703(c)(4), Nov. 6, 1978, 92 Stat. 2797, 2802, 2803, 2805, 2806, 2808, 2939; Pub. L. 96–222, title I, § 101(a)(10)(A), (C), (F), (G), (J)(i), (14)(B), (E)(ii), Apr. 1, 1980, 94 Stat. 201–205; Pub. L. 96–605, title II, § 225(b)(3), (4), Dec. 28, 1980, 94 Stat. 3529; Pub. L. 97–34, title III, §§ 311(g)(1)(A)–(C), (2), (h)(2), 312(b)(2), (c)(5), 313(b)(2), 314(b)(1), Aug. 13, 1981, 95 Stat. 281–284, 286; Pub. L. 97–248, title II, §§ 237(e)(3), 238(d)(3), (4), 243(a), (b)(1)(A), title III, § 335(a)(1), Sept. 3, 1982, 96 Stat. 512, 513, 521, 522, 628; Pub. L. 97–448, title I, § 103(d)(1), (e), Jan. 12, 1983, 96 Stat. 2378; Pub. L. 98–369, div. A, title I, § 147(a), title IV, § 491(d)(19)–(24), title V, §§ 521(b), 522(d)(12), title VII, § 713(c)(2)(B), (f)(2), (5)(B), (g)(2), (j), July 18, 1984, 98 Stat. 687, 850, 867, 871, 957, 959, 960; Pub. L. 99–514, title XI, §§ 1102(a), (b)(2), (c), (e)(2), 1108(a), (d)–(g)(1), (4), (6), 1121(c)(2), 1122(e)(2)(B), 1123(d)(2), 1144(a), title XVIII, §§ 1852(a)(1), (5)(C), (7)(A), 1875(c)(6)(A), (8), 1898(a)(5), Oct. 22, 1986, 100 Stat. 2414–2416, 2431, 2433, 2434, 2465, 2470, 2475, 2490, 2864–2866, 2895, 2944; Pub. L. 100–647, title I, §§ 1011(b)(1)–(3), (c)(7)(C), (f)(1)–(5), (10), (i)(5), 1011A(a)(2)(A), 1018(t)(3)(D), title VI, § 6057(a), Nov. 10, 1988, 102 Stat. 3456, 3458, 3461–3463, 3468, 3472, 3588, 3698; Pub. L. 101–239, title VII, §§ 7811(m)(7), 7841(a)(1), Dec. 19, 1989, 103 Stat. 2412, 2427; Pub. L. 102–318, title V, § 521(b)(16)–(19), July 3, 1992, 106 Stat. 311; Pub. L. 103–66, title XIII, § 13212(b), Aug. 10, 1993, 107 Stat. 472; Pub. L. 103–465, title VII, § 732(d), Dec. 8, 1994, 108 Stat. 5005; Pub. L. 104–188, title I, §§ 1421(a), (b)(3)(B), (5), (6), (c), 1427(b)(3), 1431(c)(1)(B), 1455(b)(1), Aug. 20, 1996, 110 Stat. 1792, 1796–1798, 1802, 1803, 1817; Pub. L. 105–34, title III, §§ 302(d), 304(a), title XV, § 1501(b), title XVI, § 1601(d)(1)(A)–(C)(i), (D)–(G), Aug. 5, 1997, 111 Stat. 829, 831, 1058, 1087, 1088; Pub. L. 105–206, title VI, §§ 6015(a), 6016(a)(1), 6018(b), July 22, 1998, 112 Stat. 820–822; Pub. L. 106–554, § 1(a)(7) [title III, § 319(3)], Dec. 21, 2000, 114 Stat. 2763, 2763A–646; Pub. L. 107–16, title VI, §§ 601(b), 602(a), 611(c)(1), (f)(1), (2), (g)(2), 641(e)(8), 642(a), (b)(2), (3), 643(c), 644(b), June 7, 2001, 115 Stat. 95, 97, 99, 121–123; Pub. L. 107–147, title IV, § 411(i)(1), (j)(1), Mar. 9, 2002, 116 Stat. 46, 47; Pub. L. 108–311, title IV, §§ 404(d), 408(a)(12), (13), Oct. 4, 2004, 118 Stat. 1188, 1191; Pub. L. 109–280, title XII, § 1201(a), Aug. 17, 2006, 120 Stat. 1063; Pub. L. 109–432, div. A, title III, § 307(a), Dec. 20, 2006, 120 Stat. 2951; Pub. L. 110–172, § 3(a), Dec. 29, 2007, 121 Stat. 2474; Pub. L. 110–343, div. C, title II, § 205(a), Oct. 3, 2008, 122 Stat. 3865; Pub. L. 111–312, title VII, § 725(a), Dec. 17, 2010, 124 Stat. 3316; Pub. L. 112–240, title II, § 208(a), Jan. 2, 2013, 126 Stat. 2324; Pub. L. 113–295, div. A, title I, § 108(a), title II, § 221(a)(53), Dec. 19, 2014, 128 Stat. 4013, 4045; Pub. L. 114–113, div. Q, title I, § 112(a), title III, § 306(a), Dec. 18, 2015, 129 Stat. 3047, 3089; Pub. L. 115–97, title I, § 11051(b)(3)(G), Dec. 22, 2017, 131 Stat. 2090; Pub. L. 115–141, div. U, title IV, § 401(a)(75), (76), Mar. 23, 2018, 132 Stat. 1187; Pub. L. 116–94, div. O, title I, §§ 101(a)(3), 107(b), 114(c), 116(a)(1), Dec. 20, 2019, 133 Stat. 3141, 3149, 3156, 3161; Pub. L. 117–328, div. T, title I, §§ 107(d), 110(d), 116(a), (b)(1), 117(a), (c)–(f), title III, §§ 307(a), (b), 322(a), 332(a), (b)(2), title IV, § 401(b)(4), title VI, § 601(b)(3), (c)(1), Dec. 29, 2022, 136 Stat. 5289, 5292, 5298–5301, 5343, 5345, 5356, 5367, 5368, 5388, 5390.)

cite as: 26 USC 408