1. U.S. Code
  2. title 26
  3. subtitle A
  4. chapter 1
  5. subchapter D
  6. part I
  7. subpart A
  8. § 402

Collapse to view only § 402. Taxability of beneficiary of employees’ trust

§ 401. Qualified pension, profit-sharing, and stock bonus plans
(a) Requirements for qualificationA trust created or organized in the United States and forming part of a stock bonus, pension, or profit-sharing plan of an employer for the exclusive benefit of his employees or their beneficiaries shall constitute a qualified trust under this section—
(1) if contributions are made to the trust by such employer, or employees, or both, or by another employer who is entitled to deduct his contributions under section 404(a)(3)(B) (relating to deduction for contributions to profit-sharing and stock bonus plans), or by a charitable remainder trust pursuant to a qualified gratuitous transfer (as defined in section 664(g)(1)), for the purpose of distributing to such employees or their beneficiaries the corpus and income of the fund accumulated by the trust in accordance with such plan;
(2) if under the trust instrument it is impossible, at any time prior to the satisfaction of all liabilities with respect to employees and their beneficiaries under the trust, for any part of the corpus or income to be (within the taxable year or thereafter) used for, or diverted to, purposes other than for the exclusive benefit of his employees or their beneficiaries (but this paragraph shall not be construed, in the case of a multiemployer plan, to prohibit the return of a contribution within 6 months after the plan administrator determines that the contribution was made by a mistake of fact or law (other than a mistake relating to whether the plan is described in section 401(a) or the trust which is part of such plan is exempt from taxation under section 501(a), or the return of any withdrawal liability payment determined to be an overpayment within 6 months of such determination));
(3) if the plan of which such trust is a part satisfies the requirements of section 410 (relating to minimum participation standards); and
(4) if the contributions or benefits provided under the plan do not discriminate in favor of highly compensated employees (within the meaning of section 414(q)). For purposes of this paragraph, there shall be excluded from consideration employees described in section 410(span)(3)(A) and (C).
(5)Special rules relating to nondiscrimination requirements.—
(A)Salaried or clerical employees.—A classification shall not be considered discriminatory within the meaning of paragraph (4) or section 410(span)(2)(A)(i) merely because it is limited to salaried or clerical employees.
(B)Contributions and benefits may bear uniform relationship to compensation.—A plan shall not be considered discriminatory within the meaning of paragraph (4) merely because the contributions or benefits of, or on behalf of, the employees under the plan bear a uniform relationship to the compensation (within the meaning of section 414(s)) of such employees.
(C)Certain disparity permitted.—A plan shall not be considered discriminatory within the meaning of paragraph (4) merely because the contributions or benefits of, or on behalf of, the employees under the plan favor highly compensated employees (as defined in section 414(q)) in the manner permitted under subsection (l).
(D)Integrated defined benefit plan.—
(i)In general.—A defined benefit plan shall not be considered discriminatory within the meaning of paragraph (4) merely because the plan provides that the employer-derived accrued retirement benefit for any participant under the plan may not exceed the excess (if any) of—(I) the participant’s final pay with the employer, over(II) the employer-derived retirement benefit created under Federal law attributable to service by the participant with the employer.
 For purposes of this clause, the employer-derived retirement benefit created under Federal law shall be treated as accruing ratably over 35 years.
(ii)Final pay.—For purposes of this subparagraph, the participant’s final pay is the compensation (as defined in section 414(q)(4)) paid to the participant by the employer for any year—(I) which ends during the 5-year period ending with the year in which the participant separated from service for the employer, and(II) for which the participant’s total compensation from the employer was highest.
(E) 2 or more plans treated as single plan.—For purposes of determining whether 2 or more plans of an employer satisfy the requirements of paragraph (4) when considered as a single plan—
(i)Contributions.—If the amount of contributions on behalf of the employees allowed as a deduction under section 404 for the taxable year with respect to such plans, taken together, bears a uniform relationship to the compensation (within the meaning of section 414(s)) of such employees, the plans shall not be considered discriminatory merely because the rights of employees to, or derived from, the employer contributions under the separate plans do not become nonforfeitable at the same rate.
(ii)Benefits.—If the employees’ rights to benefits under the separate plans do not become nonforfeitable at the same rate, but the levels of benefits provided by the separate plans satisfy the requirements of regulations prescribed by the Secretary to take account of the differences in such rates, the plans shall not be considered discriminatory merely because of the difference in such rates.
(F)Social security retirement age.—For purposes of testing for discrimination under paragraph (4)—
(i) the social security retirement age (as defined in section 415(span)(8)) shall be treated as a uniform retirement age, and
(ii) subsidized early retirement benefits and joint and survivor annuities shall not be treated as being unavailable to employees on the same terms merely because such benefits or annuities are based in whole or in part on an employee’s social security retirement age (as so defined).
(G)Governmental plans.—Paragraphs (3) and (4) shall not apply to a governmental plan (within the meaning of section 414(d)).
(6) A plan shall be considered as meeting the requirements of paragraph (3) during the whole of any taxable year of the plan if on one day in each quarter it satisfied such requirements.
(7) A trust shall not constitute a qualified trust under this section unless the plan of which such trust is a part satisfies the requirements of section 411 (relating to minimum vesting standards).
(8) A trust forming part of a defined benefit plan shall not constitute a qualified trust under this section unless the plan provides that forfeitures must not be applied to increase the benefits any employee would otherwise receive under the plan.
(9)Required distributions.—
(A)In general.—A trust shall not constitute a qualified trust under this subsection unless the plan provides that the entire interest of each employee—
(i) will be distributed to such employee not later than the required beginning date, or
(ii) will be distributed, beginning not later than the required beginning date, in accordance with regulations, over the life of such employee or over the lives of such employee and a designated beneficiary (or over a period not extending beyond the life expectancy of such employee or the life expectancy of such employee and a designated beneficiary).
(B)Required distribution where employee dies before entire interest is distributed.—
(i)Where distributions have begun under subparagraph (A)(ii).—A trust shall not constitute a qualified trust under this section unless the plan provides that if—(I) the distribution of the employee’s interest has begun in accordance with subparagraph (A)(ii), and(II) the employee dies before his entire interest has been distributed to him,
 the remaining portion of such interest will be distributed at least as rapidly as under the method of distributions being used under subparagraph (A)(ii) as of the date of his death.
(ii) 5-year rule for other cases.—A trust shall not constitute a qualified trust under this section unless the plan provides that, if an employee dies before the distribution of the employee’s interest has begun in accordance with subparagraph (A)(ii), the entire interest of the employee will be distributed within 5 years after the death of such employee.
(iii)Exception to 5-year rule for certain amounts payable over life of beneficiary.—If—(I) any portion of the employee’s interest is payable to (or for the benefit of) a designated beneficiary,(II) such portion will be distributed (in accordance with regulations) over the life of such designated beneficiary (or over a period not extending beyond the life expectancy of such beneficiary), and(III) such distributions begin not later than 1 year after the date of the employee’s death or such later date as the Secretary may by regulations prescribe,
 for purposes of clause (ii), the portion referred to in subclause (I) shall be treated as distributed on the date on which such distributions begin.
(iv)Special rule for surviving spouse of employee.—If the designated beneficiary referred to in clause (iii)(I) is the surviving spouse of the employee and the surviving spouse elects the treatment in this clause—(I) the regulations referred to in clause (iii)(II) shall treat the surviving spouse as if the surviving spouse were the employee,(II) the date on which the distributions are required to begin under clause (iii)(III) shall not be earlier than the date on which the employee would have attained the applicable age, and(III) if the surviving spouse dies before the distributions to such spouse begin, this subparagraph shall be applied as if the surviving spouse is the employee.
 An election described in this clause shall be made at such time and in such manner as prescribed by the Secretary, shall include a timely notice to the plan administrator, and once made may not be revoked except with the consent of the Secretary.
(C)Required beginning date.—For purposes of this paragraph—
(i)In general.—The term “required beginning date” means April 1 of the calendar year following the later of—(I) the calendar year in which the employee attains the applicable age, or(II) the calendar year in which the employee retires.
(ii)Exception.—Subclause (II) of clause (i) shall not apply—(I) except as provided in section 409(d), in the case of an employee who is a 5-percent owner (as defined in section 416) with respect to the plan year ending in the calendar year in which the employee attains the applicable age, or(II) for purposes of section 408(a)(6) or (span)(3).
(iii)Actuarial adjustment.—In the case of an employee to whom clause (i)(II) applies who retires in a calendar year after the calendar year in which the employee attains age 70½, the employee’s accrued benefit shall be actuarially increased to take into account the period after age 70½ in which the employee was not receiving any benefits under the plan.
(iv)Exception for governmental and church plans.—Clauses (ii) and (iii) shall not apply in the case of a governmental plan or church plan. For purposes of this clause, the term “church plan” means a plan maintained by a church for church employees, and the term “church” means any church (as defined in section 3121(w)(3)(A)) or qualified church-controlled organization (as defined in section 3121(w)(3)(B)).
(v)Applicable age.—(I) In the case of an individual who attains age 72 after December 31, 2022, and age 73 before January 1, 2033, the applicable age is 73.(II) In the case of an individual who attains age 74 after December 31, 2032, the applicable age is 75.
(D)Life expectancy.—For purposes of this paragraph, the life expectancy of an employee and the employee’s spouse (other than in the case of a life annuity) may be redetermined but not more frequently than annually.
(E)Definitions and rules relating to designated beneficiaries.—For purposes of this paragraph—
(i)Designated beneficiary.—The term “designated beneficiary” means any individual designated as a beneficiary by the employee.
(ii)Eligible designated beneficiary.—The term “eligible designated beneficiary” means, with respect to any employee, any designated beneficiary who is—(I) the surviving spouse of the employee,(II) subject to clause (iii), a child of the employee who has not reached majority (within the meaning of subparagraph (F)),(III) disabled (within the meaning of section 72(m)(7)),(IV) a chronically ill individual (within the meaning of section 7702B(c)(2), except that the requirements of subparagraph (A)(i) thereof shall only be treated as met if there is a certification that, as of such date, the period of inability described in such subparagraph with respect to the individual is an indefinite one which is reasonably expected to be lengthy in nature), or(V) an individual not described in any of the preceding subclauses who is not more than 10 years younger than the employee.
 The determination of whether a designated beneficiary is an eligible designated beneficiary shall be made as of the date of death of the employee.
(iii)Special rule for children.—Subject to subparagraph (F), an individual described in clause (ii)(II) shall cease to be an eligible designated beneficiary as of the date the individual reaches majority and any remainder of the portion of the individual’s interest to which subparagraph (H)(ii) applies shall be distributed within 10 years after such date.
(F)Treatment of payments to children.—Under regulations prescribed by the Secretary, for purposes of this paragraph, any amount paid to a child shall be treated as if it had been paid to the surviving spouse if such amount will become payable to the surviving spouse upon such child reaching majority (or other designated event permitted under regulations).
(G)Treatment of incidental death benefit distributions.—For purposes of this title, any distribution required under the incidental death benefit requirements of this subsection shall be treated as a distribution required under this paragraph.
(H)Special rules for certain defined contribution plans.—In the case of a defined contribution plan, if an employee dies before the distribution of the employee’s entire interest—
(i)In general.—Except in the case of a beneficiary who is not a designated beneficiary, subparagraph (B)(ii)—(I) shall be applied by substituting “10 years” for “5 years”, and(II) shall apply whether or not distributions of the employee’s interests have begun in accordance with subparagraph (A).
(ii)Exception for eligible designated beneficiaries.—Subparagraph (B)(iii) shall apply only in the case of an eligible designated beneficiary.
(iii)Rules upon death of eligible designated beneficiary.—If an eligible designated beneficiary dies before the portion of the employee’s interest to which this subparagraph applies is entirely distributed, the exception under clause (ii) shall not apply to any beneficiary of such eligible designated beneficiary and the remainder of such portion shall be distributed within 10 years after the death of such eligible designated beneficiary.
(iv)Special rule in case of certain trusts for disabled or chronically ill beneficiaries.—In the case of an applicable multi-beneficiary trust, if under the terms of the trust—(I) it is to be divided immediately upon the death of the employee into separate trusts for each beneficiary, or(II) no beneficiary (other than a 1
1 So in original. Probably should be “an”.
eligible designated beneficiary described in subclause (III) or (IV) of subparagraph (E)(ii)) has any right to the employee’s interest in the plan until the death of all such eligible designated beneficiaries with respect to the trust,
 for purposes of a trust described in subclause (I), clause (ii) shall be applied separately with respect to the portion of the employee’s interest that is payable to any eligible designated beneficiary described in subclause (III) or (IV) of subparagraph (E)(ii); and, for purposes of a trust described in subclause (II), subparagraph (B)(iii) shall apply to the distribution of the employee’s interest and any beneficiary who is not such an eligible designated beneficiary shall be treated as a beneficiary of the eligible designated beneficiary upon the death of such eligible designated beneficiary.
(v)Applicable multi-beneficiary trust.—For purposes of this subparagraph, the term “applicable multi-beneficiary trust” means a trust—(I) which has more than one beneficiary,(II) all of the beneficiaries of which are treated as designated beneficiaries for purposes of determining the distribution period pursuant to this paragraph, and(III) at least one of the beneficiaries of which is an eligible designated beneficiary described in subclause (III) or (IV) of subparagraph (E)(ii).
 For purposes of the preceding sentence, in the case of a trust the terms of which are described in clause (iv)(II), any beneficiary which is an organization described in section 408(d)(8)(B)(i) shall be treated as a designated beneficiary described in subclause (II).
(vi)Application to certain eligible retirement plans.—For purposes of applying the provisions of this subparagraph in determining amounts required to be distributed pursuant to this paragraph, all eligible retirement plans (as defined in section 402(c)(8)(B), other than a defined benefit plan described in clause (iv) or (v) thereof or a qualified trust which is a part of a defined benefit plan) shall be treated as a defined contribution plan.
(I)Temporary waiver of minimum required distribution.—
(i)In general.—The requirements of this paragraph shall not apply for calendar year 2020 to—(I) a defined contribution plan which is described in this subsection or in section 403(a) or 403(span),(II) a defined contribution plan which is an eligible deferred compensation plan described in section 457(span) but only if such plan is maintained by an employer described in section 457(e)(1)(A), or(III) an individual retirement plan.
(ii)Special rule for required beginning dates in 2020.—Clause (i) shall apply to any distribution which is required to be made in calendar year 2020 by reason of—(I) a required beginning date occurring in such calendar year, and(II) such distribution not having been made before January 1, 2020.
(iii)Special rules regarding waiver period.—For purposes of this paragraph—(I) the required beginning date with respect to any individual shall be determined without regard to this subparagraph for purposes of applying this paragraph for calendar years after 2020, and(II) if clause (ii) of subparagraph (B) applies, the 5-year period described in such clause shall be determined without regard to calendar year 2020.
(J)Certain increases in payments under a commercial annuity.—Nothing in this section shall prohibit a commercial annuity (within the meaning of section 3405(e)(6)) that is issued in connection with any eligible retirement plan (within the meaning of section 402(c)(8)(B), other than a defined benefit plan) from providing one or more of the following types of payments on or after the annuity starting date:
(i) annuity payments that increase by a constant percentage, applied not less frequently than annually, at a rate that is less than 5 percent per year,
(ii) a lump sum payment that—(I) results in a shortening of the payment period with respect to an annuity or a full or partial commutation of the future annuity payments, provided that such lump sum is determined using reasonable actuarial methods and assumptions, as determined in good faith by the issuer of the contract, or(II) accelerates the receipt of annuity payments that are scheduled to be received within the ensuing 12 months, regardless of whether such acceleration shortens the payment period with respect to the annuity, reduces the dollar amount of benefits to be paid under the contract, or results in a suspension of annuity payments during the period being accelerated,
(iii) an amount which is in the nature of a dividend or similar distribution, provided that the issuer of the contract determines such amount using reasonable actuarial methods and assumptions, as determined in good faith by the issuer of the contract, when calculating the initial annuity payments and the issuer’s experience with respect to those factors, or
(iv) a final payment upon death that does not exceed the excess of the total amount of the consideration paid for the annuity payments, less the aggregate amount of prior distributions or payments from or under the contract.
(10)Other requirements.—
(A)Plans benefiting owner-employees.—In the case of any plan which provides contributions or benefits for employees some or all of whom are owner-employees (as defined in subsection (c)(3)), a trust forming part of such plan shall constitute a qualified trust under this section only if the requirements of subsection (d) are also met.
(B)Top-heavy plans.—
(i)In general.—In the case of any top-heavy plan, a trust forming part of such plan shall constitute a qualified trust under this section only if the requirements of section 416 are met.
(ii)Plans which may become top-heavy.—Except to the extent provided in regulations, a trust forming part of a plan (whether or not a top-heavy plan) shall constitute a qualified trust under this section only if such plan contains provisions—(I) which will take effect if such plan becomes a top-heavy plan, and(II) which meet the requirements of section 416.
(iii)Exemption for governmental plans.—This subparagraph shall not apply to any governmental plan.
(11)Requirement of joint and survivor annuity and preretirement survivor annuity.—
(A)In general.—In the case of any plan to which this paragraph applies, except as provided in section 417, a trust forming part of such plan shall not constitute a qualified trust under this section unless—
(i) in the case of a vested participant who does not die before the annuity starting date, the accrued benefit payable to such participant is provided in the form of a qualified joint and survivor annuity, and
(ii) in the case of a vested participant who dies before the annuity starting date and who has a surviving spouse, a qualified preretirement survivor annuity is provided to the surviving spouse of such participant.
(B)Plans to which paragraph applies.—This paragraph shall apply to—
(i) any defined benefit plan,
(ii) any defined contribution plan which is subject to the funding standards of section 412, and
(iii) any participant under any other defined contribution plan unless—(I) such plan provides that the participant’s nonforfeitable accrued benefit (reduced by any security interest held by the plan by reason of a loan outstanding to such participant) is payable in full, on the death of the participant, to the participant’s surviving spouse (or, if there is no surviving spouse or the surviving spouse consents in the manner required under section 417(a)(2), to a designated beneficiary),(II) such participant does not elect a payment of benefits in the form of a life annuity, and(III) with respect to such participant, such plan is not a direct or indirect transferee (in a transfer after December 31, 1984) of a plan which is described in clause (i) or (ii) or to which this clause applied with respect to the participant.
Clause (iii)(III) shall apply only with respect to the transferred assets (and income therefrom) if the plan separately accounts for such assets and any income therefrom.
(C)Exception for certain ESOP benefits.—
(i)In general.—In the case of—(I) a tax credit employee stock ownership plan (as defined in section 409(a)), or(II) an employee stock ownership plan (as defined in section 4975(e)(7)),
 subparagraph (A) shall not apply to that portion of the employee’s accrued benefit to which the requirements of section 409(h) apply.
(ii)Nonforfeitable benefit must be paid in full, etc.—In the case of any participant, clause (i) shall apply only if the requirements of subclauses (I), (II), and (III) of subparagraph (B)(iii) are met with respect to such participant.
(D)Special rule where participant and spouse married less than 1 year.—A plan shall not be treated as failing to meet the requirements of subparagraphs (B)(iii) or (C) merely because the plan provides that benefits will not be payable to the surviving spouse of the participant unless the participant and such spouse had been married throughout the 1-year period ending on the earlier of the participant’s annuity starting date or the date of the participant’s death.
(E)Exception for plans described in section 404(c).—This paragraph shall not apply to a plan which the Secretary has determined is a plan described in section 404(c) (or a continuation thereof) in which participation is substantially limited to individuals who, before January 1, 1976, ceased employment covered by the plan.
(F)Cross reference.—For—
(i) provisions under which participants may elect to waive the requirements of this paragraph, and
(ii) other definitions and special rules for purposes of this paragraph,
see section 417.
(12) A trust shall not constitute a qualified trust under this section unless the plan of which such trust is a part provides that in the case of any merger or consolidation with, or transfer of assets or liabilities to, any other plan after September 2, 1974, each participant in the plan would (if the plan then terminated) receive a benefit immediately after the merger, consolidation, or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation, or transfer (if the plan had then terminated). The preceding sentence does not apply to any multiemployer plan with respect to any transaction to the extent that participants either before or after the transaction are covered under a multiemployer plan to which title IV of the Employee Retirement Income Security Act of 1974 applies.
(13)Assignment and alienation.—
(A)In general.—A trust shall not constitute a qualified trust under this section unless the plan of which such trust is a part provides that benefits provided under the plan may not be assigned or alienated. For purposes of the preceding sentence, there shall not be taken into account any voluntary and revocable assignment of not to exceed 10 percent of any benefit payment made by any participant who is receiving benefits under the plan unless the assignment or alienation is made for purposes of defraying plan administration costs. For purposes of this paragraph a loan made to a participant or beneficiary shall not be treated as an assignment or alienation if such loan is secured by the participant’s accrued nonforfeitable benefit and is exempt from the tax imposed by section 4975 (relating to tax on prohibited transactions) by reason of section 4975(d)(1). This paragraph shall take effect on January 1, 1976 and shall not apply to assignments which were irrevocable on September 2, 1974.
(B)Special rules for domestic relations orders.—Subparagraph (A) shall apply to the creation, assignment, or recognition of a right to any benefit payable with respect to a participant pursuant to a domestic relations order, except that subparagraph (A) shall not apply if the order is determined to be a qualified domestic relations order.
(C)Special rule for certain judgments and settlements.—Subparagraph (A) shall not apply to any offset of a participant’s benefits provided under a plan against an amount that the participant is ordered or required to pay to the plan if—
(i) the order or requirement to pay arises—(I) under a judgment of conviction for a crime involving such plan,(II) under a civil judgment (including a consent order or decree) entered by a court in an action brought in connection with a violation (or alleged violation) of part 4 of subtitle B of title I of the Employee Retirement Income Security Act of 1974, or(III) pursuant to a settlement agreement between the Secretary of Labor and the participant, or a settlement agreement between the Pension Benefit Guaranty Corporation and the participant, in connection with a violation (or alleged violation) of part 4 of such subtitle by a fiduciary or any other person,
(ii) the judgment, order, decree, or settlement agreement expressly provides for the offset of all or part of the amount ordered or required to be paid to the plan against the participant’s benefits provided under the plan, and
(iii) in a case in which the survivor annuity requirements of section 401(a)(11) apply with respect to distributions from the plan to the participant, if the participant has a spouse at the time at which the offset is to be made—(I) either such spouse has consented in writing to such offset and such consent is witnessed by a notary public or representative of the plan (or it is established to the satisfaction of a plan representative that such consent may not be obtained by reason of circumstances described in section 417(a)(2)(B)), or an election to waive the right of the spouse to either a qualified joint and survivor annuity or a qualified preretirement survivor annuity is in effect in accordance with the requirements of section 417(a),(II) such spouse is ordered or required in such judgment, order, decree, or settlement to pay an amount to the plan in connection with a violation of part 4 of such subtitle, or(III) in such judgment, order, decree, or settlement, such spouse retains the right to receive the survivor annuity under a qualified joint and survivor annuity provided pursuant to section 401(a)(11)(A)(i) and under a qualified preretirement survivor annuity provided pursuant to section 401(a)(11)(A)(ii), determined in accordance with subparagraph (D).
A plan shall not be treated as failing to meet the requirements of this subsection, subsection (k), section 403(span), or section 409(d) solely by reason of an offset described in this subparagraph.
(D)Survivor annuity.—
(i)In general.—The survivor annuity described in subparagraph (C)(iii)(III) shall be determined as if—(I) the participant terminated employment on the date of the offset,(II) there was no offset,(III) the plan permitted commencement of benefits only on or after normal retirement age,(IV) the plan provided only the minimum-required qualified joint and survivor annuity, and(V) the amount of the qualified preretirement survivor annuity under the plan is equal to the amount of the survivor annuity payable under the minimum-required qualified joint and survivor annuity.
(ii)Definition.—For purposes of this subparagraph, the term “minimum-required qualified joint and survivor annuity” means the qualified joint and survivor annuity which is the actuarial equivalent of the participant’s accrued benefit (within the meaning of section 411(a)(7)) and under which the survivor annuity is 50 percent of the amount of the annuity which is payable during the joint lives of the participant and the spouse.
(14) A trust shall not constitute a qualified trust under this section unless the plan of which such trust is a part provides that, unless the participant otherwise elects, the payment of benefits under the plan to the participant will begin not later than the 60th day after the latest of the close of the plan year in which—
(A) the date on which the participant attains the earlier of age 65 or the normal retirement age specified under the plan,
(B) occurs the 10th anniversary of the year in which the participant commenced participation in the plan, or
(C) the participant terminates his service with the employer.
In the case of a plan which provides for the payment of an early retirement benefit, a trust forming a part of such plan shall not constitute a qualified trust under this section unless a participant who satisfied the service requirements for such early retirement benefit, but separated from the service (with any nonforfeitable right to an accrued benefit) before satisfying the age requirement for such early retirement benefit, is entitled upon satisfaction of such age requirement to receive a benefit not less than the benefit to which he would be entitled at the normal retirement age, actuarially, reduced under regulations prescribed by the Secretary.
(15) A trust shall not constitute a qualified trust under this section unless under the plan of which such trust is a part—
(A) in the case of a participant or beneficiary who is receiving benefits under such plan, or
(B) in the case of a participant who is separated from the service and who has nonforfeitable rights to benefits,
such benefits are not decreased by reason of any increase in the benefit levels payable under title II of the Social Security Act or any increase in the wage base under such title II, if such increase takes place after September 2, 1974, or (if later) the earlier of the date of first receipt of such benefits or the date of such separation, as the case may be.
(16) A trust shall not constitute a qualified trust under this section if the plan of which such trust is a part provides for benefits or contributions which exceed the limitations of section 415.
(17)Compensation limit.—
(A)In general.—A trust shall not constitute a qualified trust under this section unless, under the plan of which such trust is a part, the annual compensation of each employee taken into account under the plan for any year does not exceed $200,000.
(B)Cost-of-living adjustment.—The Secretary shall adjust annually the $200,000 amount in subparagraph (A) for increases in the cost-of-living at the same time and in the same manner as adjustments under section 415(d); except that the base period shall be the calendar quarter beginning July 1, 2001, and any increase which is not a multiple of $5,000 shall be rounded to the next lowest multiple of $5,000.
[(18) Repealed. Puspan. L. 97–248, title II, § 237(span), Sept. 3, 1982, 96 Stat. 511.]
(19) A trust shall not constitute a qualified trust under this section if under the plan of which such trust is a part any part of a participant’s accrued benefit derived from employer contributions (whether or not otherwise nonforfeitable), is forfeitable solely because of withdrawal by such participant of any amount attributable to the benefit derived from contributions made by such participant. The preceding sentence shall not apply to the accrued benefit of any participant unless, at the time of such withdrawal, such participant has a nonforfeitable right to at least 50 percent of such accrued benefit (as determined under section 411). The first sentence of this paragraph shall not apply to the extent that an accrued benefit is permitted to be forfeited in accordance with section 411(a)(3)(D)(iii) (relating to proportional forfeitures of benefits accrued before September 2, 1974, in the event of withdrawal of certain mandatory contributions).
(20) A trust forming part of a pension plan shall not be treated as failing to constitute a qualified trust under this section merely because the pension plan of which such trust is a part makes 1 or more distributions within 1 taxable year to a distributee on account of a termination of the plan of which the trust is a part, or in the case of a profit-sharing or stock bonus plan, a complete discontinuance of contributions under such plan. This paragraph shall not apply to a defined benefit plan unless the employer maintaining such plan files a notice with the Pension Benefit Guaranty Corporation (at the time and in the manner prescribed by the Pension Benefit Guaranty Corporation) notifying the Corporation of such payment or distribution and the Corporation has approved such payment or distribution or, within 90 days after the date on which such notice was filed, has failed to disapprove such payment or distribution. For purposes of this paragraph, rules similar to the rules of section 402(a)(6)(B) (as in effect before its repeal by section 521 of the Unemployment Compensation Amendments of 1992) shall apply.
[(21) Repealed. Puspan. L. 99–514, title XI, § 1171(span)(5), Oct. 22, 1986, 100 Stat. 2513.]
(22) If a defined contribution plan (other than a profit-sharing plan)—
(A) is established by an employer whose stock is not readily tradable on an established market, and
(B) after acquiring securities of the employer, more than 10 percent of the total assets of the plan are securities of the employer,
any trust forming part of such plan shall not constitute a qualified trust under this section unless the plan meets the requirements of subsection (e) of section 409. The requirements of subsection (e) of section 409 shall not apply to any employees of an employer who are participants in any defined contribution plan established and maintained by such employer if the stock of such employer is not readily tradable on an established market and the trade or business of such employer consists of publishing on a regular basis a newspaper for general circulation. For purposes of the preceding sentence, subsections (span), (c), (m), and (o) of section 414 shall not apply except for determining whether stock of the employer is not readily tradable on an established market.
(23) A stock bonus plan shall not be treated as meeting the requirements of this section unless such plan meets the requirements of subsections (h) and (o) of section 409, except that in applying section 409(h) for purposes of this paragraph, the term “employer securities” shall include any securities of the employer held by the plan.
(24) Any group trust which otherwise meets the requirements of this section shall not be treated as not meeting such requirements on account of the participation or inclusion in such trust of the moneys of any plan or governmental unit described in section 818(a)(6).
(25)Requirement that actuarial assumptions be specified.—A defined benefit plan shall not be treated as providing definitely determinable benefits unless, whenever the amount of any benefit is to be determined on the basis of actuarial assumptions, such assumptions are specified in the plan in a way which precludes employer discretion.
(26)Additional participation requirements.—
(A)In general.—In the case of a trust which is a part of a defined benefit plan, such trust shall not constitute a qualified trust under this subsection unless on each day of the plan year such trust benefits at least the lesser of—
(i) 50 employees of the employer, or
(ii) the greater of—(I) 40 percent of all employees of the employer, or(II) 2 employees (or if there is only 1 employee, such employee).
(B)Treatment of excludable employees.—
(i)In general.—A plan may exclude from consideration under this paragraph employees described in paragraphs (3) and (4)(A) of section 410(span).
(ii)Separate application for certain excludable employees.—If employees described in section 410(span)(4)(B) are covered under a plan which meets the requirements of subparagraph (A) separately with respect to such employees, such employees may be excluded from consideration in determining whether any plan of the employer meets such requirements if—(I) the benefits for such employees are provided under the same plan as benefits for other employees,(II) the benefits provided to such employees are not greater than comparable benefits provided to other employees under the plan, and(III) no highly compensated employee (within the meaning of section 414(q)) is included in the group of such employees for more than 1 year.
(C)Special rule for collective bargaining units.—Except to the extent provided in regulations, a plan covering only employees described in section 410(span)(3)(A) may exclude from consideration any employees who are not included in the unit or units in which the covered employees are included.
(D)Paragraph not to apply to multiemployer plans.—Except to the extent provided in regulations, this paragraph shall not apply to employees in a multiemployer plan (within the meaning of section 414(f)) who are covered by collective bargaining agreements.
(E)Special rule for certain dispositions or acquisitions.—Rules similar to the rules of section 410(span)(6)(C) shall apply for purposes of this paragraph.
(F)Separate lines of business.—At the election of the employer and with the consent of the Secretary, this paragraph may be applied separately with respect to each separate line of business of the employer. For purposes of this paragraph, the term “separate line of business” has the meaning given such term by section 414(r) (without regard to paragraph (2)(A) or (7) thereof).
(G)Exception for governmental plans.—This paragraph shall not apply to a governmental plan (within the meaning of section 414(d)).
(H)Regulations.—The Secretary may by regulation provide that any separate benefit structure, any separate trust, or any other separate arrangement is to be treated as a separate plan for purposes of applying this paragraph.
(I)Protected participants.—
(i)In general.—A plan shall be deemed to satisfy the requirements of subparagraph (A) if—(I) the plan is amended—(aa) to cease all benefit accruals, or(bspan) to provide future benefit accruals only to a closed class of participants,(II) the plan satisfies subparagraph (A) (without regard to this subparagraph) as of the effective date of the amendment, and(III) the amendment was adopted before April 5, 2017, or the plan is described in clause (ii).
(ii)Plans described.—A plan is described in this clause if the plan would be described in subsection (o)(1)(C), as applied for purposes of subsection (o)(1)(B)(iii)(IV) and by treating the effective date of the amendment as the date the class was closed for purposes of subsection (o)(1)(C).
(iii)Special rules.—For purposes of clause (i)(II), in applying section 410(span)(6)(C), the amendments described in clause (i) shall not be treated as a significant change in coverage under section 410(span)(6)(C)(i)(II).
(iv)Spun-off plans.—For purposes of this subparagraph, if a portion of a plan described in clause (i) is spun off to another employer, the treatment under clause (i) of the spun-off plan shall continue with respect to the other employer.
(27)Determinations as to profit-sharing plans.—
(A)Contributions need not be based on profits.—The determination of whether the plan under which any contributions are made is a profit-sharing plan shall be made without regard to current or accumulated profits of the employer and without regard to whether the employer is a tax-exempt organization.
(B)Plan must designate type.—In the case of a plan which is intended to be a money purchase pension plan or a profit-sharing plan, a trust forming part of such plan shall not constitute a qualified trust under this subsection unless the plan designates such intent at such time and in such manner as the Secretary may prescribe.
(28)Additional requirements relating to employee stock ownership plans.—
(A)In general.—In the case of a trust which is part of an employee stock ownership plan (within the meaning of section 4975(e)(7)) or a plan which meets the requirements of section 409(a), such trust shall not constitute a qualified trust under this section unless such plan meets the requirements of subparagraphs (B) and (C).
(B)Diversification of investments.—
(i)In general.—A plan meets the requirements of this subparagraph if each qualified participant in the plan may elect within 90 days after the close of each plan year in the qualified election period to direct the plan as to the investment of at least 25 percent of the participant’s account in the plan (to the extent such portion exceeds the amount to which a prior election under this subparagraph applies). In the case of the election year in which the participant can make his last election, the preceding sentence shall be applied by substituting “50 percent” for “25 percent”.
(ii)Method of meeting requirements.—A plan shall be treated as meeting the requirements of clause (i) if—(I) the portion of the participant’s account covered by the election under clause (i) is distributed within 90 days after the period during which the election may be made, or(II) the plan offers at least 3 investment options (not inconsistent with regulations prescribed by the Secretary) to each participant making an election under clause (i) and within 90 days after the period during which the election may be made, the plan invests the portion of the participant’s account covered by the election in accordance with such election.
(iii)Qualified participant.—For purposes of this subparagraph, the term “qualified participant” means any employee who has completed at least 10 years of participation under the plan and has attained age 55.
(iv)Qualified election period.—For purposes of this subparagraph, the term “qualified election period” means the 6-plan-year period beginning with the later of—(I) the 1st plan year in which the individual first became a qualified participant, or(II) the 1st plan year beginning after December 31, 1986.
 For purposes of the preceding sentence, an employer may elect to treat an individual first becoming a qualified participant in the 1st plan year beginning in 1987 as having become a participant in the 1st plan year beginning in 1988.
(v)Exception.—This subparagraph shall not apply to an applicable defined contribution plan (as defined in paragraph (35)(E)).
(C)Use of independent appraiser.—A plan meets the requirements of this subparagraph if all valuations of employer securities which are not readily tradable on an established securities market with respect to activities carried on by the plan are by an independent appraiser. For purposes of the preceding sentence, the term “independent appraiser” means any appraiser meeting requirements similar to the requirements of the regulations prescribed under section 170(a)(1).
(29)Benefit limitations.—In the case of a defined benefit plan (other than a multiemployer plan or a CSEC plan) to which the requirements of section 412 apply, the trust of which the plan is a part shall not constitute a qualified trust under this subsection unless the plan meets the requirements of section 436.
(30)Limitations on elective deferrals.—In the case of a trust which is part of a plan under which elective deferrals (within the meaning of section 402(g)(3)) may be made with respect to any individual during a calendar year, such trust shall not constitute a qualified trust under this subsection unless the plan provides that the amount of such deferrals under such plan and all other plans, contracts, or arrangements of an employer maintaining such plan may not exceed the amount of the limitation in effect under section 402(g)(1)(A) for taxable years beginning in such calendar year.
(31)Direct transfer of eligible rollover distributions.—
(A)In general.—A trust shall not constitute a qualified trust under this section unless the plan of which such trust is a part provides that if the distributee of any eligible rollover distribution—
(i) elects to have such distribution paid directly to an eligible retirement plan, and
(ii) specifies the eligible retirement plan to which such distribution is to be paid (in such form and at such time as the plan administrator may prescribe),
such distribution shall be made in the form of a direct trustee-to-trustee transfer to the eligible retirement plan so specified.
(B)Certain mandatory distributions.—
(i)In general.—In case of a trust which is part of an eligible plan, such trust shall not constitute a qualified trust under this section unless the plan of which such trust is a part provides that if—(I) a distribution described in clause (ii) in excess of $1,000 is made, and(II) the distributee does not make an election under subparagraph (A) and does not elect to receive the distribution directly,
 the plan administrator shall make such transfer to an individual retirement plan of a designated trustee or issuer and shall notify the distributee in writing (either separately or as part of the notice under section 402(f)) that the distribution may be transferred to another individual retirement plan.
(ii)Eligible plan.—For purposes of clause (i), the term “eligible plan” means a plan which provides that any nonforfeitable accrued benefit for which the present value (as determined under section 411(a)(11)) does not exceed $7,000 shall be immediately distributed to the participant.
(C)Limitation.—Subparagraphs (A) and (B) shall apply only to the extent that the eligible rollover distribution would be includible in gross income if not transferred as provided in subparagraph (A) (determined without regard to sections 402(c), 403(a)(4), 403(span)(8), and 457(e)(16)). The preceding sentence shall not apply to such distribution if the plan to which such distribution is transferred—
(i) is a qualified trust which is part of a plan which is a defined contribution plan and agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible, or
(ii) is an eligible retirement plan described in clause (i) or (ii) of section 402(c)(8)(B).
(D)Eligible rollover distribution.—For purposes of this paragraph, the term “eligible rollover distribution” has the meaning given such term by section 402(f)(2)(A).
(E)Eligible retirement plan.—For purposes of this paragraph, the term “eligible retirement plan” has the meaning given such term by section 402(c)(8)(B), except that a qualified trust shall be considered an eligible retirement plan only if it is a defined contribution plan, the terms of which permit the acceptance of rollover distributions.
(32)Treatment of failure to make certain payments if plan has liquidity shortfall.—
(A)In general.—A trust forming part of a pension plan to which section 430(j)(4) or 433(f)(5) applies shall not be treated as failing to constitute a qualified trust under this section merely because such plan ceases to make any payment described in subparagraph (B) during any period that such plan has a liquidity shortfall (as defined in section 430(j)(4) or 433(f)(5)).
(B)Payments described.—A payment is described in this subparagraph if such payment is—
(i) any payment, in excess of the monthly amount paid under a single life annuity (plus any social security supplements described in the last sentence of section 411(a)(9)), to a participant or beneficiary whose annuity starting date (as defined in section 417(f)(2)) occurs during the period referred to in subparagraph (A),
(ii) any payment for the purchase of an irrevocable commitment from an insurer to pay benefits, and
(iii) any other payment specified by the Secretary by regulations.
(C)Period of shortfall.—For purposes of this paragraph, a plan has a liquidity shortfall during the period that there is an underpayment of an installment under section 430(j)(3) or 433(f) by reason of section 430(j)(4)(A) or 433(f)(5), respectively.
(33)Prohibition on benefit increases while sponsor is in bankruptcy.—
(A)In general.—A trust which is part of a plan to which this paragraph applies shall not constitute a qualified trust under this section if an amendment to such plan is adopted while the employer is a debtor in a case under title 11, United States Code, or similar Federal or State law, if such amendment increases liabilities of the plan by reason of—
(i) any increase in benefits,
(ii) any change in the accrual of benefits, or
(iii) any change in the rate at which benefits become nonforfeitable under the plan,
with respect to employees of the debtor, and such amendment is effective prior to the effective date of such employer’s plan of reorganization.
(B)Exceptions.—This paragraph shall not apply to any plan amendment if—
(i) the plan, were such amendment to take effect, would have a funding target attainment percentage (as defined in section 430(d)(2)) of 100 percent or more,
(ii) the Secretary determines that such amendment is reasonable and provides for only de minimis increases in the liabilities of the plan with respect to employees of the debtor,
(iii) such amendment only repeals an amendment described in section 412(d)(2), or
(iv) such amendment is required as a condition of qualification under this part.
(C)Plans to which this paragraph applies.—This paragraph shall apply only to plans (other than multiemployer plans or CSEC plans) covered under section 4021 of the Employee Retirement Income Security Act of 1974.
(D)Employer.—For purposes of this paragraph, the term “employer” means the employer referred to in section 412(span)(1), without regard to section 412(span)(2).
(34)Benefits of missing participants on plan termination.—In the case of a plan covered by title IV of the Employee Retirement Income Security Act of 1974, a trust forming part of such plan shall not be treated as failing to constitute a qualified trust under this section merely because the pension plan of which such trust is a part, upon its termination, transfers benefits of missing participants to the Pension Benefit Guaranty Corporation in accordance with section 4050 of such Act.
(35)Diversification requirements for certain defined contribution plans.—
(A)In general.—A trust which is part of an applicable defined contribution plan shall not be treated as a qualified trust unless the plan meets the diversification requirements of subparagraphs (B), (C), and (D).
(B)Employee contributions and elective deferrals invested in employer securities.—In the case of the portion of an applicable individual’s account attributable to employee contributions and elective deferrals which is invested in employer securities, a plan meets the requirements of this subparagraph if the applicable individual may elect to direct the plan to divest any such securities and to reinvest an equivalent amount in other investment options meeting the requirements of subparagraph (D).
(C)Employer contributions invested in employer securities.—In the case of the portion of the account attributable to employer contributions other than elective deferrals which is invested in employer securities, a plan meets the requirements of this subparagraph if each applicable individual who—
(i) is a participant who has completed at least 3 years of service, or
(ii) is a beneficiary of a participant described in clause (i) or of a deceased participant,
may elect to direct the plan to divest any such securities and to reinvest an equivalent amount in other investment options meeting the requirements of subparagraph (D).
(D)Investment options.—
(i)In general.—The requirements of this subparagraph are met if the plan offers not less than 3 investment options, other than employer securities, to which an applicable individual may direct the proceeds from the divestment of employer securities pursuant to this paragraph, each of which is diversified and has materially different risk and return characteristics.
(ii)Treatment of certain restrictions and conditions.—(I)Time for making investment choices.—A plan shall not be treated as failing to meet the requirements of this subparagraph merely because the plan limits the time for divestment and reinvestment to periodic, reasonable opportunities occurring no less frequently than quarterly.(II)Certain restrictions and conditions not allowed.—Except as provided in regulations, a plan shall not meet the requirements of this subparagraph if the plan imposes restrictions or conditions with respect to the investment of employer securities which are not imposed on the investment of other assets of the plan. This subclause shall not apply to any restrictions or conditions imposed by reason of the application of securities laws.
(E)Applicable defined contribution plan.—For purposes of this paragraph—
(i)In general.—The term “applicable defined contribution plan” means any defined contribution plan which holds any publicly traded employer securities.
(ii)Exception for certain esops.—Such term does not include an employee stock ownership plan if—(I) there are no contributions to such plan (or earnings thereunder) which are held within such plan and are subject to subsection (k) or (m), and(II) such plan is a separate plan for purposes of section 414(l) with respect to any other defined benefit plan or defined contribution plan maintained by the same employer or employers.
(iii)Exception for one participant plans.—Such term does not include a one-participant retirement plan.
(iv)One-participant retirement plan.—For purposes of clause (iii), the term “one-participant retirement plan” means a retirement plan that on the first day of the plan year—(I) covered only one individual (or the individual and the individual’s spouse) and the individual (or the individual and the individual’s spouse) owned 100 percent of the plan sponsor (whether or not incorporated), or(II) covered only one or more partners (or partners and their spouses) in the plan sponsor.
(F)Certain plans treated as holding publicly traded employer securities.—
(i)In general.—Except as provided in regulations or in clause (ii), a plan holding employer securities which are not publicly traded employer securities shall be treated as holding publicly traded employer securities if any employer corporation, or any member of a controlled group of corporations which includes such employer corporation, has issued a class of stock which is a publicly traded employer security.
(ii)Exception for certain controlled groups with publicly traded securities.—Clause (i) shall not apply to a plan if—(I) no employer corporation, or parent corporation of an employer corporation, has issued any publicly traded employer security, and(II) no employer corporation, or parent corporation of an employer corporation, has issued any special class of stock which grants particular rights to, or bears particular risks for, the holder or issuer with respect to any corporation described in clause (i) which has issued any publicly traded employer security.
(iii)Definitions.—For purposes of this subparagraph, the term—(I) “controlled group of corporations” has the meaning given such term by section 1563(a), except that “50 percent” shall be substituted for “80 percent” each place it appears,(II) “employer corporation” means a corporation which is an employer maintaining the plan, and(III) “parent corporation” has the meaning given such term by section 424(e).
(G)Other definitions.—For purposes of this paragraph—
(i)Applicable individual.—The term “applicable individual” means—(I) any participant in the plan, and(II) any beneficiary who has an account under the plan with respect to which the beneficiary is entitled to exercise the rights of a participant.
(ii)Elective deferral.—The term “elective deferral” means an employer contribution described in section 402(g)(3)(A).
(iii)Employer security.—The term “employer security” has the meaning given such term by section 407(d)(1) of the Employee Retirement Income Security Act of 1974.
(iv)Employee stock ownership plan.—The term “employee stock ownership plan” has the meaning given such term by section 4975(e)(7).
(v)Publicly traded employer securities.—The term “publicly traded employer securities” means employer securities which are readily tradable on an established securities market.
(vi)Year of service.—The term “year of service” has the meaning given such term by section 411(a)(5).
(H)Transition rule for securities attributable to employer contributions.—
(i)Rules phased in over 3 years.—(I)In general.—In the case of the portion of an account to which subparagraph (C) applies and which consists of employer securities acquired in a plan year beginning before January 1, 2007, subparagraph (C) shall only apply to the applicable percentage of such securities. This subparagraph shall be applied separately with respect to each class of securities.(II)Exception for certain participants aged 55 or over.—Subclause (I) shall not apply to an applicable individual who is a participant who has attained age 55 and completed at least 3 years of service before the first plan year beginning after December 31, 2005.
(ii)Applicable percentage.—For purposes of clause (i), the applicable percentage shall be determined as follows:

  Plan year to which subparagraph

   (C) applies:

The applicable percentage is:

1st

33  

2d

66  

3d and following

100.

(36)Distributions during working retirement.—
(A)In general.—A trust forming part of a pension plan shall not be treated as failing to constitute a qualified trust under this section solely because the plan provides that a distribution may be made from such trust to an employee who has attained age 59½ and who is not separated from employment at the time of such distribution.
(B)Certain employees in the building and construction industry.—Subparagraph (A) shall be applied by substituting “age 55” for “age 59½” in the case of a multiemployer plan described in section 4203(span)(1)(B)(i) of the Employee Retirement Income Security Act of 1974, with respect to individuals who were participants in such plan on or before April 30, 2013, if—
(i) the trust to which subparagraph (A) applies was in existence before January 1, 1970, and
(ii) before December 31, 2011, at a time when the plan provided that distributions may be made to an employee who has attained age 55 and who is not separated from employment at the time of such distribution, the plan received at least 1 written determination from the Internal Revenue Service that the trust to which subparagraph (A) applies constituted a qualified trust under this section.
(37)Death benefits under userra-qualified active military service.—A trust shall not constitute a qualified trust unless the plan provides that, in the case of a participant who dies while performing qualified military service (as defined in section 414(u)), the survivors of the participant are entitled to any additional benefits (other than benefit accruals relating to the period of qualified military service) provided under the plan had the participant resumed and then terminated employment on account of death.
(38)Portability of lifetime income.—
(A)In general.—Except as may be otherwise provided by regulations, a trust forming part of a defined contribution plan shall not be treated as failing to constitute a qualified trust under this section solely by reason of allowing—
(i) qualified distributions of a lifetime income investment, or
(ii) distributions of a lifetime income investment in the form of a qualified plan distribution annuity contract,
on or after the date that is 90 days prior to the date on which such lifetime income investment is no longer authorized to be held as an investment option under the plan.
(B)Definitions.—For purposes of this subsection—
(i) the term “qualified distribution” means a direct trustee-to-trustee transfer described in paragraph (31)(A) to an eligible retirement plan (as defined in section 402(c)(8)(B)),
(ii) the term “lifetime income investment” means an investment option which is designed to provide an employee with election rights—(I) which are not uniformly available with respect to other investment options under the plan, and(II) which are to a lifetime income feature available through a contract or other arrangement offered under the plan (or under another eligible retirement plan (as so defined), if paid by means of a direct trustee-to-trustee transfer described in paragraph (31)(A) to such other eligible retirement plan),
(iii) the term “lifetime income feature” means—(I) a feature which guarantees a minimum level of income annually (or more frequently) for at least the remainder of the life of the employee or the joint lives of the employee and the employee’s designated beneficiary, or(II) an annuity payable on behalf of the employee under which payments are made in substantially equal periodic payments (not less frequently than annually) over the life of the employee or the joint lives of the employee and the employee’s designated beneficiary, and
(iv) the term “qualified plan distribution annuity contract” means an annuity contract purchased for a participant and distributed to the participant by a plan or contract described in subparagraph (B) of section 402(c)(8) (without regard to clauses (i) and (ii) thereof).
Paragraphs (11), (12), (13), (14), (15), (19), and (20) shall apply only in the case of a plan to which section 411 (relating to minimum vesting standards) applies without regard to subsection (e)(2) of such section.
(span) Certain plan amendments
(1) Certain retroactive changes in plan
(2) Adoption of plan
(3) Retroactive plan amendments that increase benefit accrualsIf—
(A) an employer amends a stock bonus, pension, profit-sharing, or annuity plan to increase benefits accrued under the plan effective as of any date during the immediately preceding plan year (other than increasing the amount of matching contributions (as defined in subsection (m)(4)(A))),
(B) such amendment would not otherwise cause the plan to fail to meet any of the requirements of this subchapter, and
(C) such amendment is adopted before the time prescribed by law for filing the return of the employer for the taxable year (including extensions thereof) which includes the date described in subparagraph (A),
the employer may elect to treat such amendment as having been adopted as of the last day of the plan year in which the amendment is effective.
(c) Definitions and rules relating to self-employed individuals and owner-employeesFor purposes of this section—
(1) Self-employed individual treated as employee
(A) In general
(B) Self-employed individualThe term “self-employed individual” means, with respect to any taxable year, an individual who has earned income (as defined in paragraph (2)) for such taxable year. To the extent provided in regulations prescribed by the Secretary, such term also includes, for any taxable year—
(i) an individual who would be a self-employed individual within the meaning of the preceding sentence but for the fact that the trade or business carried on by such individual did not have net profits for the taxable year, and
(ii) an individual who has been a self-employed individual within the meaning of the preceding sentence for any prior taxable year.
(2) Earned income
(A) In generalThe term “earned income” means the net earnings from self-employment (as defined in section 1402(a)), but such net earnings shall be determined—
(i) only with respect to a trade or business in which personal services of the taxpayer are a material income-producing factor,
(ii) without regard to paragraphs (4) and (5) of section 1402(c),
(iii) in the case of any individual who is treated as an employee under subparagraph (A), (C), or (D) of section 3121(d)(3), without regard to section 1402(c)(2),
(iv) without regard to items which are not included in gross income for purposes of this chapter, and the deductions properly allocable to or chargeable against such items,
(v) with regard to the deductions allowed by section 404 to the taxpayer, and
(vi) with regard to the deduction allowed to the taxpayer by section 164(f).
For purposes of this subparagraph, section 1402, as in effect for a taxable year ending on December 31, 1962, shall be treated as having been in effect for all taxable years ending before such date. For purposes of this part only (other than sections 419 and 419A), this subparagraph shall be applied as if the term “trade or business” for purposes of section 1402 included service described in section 1402(c)(6).
[(B) Repealed]
(C) Income from disposition of certain property
(3) Owner-employeeThe term “owner-employee” means an employee who—
(A) owns the entire interest in an unincorporated trade or business, or
(B) in the case of a partnership, is a partner who owns more than 10 percent of either the capital interest or the profits interest in such partnership.
To the extent provided in regulations prescribed by the Secretary, such term also means an individual who has been an owner-employee within the meaning of the preceding sentence.
(4) Employer
(5) Contributions on behalf of owner-employeesThe term “contribution on behalf of an owner-employee” includes, except as the context otherwise requires, a contribution under a plan—
(A) by the employer for an owner-employee, and
(B) by an owner-employee as an employee.
(6) Special rule for certain fishermen
(d) Contribution limit on owner-employees
[(e) Repealed. Puspan. L. 98–369, div. A, title VII, § 713(d)(3), July 18, 1984, 98 Stat. 958]
(f) Certain custodial accounts and contractsFor purposes of this title, a custodial account, an annuity contract, or a contract (other than a life, health or accident, property, casualty, or liability insurance contract) issued by an insurance company qualified to do business in a State shall be treated as a qualified trust under this section if—
(1) the custodial account or contract would, except for the fact that it is not a trust, constitute a qualified trust under this section, and
(2) in the case of a custodial account the assets thereof are held by a bank (as defined in section 408(n)) or another person who demonstrates, to the satisfaction of the Secretary, that the manner in which he will hold the assets will be consistent with the requirements of this section.
For purposes of this title, in the case of a custodial account or contract treated as a qualified trust under this section by reason of this subsection, the person holding the assets of such account or holding such contract shall be treated as the trustee thereof.
(g) Annuity defined
(h) Medical, etc., benefits for retired employees and their spouses and dependentsUnder regulations prescribed by the Secretary, and subject to the provisions of section 420, a pension or annuity plan may provide for the payment of benefits for sickness, accident, hospitalization, and medical expenses of retired employees, their spouses and their dependents, but only if—
(1) such benefits are subordinate to the retirement benefits provided by the plan,
(2) a separate account is established and maintained for such benefits,
(3) the employer’s contributions to such separate account are reasonable and ascertainable,
(4) it is impossible, at any time prior to the satisfaction of all liabilities under the plan to provide such benefits, for any part of the corpus or income of such separate account to be (within the taxable year or thereafter) used for, or diverted to, any purpose other than the providing of such benefits,
(5) notwithstanding the provisions of subsection (a)(2), upon the satisfaction of all liabilities under the plan to provide such benefits, any amount remaining in such separate account must, under the terms of the plan, be returned to the employer, and
(6) in the case of an employee who is a key employee, a separate account is established and maintained for such benefits payable to such employee (and his spouse and dependents) and such benefits (to the extent attributable to plan years beginning after March 31, 1984, for which the employee is a key employee) are only payable to such employee (and his spouse and dependents) from such separate account.
For purposes of paragraph (6), the term “key employee” means any employee, who at any time during the plan year or any preceding plan year during which contributions were made on behalf of such employee, is or was a key employee as defined in section 416(i). In no event shall the requirements of paragraph (1) be treated as met if the aggregate actual contributions for medical benefits, when added to actual contributions for life insurance protection under the plan, exceed 25 percent of the total actual contributions to the plan (other than contributions to fund past service credits) after the date on which the account is established. For purposes of this subsection, the term “dependent” shall include any individual who is a child (as defined in section 152(f)(1)) of a retired employee who as of the end of the calendar year has not attained age 27.
(i) Certain union-negotiated pension plansIn the case of a trust forming part of a pension plan which has been determined by the Secretary to constitute a qualified trust under subsection (a) and to be exempt from taxation under section 501(a) for a period beginning after contributions were first made to or for such trust, if it is shown to the satisfaction of the Secretary that—
(1) such trust was created pursuant to a collective bargaining agreement between employee representatives and one or more employers,
(2) any disbursements of contributions, made to or for such trust before the time as of which the Secretary determined that the trust constituted a qualified trust, substantially complied with the terms of the trust, and the plan of which the trust is a part, as subsequently qualified, and
(3) before the time as of which the Secretary determined that the trust constitutes a qualified trust, the contributions to or for such trust were not used in a manner which would jeopardize the interests of its beneficiaries,
then such trust shall be considered as having constituted a qualified trust under subsection (a) and as having been exempt from taxation under section 501(a) for the period beginning on the date on which contributions were first made to or for such trust and ending on the date such trust first constituted (without regard to this subsection) a qualified trust under subsection (a).
[(j) Repealed. Puspan. L. 97–248, title II, § 238(span), Sept. 3, 1982, 96 Stat. 512]
(k) Cash or deferred arrangements
(1) General rule
(2) Qualified cash or deferred arrangementA qualified cash or deferred arrangement is any arrangement which is part of a profit-sharing or stock bonus plan, a pre-ERISA money purchase plan, or a rural cooperative plan which meets the requirements of subsection (a)—
(A) under which a covered employee may elect to have the employer make payments as contributions to a trust under the plan on behalf of the employee, or to the employee directly in cash;
(B) under which amounts held by the trust which are attributable to employer contributions made pursuant to the employee’s election—
(i) may not be distributable to participants or other beneficiaries earlier than—(I) severance from employment, death, or disability,(II) an event described in paragraph (10),(III) in the case of a profit-sharing or stock bonus plan, the attainment of age 59½,(IV) subject to the provisions of paragraph (14), upon hardship of the employee,(V) in the case of a qualified reservist distribution (as defined in section 72(t)(2)(G)(iii)), the date on which a period referred to in subclause (III) of such section begins, or(VI) except as may be otherwise provided by regulations, with respect to amounts invested in a lifetime income investment (as defined in subsection (a)(38)(B)(ii)), the date that is 90 days prior to the date that such lifetime income investment may no longer be held as an investment option under the arrangement,
(ii) will not be distributable merely by reason of the completion of a stated period of participation or the lapse of a fixed number of years, and
(iii) except as may be otherwise provided by regulations, in the case of amounts described in clause (i)(VI), will be distributed only in the form of a qualified distribution (as defined in subsection (a)(38)(B)(i)) or a qualified plan distribution annuity contract (as defined in subsection (a)(38)(B)(iv)),
(C) which provides that an employee’s right to his accrued benefit derived from employer contributions made to the trust pursuant to his election is nonforfeitable, and
(D) which does not require, as a condition of participation in the arrangement, that an employee complete a period of service with the employer (or employers) maintaining the plan extending beyond the close of the earlier of—
(i) the period permitted under section 410(a)(1) (determined without regard to subparagraph (B)(i) thereof), or
(ii) subject to the provisions of paragraph (15), the first period of 3 consecutive 12-month periods during each of which the employee has at least 500 hours of service.
(3) Application of participation and discrimination standards
(A) A cash or deferred arrangement shall not be treated as a qualified cash or deferred arrangement unless—
(i) those employees eligible to benefit under the arrangement satisfy the provisions of section 410(span)(1), and
(ii) the actual deferral percentage for eligible highly compensated employees (as defined in paragraph (5)) for the plan year bears a relationship to the actual deferral percentage for all other eligible employees for the preceding plan year which meets either of the following tests:(I) The actual deferral percentage for the group of eligible highly compensated employees is not more than the actual deferral percentage of all other eligible employees multiplied by 1.25.(II) The excess of the actual deferral percentage for the group of eligible highly compensated employees over that of all other eligible employees is not more than 2 percentage points, and the actual deferral percentage for the group of eligible highly compensated employees is not more than the actual deferral percentage of all other eligible employees multiplied by 2.
 If 2 or more plans which include cash or deferred arrangements are considered as 1 plan for purposes of section 401(a)(4) or 410(span), the cash or deferred arrangements included in such plans shall be treated as 1 arrangement for purposes of this subparagraph.
If any highly compensated employee is a participant under 2 or more cash or deferred arrangements of the employer, for purposes of determining the deferral percentage with respect to such employee, all such cash or deferred arrangements shall be treated as 1 cash or deferred arrangement. An arrangement may apply clause (ii) by using the plan year rather than the preceding plan year if the employer so elects, except that if such an election is made, it may not be changed except as provided by the Secretary.
(B) For purposes of subparagraph (A), the actual deferral percentage for a specified group of employees for a plan year shall be the average of the ratios (calculated separately for each employee in such group) of—
(i) the amount of employer contributions actually paid over to the trust on behalf of each such employee for such plan year, to
(ii) the employee’s compensation for such plan year.
(C) A cash or deferred arrangement shall be treated as meeting the requirements of subsection (a)(4) with respect to contributions if the requirements of subparagraph (A)(ii) are met.
(D) For purposes of subparagraph (B), the employer contributions on behalf of any employee—
(i) shall include any employer contributions made pursuant to the employee’s election under paragraph (2), and
(ii) under such rules as the Secretary may prescribe, may, at the election of the employer, include—(I) matching contributions (as defined in 401(m)(4)(A)) which meet the requirements of paragraph (2)(B) and (C), and(II) qualified nonelective contributions (within the meaning of section 401(m)(4)(C)).
(E) For purposes of this paragraph, in the case of the first plan year of any plan (other than a successor plan), the amount taken into account as the actual deferral percentage of nonhighly compensated employees for the preceding plan year shall be—
(i) 3 percent, or
(ii) if the employer makes an election under this subclause, the actual deferral percentage of nonhighly compensated employees determined for such first plan year.
(F)Special rule for early participation.—If an employer elects to apply section 410(span)(4)(B) in determining whether a cash or deferred arrangement meets the requirements of subparagraph (A)(i), the employer may, in determining whether the arrangement meets the requirements of subparagraph (A)(ii), exclude from consideration all eligible employees (other than highly compensated employees) who have not met the minimum age and service requirements of section 410(a)(1)(A).
(G)Governmental plan.—A governmental plan (within the meaning of section 414(d)) shall be treated as meeting the requirements of this paragraph.
(4) Other requirements
(A) Benefits (other than matching contributions) must not be contingent on election to defer
(B) Eligibility of State and local governments and tax-exempt organizations
(i) Tax-exempts eligible
(ii) Governments ineligible
(iii) Treatment of Indian tribal governments
(C) Coordination with other plans
(5) Highly compensated employee
(6) Pre-ERISA money purchase planFor purposes of this subsection, the term “pre-ERISA money purchase plan” means a pension plan—
(A) which is a defined contribution plan (as defined in section 414(i)),
(B) which was in existence on June 27, 1974, and which, on such date, included a salary reduction arrangement, and
(C) under which neither the employee contributions nor the employer contributions may exceed the levels provided for by the contribution formula in effect under the plan on such date.
(7) Rural cooperative planFor purposes of this subsection—
(A) In generalThe term “rural cooperative plan” means any pension plan—
(i) which is a defined contribution plan (as defined in section 414(i)), and
(ii) which is established and maintained by a rural cooperative.
(B) Rural cooperative definedFor purposes of subparagraph (A), the term “rural cooperative” means—
(i) any organization which—(I) is engaged primarily in providing electric service on a mutual or cooperative basis, or(II) is engaged primarily in providing electric service to the public in its area of service and which is exempt from tax under this subtitle or which is a State or local government (or an agency or instrumentality thereof), other than a municipality (or an agency or instrumentality thereof),
(ii) any organization described in paragraph (4) or (6) of section 501(c) and at least 80 percent of the members of which are organizations described in clause (i),
(iii) a cooperative telephone company described in section 501(c)(12),
(iv) any organization which—(I) is a mutual irrigation or ditch company described in section 501(c)(12) (without regard to the 85 percent requirement thereof), or(II) is a district organized under the laws of a State as a municipal corporation for the purpose of irrigation, water conservation, or drainage, and
(v) an organization which is a national association of organizations described in clause (i), (ii),,2
2 So in original.
(iii), or (iv).
(C) Special rule for certain distributions
(8) Arrangement not disqualified if excess contributions distributed
(A) In generalA cash or deferred arrangement shall not be treated as failing to meet the requirements of clause (ii) of paragraph (3)(A) for any plan year if, before the close of the following plan year—
(i) the amount of the excess contributions for such plan year (and any income allocable to such contributions through the end of such year) is distributed, or
(ii) to the extent provided in regulations, the employee elects to treat the amount of the excess contributions as an amount distributed to the employee and then contributed by the employee to the plan.
Any distribution of excess contributions (and income) may be made without regard to any other provision of law.
(B) Excess contributionsFor purposes of subparagraph (A), the term “excess contributions” means, with respect to any plan year, the excess of—
(i) the aggregate amount of employer contributions actually paid over to the trust on behalf of highly compensated employees for such plan year, over
(ii) the maximum amount of such contributions permitted under the limitations of clause (ii) of paragraph (3)(A) (determined by reducing contributions made on behalf of highly compensated employees in order of the actual deferral percentages beginning with the highest of such percentages).
(C) Method of distributing excess contributions
(D) Additional tax under section 72(t) not to apply
(E) Treatment of matching contributions forfeited by reason of excess deferral or contribution or permissible withdrawal
(F) Cross reference
(9) Compensation
(10) Distributions upon termination of plan
(A) In general
(B) Distributions must be lump sum distributions
(i) In general
(ii) Lump-sum distributionFor purposes of this subparagraph, the term “lump-sum distribution” has the meaning given such term by section 402(e)(4)(D) (without regard to subclauses (I), (II), (III), and (IV) of clause (i) thereof). Such term includes a distribution of an annuity contract from—(I) a trust which forms a part of a plan described in section 401(a) and which is exempt from tax under section 501(a), or(II) an annuity plan described in section 403(a).
(11) Adoption of simple plan to meet nondiscrimination tests
(A) In generalA cash or deferred arrangement maintained by an eligible employer shall be treated as meeting the requirements of paragraph (3)(A)(ii) if such arrangement meets—
(i) the contribution requirements of subparagraph (B),
(ii) the exclusive plan requirements of subparagraph (C), and
(iii) the vesting requirements of section 408(p)(3).
(B) Contribution requirements
(i) In generalThe requirements of this subparagraph are met if, under the arrangement—(I) an employee may elect to have the employer make elective contributions for the year on behalf of the employee to a trust under the plan in an amount which is expressed as a percentage of compensation of the employee but which in no event exceeds the amount in effect under section 408(p)(2)(A)(ii) (after the application of any election under section 408(p)(2)(E)(i)(II)),(II) the employer is required to make a matching contribution to the trust for the year in an amount equal to so much of the amount the employee elects under subclause (I) as does not exceed 3 percent of compensation for the year,(III) the employer may make nonelective contributions of a uniform percentage (up to 10 percent) of compensation, but not to exceed the amount in effect under section 408(p)(2)(A)(iv) in any year, 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, and(IV) no other contributions may be made other than contributions described in subclause (I), (II), or (III).
(ii) Employer may elect 2-percent nonelective contribution
(iii) Administrative requirements(I) In general(II) Notice of election period
(C) Exclusive plan requirement
(D) Definitions and special rule
(i) Definitions
(ii) Coordination with top-heavy rules
(E) Employers electing increased contributions
(12) Alternative methods of meeting nondiscrimination requirements
(A) In generalA cash or deferred arrangement shall be treated as meeting the requirements of paragraph (3)(A)(ii) if such arrangement—
(i) meets the contribution requirements of subparagraph (B) and the notice requirements of subparagraph (D), or
(ii) meets the contribution requirements of subparagraph (C).
(B) Matching contributions
(i) In generalThe requirements of this subparagraph are met if, under the arrangement, the employer makes matching contributions on behalf of each employee who is not a highly compensated employee in an amount equal to—(I) 100 percent of the elective contributions of the employee to the extent such elective contributions do not exceed 3 percent of the employee’s compensation, and(II) 50 percent of the elective contributions of the employee to the extent that such elective contributions exceed 3 percent but do not exceed 5 percent of the employee’s compensation.
(ii) Rate for highly compensated employees
(iii) Alternative plan designsIf the rate of any matching contribution with respect to any rate of elective contribution is not equal to the percentage required under clause (i), an arrangement shall not be treated as failing to meet the requirements of clause (i) if—(I) the rate of an employer’s matching contribution does not increase as an employee’s rate of elective contributions increase, and(II) the aggregate amount of matching contributions at such rate of elective contribution is at least equal to the aggregate amount of matching contributions which would be made if matching contributions were made on the basis of the percentages described in clause (i).
(C) Nonelective contributions
(D) Notice requirementAn arrangement meets the requirements of this paragraph if, under the arrangement, each employee eligible to participate is, within a reasonable period before any year, given written notice of the employee’s rights and obligations under the arrangement which—
(i) is sufficiently accurate and comprehensive to apprise the employee of such rights and obligations, and
(ii) is written in a manner calculated to be understood by the average employee eligible to participate.
(E) Other requirements
(i) Withdrawal and vesting restrictions
(ii) Social security and similar contributions not taken into account
(F) Timing of plan amendment for employer making nonelective contributions
(i) In generalExcept as provided in clause (ii), a plan may be amended after the beginning of a plan year to provide that the requirements of subparagraph (C) shall apply to the arrangement for the plan year, but only if the amendment is adopted—(I) at any time before the 30th day before the close of the plan year, or(II) at any time before the last day under paragraph (8)(A) for distributing excess contributions for the plan year.
(ii) Exception where plan provided for matching contributions
(iii) 4-percent contribution requirement
(G) Other plans
(13) Alternative method for automatic contribution arrangements to meet nondiscrimination requirements
(A) In general
(B) Qualified automatic contribution arrangementFor purposes of this paragraph, the term “qualified automatic contribution arrangement” means a cash or deferred arrangement—
(i) which is described in subparagraph (D)(i)(I) and meets the applicable requirements of subparagraphs (C) through (E), or
(ii) which is described in subparagraph (D)(i)(II) and meets the applicable requirements of subparagraphs (C) and (D).
(C) Automatic deferral
(i) In general
(ii) Election outThe election treated as having been made under clause (i) shall cease to apply with respect to any employee if such employee makes an affirmative election—(I) to not have such contributions made, or(II) to make elective contributions at a level specified in such affirmative election.
(iii) Qualified percentageFor purposes of this subparagraph, the term “qualified percentage” means, with respect to any employee, any percentage determined under the arrangement if such percentage is applied uniformly, does not exceed 15 percent (10 percent during the period described in subclause (I)), and is at least—(I) 3 percent during the period ending on the last day of the first plan year which begins after the date on which the first elective contribution described in clause (i) is made with respect to such employee,(II) 4 percent during the first plan year following the plan year described in subclause (I),(III) 5 percent during the second plan year following the plan year described in subclause (I), and(IV) 6 percent during any subsequent plan year.
(iv) Automatic deferral for current employees not requiredClause (i) may be applied without taking into account any employee who—(I) was eligible to participate in the arrangement (or a predecessor arrangement) immediately before the date on which such arrangement becomes a qualified automatic contribution arrangement (determined after application of this clause), and(II) had an election in effect on such date either to participate in the arrangement or to not participate in the arrangement.
(D) Matching or nonelective contributions
(i) In generalThe requirements of this subparagraph are met if, under the arrangement, the employer—(I) makes matching contributions on behalf of each employee who is not a highly compensated employee in an amount equal to the sum of 100 percent of the elective contributions of the employee to the extent that such contributions do not exceed 1 percent of compensation plus 50 percent of so much of such contributions as exceed 1 percent but do not exceed 6 percent of compensation, or(II) is required, without regard to whether the employee makes an elective contribution or employee contribution, to make a contribution to a defined contribution plan on behalf of each employee who is not a highly compensated employee and who is eligible to participate in the arrangement in an amount equal to at least 3 percent of the employee’s compensation.
(ii) Application of rules for matching contributions
(iii) Withdrawal and vesting restrictionsAn arrangement shall not be treated as meeting the requirements of clause (i) unless, with respect to employer contributions (including matching contributions) taken into account in determining whether the requirements of clause (i) are met—(I) any employee who has completed at least 2 years of service (within the meaning of section 411(a)) has a nonforfeitable right to 100 percent of the employee’s accrued benefit derived from such employer contributions, and(II) the requirements of subparagraph (B) of paragraph (2) are met with respect to all such employer contributions.
(iv) Application of certain other rules
(E) Notice requirements
(i) In generalThe requirements of this subparagraph are met if, within a reasonable period before each plan year, each employee eligible to participate in the arrangement for such year receives written notice of the employee’s rights and obligations under the arrangement which—(I) is sufficiently accurate and comprehensive to apprise the employee of such rights and obligations, and(II) is written in a manner calculated to be understood by the average employee to whom the arrangement applies.
(ii) Timing and span requirementsA notice shall not be treated as meeting the requirements of clause (i) with respect to an employee unless—(I) the notice explains the employee’s right under the arrangement to elect not to have elective contributions made on the employee’s behalf (or to elect to have such contributions made at a different percentage),(II) in the case of an arrangement under which the employee may elect among 2 or more investment options, the notice explains how contributions made under the arrangement will be invested in the absence of any investment election by the employee, and(III) the employee has a reasonable period of time after receipt of the notice described in subclauses (I) and (II) and before the first elective contribution is made to make either such election.
(F) Timing of plan amendment for employer making nonelective contributions
(i) In generalExcept as provided in clause (ii), a plan may be amended after the beginning of a plan year to provide that the requirements of subparagraph (D)(i)(II) shall apply to the arrangement for the plan year, but only if the amendment is adopted—(I) at any time before the 30th day before the close of the plan year, or(II) at any time before the last day under paragraph (8)(A) for distributing excess contributions for the plan year.
(ii) Exception where plan provided for matching contributions
(iii) 4-percent contribution requirement
(14) Special rules relating to hardship withdrawalsFor purposes of paragraph (2)(B)(i)(IV)—
(A) Amounts which may be withdrawnThe following amounts may be distributed upon hardship of the employee:
(i) Contributions to a profit-sharing or stock bonus plan to which section 402(e)(3) applies.
(ii) Qualified nonelective contributions (as defined in subsection (m)(4)(C)).
(iii) Qualified matching contributions described in paragraph (3)(D)(ii)(I).
(iv) Earnings on any contributions described in clause (i), (ii), or (iii).
(B) No requirement to take available loan
(C) Employee certificationIn determining whether a distribution is upon the hardship of an employee, the administrator of the plan may rely on a written certification by the employee that the distribution is—
(i) on account of a financial need of a type which is deemed in regulations prescribed by the Secretary to be an immediate and heavy financial need, and
(ii) not in excess of the amount required to satisfy such financial need, and
that the employee has no alternative means reasonably available to satisfy such financial need. The Secretary may provide by regulations for exceptions to the rule of the preceding sentence in cases where the plan administrator has actual knowledge to the contrary of the employee’s certification, and for procedures for addressing cases of employee misrepresentation.
(15) Special rules for participation requirement for long-term, part-time workersFor purposes of paragraph (2)(D)(ii)—
(A) Age requirement must be met
(B) Nondiscrimination and top-heavy rules not to apply
(i) Nondiscrimination rulesIn the case of employees who are eligible to participate in the arrangement solely by reason of paragraph (2)(D)(ii)—(I) notwithstanding subsection (a)(4), an employer shall not be required to make nonelective or matching contributions on behalf of such employees even if such contributions are made on behalf of other employees eligible to participate in the arrangement, and(II) an employer may elect to exclude such employees from the application of subsection (a)(4), paragraphs (3), (12), and (13), paragraphs (2), (11), and (12) of subsection (m), and section 410(span).
(ii) Top-heavy rules
(iii) Vesting
(iv) Employees who become full-time employees
(C) Exception for employees under collectively bargained plans, etc.
(D) Special rules
(i) Time of participation
(ii) 12-month periods
(16) Starter 401(k) deferral-only plans for employers with no retirement plan
(A) In general
(B) Starter 401(k) deferral-only arrangementFor purposes of this paragraph, the term “starter 401(k) deferral-only arrangement” means any cash or deferred arrangement which meets—
(i) the automatic deferral requirements of subparagraph (C),
(ii) the contribution limitations of subparagraph (D), and
(iii) the requirements of subparagraph (E) of paragraph (13).
(C) Automatic deferral
(i) In general
(ii) Election outThe election treated as having been made under clause (i) shall cease to apply with respect to any employee if such employee makes an affirmative election—(I) to not have such contributions made, or(II) to make elective contributions at a level specified in such affirmative election.
(iii) Qualified percentage
(D) Contribution limitations
(i) In generalThe requirements of this subparagraph are met if, under the arrangement—(I) the only contributions which may be made are elective contributions of employees described in subparagraph (C), and(II) the aggregate amount of such elective contributions which may be made with respect to any employee for any calendar year shall not exceed $6,000.
(ii) Cost-of-living adjustment
(iii) Catch-up contributions for individuals age 50 or over
(E) Eligible employerFor purposes of this paragraph—
(i) In general
(ii) Relief for acquisitions, etc.
(iii) Qualified plan
(F) Eligible employeeFor purposes of this paragraph—
(i) In general
(ii) Exclusions
(l) Permitted disparity in plan contributions or benefits
(1) In generalThe requirements of this subsection are met with respect to a plan if—
(A) in the case of a defined contribution plan, the requirements of paragraph (2) are met, and
(B) in the case of a defined benefit plan, the requirements of paragraph (3) are met.
(2) Defined contribution plan
(A) In generalA defined contribution plan meets the requirements of this paragraph if the excess contribution percentage does not exceed the base contribution percentage by more than the lesser of—
(i) the base contribution percentage, or
(ii) the greater of—(I) 5.7 percentage points, or(II) the percentage equal to the portion of the rate of tax under section 3111(a) (in effect as of the beginning of the year) which is attributable to old-age insurance.
(B) Contribution percentagesFor purposes of this paragraph—
(i) Excess contribution percentage
(ii) Base contribution percentage
(3) Defined benefit planA defined benefit plan meets the requirements of this paragraph if—
(A) Excess plans
(i) In generalIn the case of a plan other than an offset plan—(I) the excess benefit percentage does not exceed the base benefit percentage by more than the maximum excess allowance,(II) any optional form of benefit, preretirement benefit, actuarial factor, or other benefit or feature provided with respect to compensation in excess of the integration level is provided with respect to compensation not in excess of such level, and(III) benefits are based on average annual compensation.
(ii) Benefit percentages
(B) Offset plansIn the case of an offset plan, the plan provides that—
(i) a participant’s accrued benefit attributable to employer contributions (within the meaning of section 411(c)(1)) may not be reduced (by reason of the offset) by more than the maximum offset allowance, and
(ii) benefits are based on average annual compensation.
(4) Definitions relating to paragraph (3)For purposes of paragraph (3)—
(A) Maximum excess allowanceThe maximum excess allowance is equal to—
(i) in the case of benefits attributable to any year of service with the employer taken into account under the plan, ¾ of a percentage point, and
(ii) in the case of total benefits, ¾ of a percentage point, multiplied by the participant’s years of service (not in excess of 35) with the employer taken into account under the plan.
In no event shall the maximum excess allowance exceed the base benefit percentage.
(B) Maximum offset allowanceThe maximum offset allowance is equal to—
(i) in the case of benefits attributable to any year of service with the employer taken into account under the plan, ¾ percent of the participant’s final average compensation, and
(ii) in the case of total benefits, ¾ percent of the participant’s final average compensation, multiplied by the participant’s years of service (not in excess of 35) with the employer taken into account under the plan.
In no event shall the maximum offset allowance exceed 50 percent of the benefit which would have accrued without regard to the offset reduction.
(C) Reductions
(i) In generalThe Secretary shall prescribe regulations requiring the reduction of the ¾ percentage factor under subparagraph (A) or (B)—(I) in the case of a plan other than an offset plan which has an integration level in excess of covered compensation, or(II) with respect to any participant in an offset plan who has final average compensation in excess of covered compensation.
(ii) Basis of reductions
(D) Offset plan
(5) Other definitions and special rulesFor purposes of this subsection—
(A) Integration level
(i) In general
(ii) Limitation
(iii) Level to apply to all participants
(iv) Multiple integration levels
(B) Compensation
(C) Average annual compensationThe term “average annual compensation” means the participant’s highest average annual compensation for—
(i) any period of at least 3 consecutive years, or
(ii) if shorter, the participant’s full period of service.
(D) Final average compensation
(i) In generalThe term “final average compensation” means the participant’s average annual compensation for—(I) the 3-consecutive year period ending with the current year, or(II) if shorter, the participant’s full period of service.
(ii) Limitation
(E) Covered compensation
(i) In general
(ii) Computation for any year
(iii) Social security retirement age
(F) RegulationsThe Secretary shall prescribe such regulations as are necessary or appropriate to carry out the purposes of this subsection, including—
(i) in the case of a defined benefit plan which provides for unreduced benefits commencing before the social security retirement age (as defined in section 415(span)(8)), rules providing for the reduction of the maximum excess allowance and the maximum offset allowance, and
(ii) in the case of an employee covered by 2 or more plans of the employer which fail to meet the requirements of subsection (a)(4) (without regard to this subsection), rules preventing the multiple use of the disparity permitted under this subsection with respect to any employee.
For purposes of clause (i), unreduced benefits shall not include benefits for disability (within the meaning of section 223(d) of the Social Security Act).
(6) Special rule for plan maintained by railroads
(m) Nondiscrimination test for matching contributions and employee contributions
(1) In general
(2) Requirements
(A) Contribution percentage requirementA plan meets the contribution percentage requirement of this paragraph for any plan year only if the contribution percentage for eligible highly compensated employees for such plan year does not exceed the greater of—
(i) 125 percent of such percentage for all other eligible employees for the preceding plan year, or
(ii) the lesser of 200 percent of such percentage for all other eligible employees for the preceding plan year, or such percentage for all other eligible employees for the preceding plan year plus 2 percentage points.
This subparagraph may be applied by using the plan year rather than the preceding plan year if the employer so elects, except that if such an election is made, it may not be changed except as provided by the Secretary.
(B) Multiple plans treated as a single plan
(3) Contribution percentageFor purposes of paragraph (2), the contribution percentage for a specified group of employees for a plan year shall be the average of the ratios (calculated separately for each employee in such group) of—
(A) the sum of the matching contributions and employee contributions paid under the plan on behalf of each such employee for such plan year, to
(B) the employee’s compensation (within the meaning of section 414(s)) for such plan year.
Under regulations, an employer may elect to take into account (in computing the contribution percentage) elective deferrals and qualified nonelective contributions under the plan or any other plan of the employer. If matching contributions are taken into account for purposes of subsection (k)(3)(A)(ii) for any plan year, such contributions shall not be taken into account under subparagraph (A) for such year. Rules similar to the rules of subsection (k)(3)(E) shall apply for purposes of this subsection.
(4) DefinitionsFor purposes of this subsection—
(A) Matching contributionThe term “matching contribution” means—
(i) any employer contribution made to a defined contribution plan on behalf of an employee on account of an employee contribution made by such employee,
(ii) any employer contribution made to a defined contribution plan on behalf of an employee on account of an employee’s elective deferral, and
(iii) subject to the requirements of paragraph (14), any employer contribution made to a defined contribution plan on behalf of an employee on account of a qualified student loan payment.
(B) Elective deferral
(C) Qualified nonelective contributionsThe term “qualified nonelective contribution” means any employer contribution (other than a matching contribution) with respect to which—
(i) the employee may not elect to have the contribution paid to the employee in cash instead of being contributed to the plan, and
(ii) the requirements of subparagraphs (B) and (C) of subsection (k)(2) are met.
(D) Qualified student loan paymentThe term “qualified student loan payment” means a payment made by an employee in repayment of a qualified education loan (as defined in section 221(d)(1)) incurred by the employee to pay qualified higher education expenses, but only—
(i) to the extent such payments in the aggregate for the year do not exceed an amount equal to—(I) the limitation applicable under section 402(g) for the year (or, if lesser, the employee’s compensation (as defined in section 415(c)(3)) for the year), reduced by(II) the elective deferrals made by the employee for such year, and
(ii) if the employee certifies annually to the employer making the matching contribution under this paragraph that such payment has been made on such loan.
For purposes of this subparagraph, the term “qualified higher education expenses” means the cost of attendance (as defined in section 472 of the Higher Education Act of 1965, as in effect on the day before the date of the enactment of the Taxpayer Relief Act of 1997) at an eligible educational institution (as defined in section 221(d)(2)).
(5) Employees taken into consideration
(A) In general
(B) Certain nonparticipants
(C) Special rule for early participation
(6) Plan not disqualified if excess aggregate contributions distributed before end of following plan year
(A) In general
(B) Excess aggregate contributionsFor purposes of subparagraph (A), the term “excess aggregate contributions” means, with respect to any plan year, the excess of—
(i) the aggregate amount of the matching contributions and employee contributions (and any qualified nonelective contribution or elective contribution taken into account in computing the contribution percentage) actually made on behalf of highly compensated employees for such plan year, over
(ii) the maximum amount of such contributions permitted under the limitations of paragraph (2)(A) (determined by reducing contributions made on behalf of highly compensated employees in order of their contribution percentages beginning with the highest of such percentages).
(C) Method of distributing excess aggregate contributions
(D) Coordination with subsection (k) and 402(g)The determination of the amount of excess aggregate contributions with respect to a plan shall be made after—
(i) first determining the excess deferrals (within the meaning of section 402(g)), and
(ii) then determining the excess contributions under subsection (k).
(7) Treatment of distributions
(A) Additional tax of section 72(t) not applicable
(B) Exclusion of employee contributions
(8) Highly compensated employee
(9) Regulations
(10) Alternative method of satisfying testsA defined contribution plan shall be treated as meeting the requirements of paragraph (2) with respect to matching contributions if the plan—
(A) meets the contribution requirements of subparagraph (B) of subsection (k)(11),
(B) meets the exclusive plan requirements of subsection (k)(11)(C), and
(C) meets the vesting requirements of section 408(p)(3).
(11) Additional alternative method of satisfying tests
(A) In generalA defined contribution plan shall be treated as meeting the requirements of paragraph (2) with respect to matching contributions if the plan—
(i) meets the contribution requirements of subparagraph (B) or (C) of subsection (k)(12),
(ii) meets the notice requirements of subsection (k)(12)(D), and
(iii) meets the requirements of subparagraph (B).
(B) Limitation on matching contributionsThe requirements of this subparagraph are met if—
(i) matching contributions on behalf of any employee may not be made with respect to an employee’s contributions or elective deferrals in excess of 6 percent of the employee’s compensation,
(ii) the rate of an employer’s matching contribution does not increase as the rate of an employee’s contributions or elective deferrals increase, and
(iii) the matching contribution with respect to any highly compensated employee at any rate of an employee contribution or rate of elective deferral is not greater than that with respect to an employee who is not a highly compensated employee.
(12) Alternative method for automatic contribution arrangementsA defined contribution plan shall be treated as meeting the requirements of paragraph (2) with respect to matching contributions if the plan—
(A) is a qualified automatic contribution arrangement (as defined in subsection (k)(13)),
(B) meets the notice requirements of subsection (k)(13)(E), and
(C) meets the requirements of paragraph (11)(B).
(13) Matching contributions for qualified student loan payments
(A) In generalFor purposes of paragraph (4)(A)(iii), an employer contribution made to a defined contribution plan on account of a qualified student loan payment shall be treated as a matching contribution for purposes of this title if—
(i) the plan provides matching contributions on account of elective deferrals at the same rate as contributions on account of qualified student loan payments,
(ii) the plan provides matching contributions on account of qualified student loan payments only on behalf of employees otherwise eligible to receive matching contributions on account of elective deferrals,
(iii) under the plan, all employees eligible to receive matching contributions on account of elective deferrals are eligible to receive matching contributions on account of qualified student loan payments, and
(iv) the plan provides that matching contributions on account of qualified student loan payments vest in the same manner as matching contributions on account of elective deferrals.
(B) Treatment for purposes of nondiscrimination rules, etc.
(i) Nondiscrimination rules
(ii) Student loan payments not treated as plan contribution.—
(iii) Matching contribution rules
(iv) Actual deferral percentage testing
(C) Employer may rely on employee certification
(14) Cross reference
(n) Coordination with qualified domestic relations orders
(o) Special rules for applying nondiscrimination rules to protect older, longer service and grandfathered participants
(1) Testing of defined benefit plans with closed classes of participants
(A) Benefits, rights, or features provided to closed classesA defined benefit plan which provides benefits, rights, or features to a closed class of participants shall not fail to satisfy the requirements of subsection (a)(4) by reason of the composition of such closed class or the benefits, rights, or features provided to such closed class, if—
(i) for the plan year as of which the class closes and the 2 succeeding plan years, such benefits, rights, and features satisfy the requirements of subsection (a)(4) (without regard to this subparagraph but taking into account the rules of subparagraph (I)),
(ii) after the date as of which the class was closed, any plan amendment which modifies the closed class or the benefits, rights, and features provided to such closed class does not discriminate significantly in favor of highly compensated employees, and
(iii) the class was closed before April 5, 2017, or the plan is described in subparagraph (C).
(B) Aggregate testing with defined contribution plans permitted on a benefits basis
(i) In generalFor purposes of determining compliance with subsection (a)(4) and section 410(span), a defined benefit plan described in clause (iii) may be aggregated and tested on a benefits basis with 1 or more defined contribution plans, including with the portion of 1 or more defined contribution plans which—(I) provides matching contributions (as defined in subsection (m)(4)(A)),(II) provides annuity contracts described in section 403(span) which are purchased with matching contributions or nonelective contributions, or(III) consists of an employee stock ownership plan (within the meaning of section 4975(e)(7)) or a tax credit employee stock ownership plan (within the meaning of section 409(a)).
(ii) Special rules for matching contributionsFor purposes of clause (i), if a defined benefit plan is aggregated with a portion of a defined contribution plan providing matching contributions—(I) such defined benefit plan must also be aggregated with any portion of such defined contribution plan which provides elective deferrals described in subparagraph (A) or (C) of section 402(g)(3), and(II) such matching contributions shall be treated in the same manner as nonelective contributions, including for purposes of applying the rules of subsection (l).
(iii) Plans describedA defined benefit plan is described in this clause if—(I) the plan provides benefits to a closed class of participants,(II) for the plan year as of which the class closes and the 2 succeeding plan years, the plan satisfies the requirements of section 410(span) and subsection (a)(4) (without regard to this subparagraph but taking into account the rules of subparagraph (I)),(III) after the date as of which the class was closed, any plan amendment which modifies the closed class or the benefits provided to such closed class does not discriminate significantly in favor of highly compensated employees, and(IV) the class was closed before April 5, 2017, or the plan is described in subparagraph (C).
(C) Plans describedA plan is described in this subparagraph if, taking into account any predecessor plan—
(i) such plan has been in effect for at least 5 years as of the date the class is closed, and
(ii) during the 5-year period preceding the date the class is closed, there has not been a substantial increase in the coverage or value of the benefits, rights, or features described in subparagraph (A) or in the coverage or benefits under the plan described in subparagraph (B)(iii) (whichever is applicable).
(D) Determination of substantial increase for benefits, rights, and featuresIn applying subparagraph (C)(ii) for purposes of subparagraph (A)(iii), a plan shall be treated as having had a substantial increase in coverage or value of the benefits, rights, or features described in subparagraph (A) during the applicable 5-year period only if, during such period—
(i) the number of participants covered by such benefits, rights, or features on the date such period ends is more than 50 percent greater than the number of such participants on the first day of the plan year in which such period began, or
(ii) such benefits, rights, and features have been modified by 1 or more plan amendments in such a way that, as of the date the class is closed, the value of such benefits, rights, and features to the closed class as a whole is substantially greater than the value as of the first day of such 5-year period, solely as a result of such amendments.
(E) Determination of substantial increase for aggregate testing on benefits basisIn applying subparagraph (C)(ii) for purposes of subparagraph (B)(iii)(IV), a plan shall be treated as having had a substantial increase in coverage or benefits during the applicable 5-year period only if, during such period—
(i) the number of participants benefitting under the plan on the date such period ends is more than 50 percent greater than the number of such participants on the first day of the plan year in which such period began, or
(ii) the average benefit provided to such participants on the date such period ends is more than 50 percent greater than the average benefit provided on the first day of the plan year in which such period began.
(F) Certain employees disregardedFor purposes of subparagraphs (D) and (E), any increase in coverage or value or in coverage or benefits, whichever is applicable, which is attributable to such coverage and value or coverage and benefits provided to employees—
(i) who became participants as a result of a merger, acquisition, or similar event which occurred during the 7-year period preceding the date the class is closed, or
(ii) who became participants by reason of a merger of the plan with another plan which had been in effect for at least 5 years as of the date of the merger,
shall be disregarded, except that clause (ii) shall apply for purposes of subparagraph (D) only if, under the merger, the benefits, rights, or features under 1 plan are conformed to the benefits, rights, or features of the other plan prospectively.
(G) Rules relating to average benefitFor purposes of subparagraph (E)—
(i) the average benefit provided to participants under the plan will be treated as having remained the same between the 2 dates described in subparagraph (E)(ii) if the benefit formula applicable to such participants has not changed between such dates, and
(ii) if the benefit formula applicable to 1 or more participants under the plan has changed between such 2 dates, then the average benefit under the plan shall be considered to have increased by more than 50 percent only if—(I) the total amount determined under section 430(span)(1)(A)(i) for all participants benefitting under the plan for the plan year in which the 5-year period described in subparagraph (E) ends, exceeds(II) the total amount determined under section 430(span)(1)(A)(i) for all such participants for such plan year, by using the benefit formula in effect for each such participant for the first plan year in such 5-year period,
 by more than 50 percent. In the case of a CSEC plan (as defined in section 414(y)), the normal cost of the plan (as determined under section 433(j)(1)(B)) shall be used in lieu of the amount determined under section 430(span)(1)(A)(i).
(H) Treatment as single plan
(I) Special rulesFor purposes of subparagraphs (A)(i) and (B)(iii)(II), the following rules shall apply:
(i) In applying section 410(span)(6)(C), the closing of the class of participants shall not be treated as a significant change in coverage under section 410(span)(6)(C)(i)(II).
(ii) 2 or more plans shall not fail to be eligible to be aggregated and treated as a single plan solely by reason of having different plan years.
(iii) Changes in the employee population shall be disregarded to the extent attributable to individuals who become employees or cease to be employees, after the date the class is closed, by reason of a merger, acquisition, divestiture, or similar event.
(iv) Aggregation and all other testing methodologies otherwise applicable under subsection (a)(4) and section 410(span) may be taken into account.
The rule of clause (ii) shall also apply for purposes of determining whether plans to which subparagraph (B)(i) applies may be aggregated and treated as 1 plan for purposes of determining whether such plans meet the requirements of subsection (a)(4) and section 410(span).
(J) Spun-off plansFor purposes of this paragraph, if a portion of a defined benefit plan described in subparagraph (A) or (B)(iii) is spun off to another employer and the spun-off plan continues to satisfy the requirements of—
(i) subparagraph (A)(i) or (B)(iii)(II), whichever is applicable, if the original plan was still within the 3-year period described in such subparagraph at the time of the spin off, and
(ii) subparagraph (A)(ii) or (B)(iii)(III), whichever is applicable,
the treatment under subparagraph (A) or (B) of the spun-off plan shall continue with respect to such other employer.
(2) Testing of defined contribution plans
(A) Testing on a benefits basisA defined contribution plan shall be permitted to be tested on a benefits basis if—
(i) such defined contribution plan provides make-whole contributions to a closed class of participants whose accruals under a defined benefit plan have been reduced or eliminated,
(ii) for the plan year of the defined contribution plan as of which the class eligible to receive such make-whole contributions closes and the 2 succeeding plan years, such closed class of participants satisfies the requirements of section 410(span)(2)(A)(i) (determined by applying the rules of paragraph (1)(I)),
(iii) after the date as of which the class was closed, any plan amendment to the defined contribution plan which modifies the closed class or the allocations, benefits, rights, and features provided to such closed class does not discriminate significantly in favor of highly compensated employees, and
(iv) the class was closed before April 5, 2017, or the defined benefit plan under clause (i) is described in paragraph (1)(C) (as applied for purposes of paragraph (1)(B)(iii)(IV)).
(B) Aggregation with plans including matching contributions
(i) In generalWith respect to 1 or more defined contribution plans described in subparagraph (A), for purposes of determining compliance with subsection (a)(4) and section 410(span), the portion of such plans which provides make-whole contributions or other nonelective contributions may be aggregated and tested on a benefits basis with the portion of 1 or more other defined contribution plans which—(I) provides matching contributions (as defined in subsection (m)(4)(A)),(II) provides annuity contracts described in section 403(span) which are purchased with matching contributions or nonelective contributions, or(III) consists of an employee stock ownership plan (within the meaning of section 4975(e)(7)) or a tax credit employee stock ownership plan (within the meaning of section 409(a)).
(ii) Special rules for matching contributions
(C) Special rules for testing defined contribution plan features providing matching contributions to certain older, longer service participants
(D) Spun-off plans
(3) Definitions and special ruleFor purposes of this subsection—
(A) Make-whole contributions
(B) References to closed class of participants
(C) Highly compensated employee
(p) Cross reference
(Aug. 16, 1954, ch. 736, 68A Stat. 134; Puspan. L. 87–792, § 2, Oct. 10, 1962, 76 Stat. 809; Puspan. L. 87–863, § 2(a), Oct. 23, 1962, 76 Stat. 1141; Puspan. L. 88–272, title II, § 219(a), Fespan. 26, 1964, 78 Stat. 57; Puspan. L. 89–97, title I, § 106(d)(4), July 30, 1965, 79 Stat. 337; Puspan. L. 89–809, title II, §§ 204(span)(1), (c), 205(a), Nov. 13, 1966, 80 Stat. 1577, 1578; Puspan. L. 91–691, § 1(a), Jan. 12, 1971, 84 Stat. 2074; Puspan. L. 93–406, title II, §§ 1012(span), 1016(a)(2), 1021, 1022(a)–(d), (f), 1023, 2001(c)–(e)(4), (h)(1), 2004(a)(1), Sept. 2, 1974, 88 Stat. 913, 929, 935, 938–940, 943, 952–955, 957, 979; Puspan. L. 94–267, § 1(c)(1), (2), Apr. 15, 1976, 90 Stat. 367; Puspan. L. 94–455, title VIII, § 803(span)(2), title XV, § 1505(span), title XIX, §§ 1901(a)(56), 1906(span)(13)(A), Oct. 4, 1976, 90 Stat. 1584, 1738, 1773, 1834; Puspan. L. 95–600, title I, §§ 135(a), 141(f)(3), 143(a), 152(e), Nov. 6, 1978, 92 Stat. 2785, 2795, 2796, 2799; Puspan. L. 96–222, title I, § 101(a)(7)(L)(i)(V), (9), (14)(E)(iii), Apr. 1, 1980, 94 Stat. 199, 201, 205; Puspan. L. 96–364, title II, § 208(a), (e), title IV, § 410(span), Sept. 26, 1980, 94 Stat. 1289, 1290, 1308; Puspan. L. 96–605, title II, §§ 221(a), 225(span)(1), (2), Dec. 28, 1980, 94 Stat. 3528, 3529; Puspan. L. 97–34, title III, §§ 312(span)(1), (c)(2)–(4), (e)(2), 314(a)(1), 335, 338(a), Aug. 13, 1981, 95 Stat. 283–286, 297, 298; Puspan. L. 97–248, title II, §§ 237(a), (span), (e)(1), 238(span), (d)(1), (2), 240(span), 242(a), 249(a), 254(a), Sept. 3, 1982, 96 Stat. 511–513, 520, 521, 527, 533; Puspan. L. 97–448, title I, § 103(c)(10)(A), (d)(2), (g)(2)(A), title III, § 306(a)(12), Jan. 12, 1983, 96 Stat. 2377–2379, 2405; Puspan. L. 98–21, title I, § 124(c)(4)(A), Apr. 20, 1983, 97 Stat. 91; Puspan. L. 98–369, div. A, title II, § 211(span)(5), title IV, §§ 474(r)(13), 491(e)(4), (5), title V, §§ 521(a), 524(d)(1), 527(a), (span), 528(span), title VII, § 713(c)(2)(A), (d)(3), July 18, 1984, 98 Stat. 754, 842, 853, 865, 872, 875–877, 957, 958; Puspan. L. 98–397, title II, §§ 203(a), 204(a), title III, § 301(span), Aug. 23, 1984, 98 Stat. 1440, 1445, 1451; Puspan. L. 99–514, title XI, §§ 1106(d)(1), 1111(a), (span), 1112(span), (d)(1), 1114(span)(7), 1116(a)–(e), 1117(a), 1119(a), 1121(span), 1136(a), 1143(a), 1145(a), 1171(span)(5), 1174(c)(2)(A), 1175(a)(1), 1176(a), title XVIII, §§ 1848(span), 1852(a)(4)(A), (6), (span)(8), (g), (h)(1), 1879(g)(1), (2), 1898(span)(2)(A), (3)(A), (7)(A), (13)(A), (14)(A), (c)(3), 1899A(10), Oct. 22, 1986, 100 Stat. 2423, 2435, 2439, 2444, 2445, 2451, 2454–2456, 2459, 2463, 2465, 2485, 2490, 2513, 2518, 2519, 2857, 2865–2869, 2906, 2907, 2945, 2948, 2950, 2953, 2958; Puspan. L. 100–203, title IX, § 9341(a), Dec. 22, 1987, 101 Stat. 1330–369; Puspan. L. 100–647, title I, §§ 1011(c)(7)(A), (d)(4), (e)(3), (g)(1)–(3), (h)(3), (k)(1)(A), (B), s2)–(7), (9), (l)(1)–(5)(A), (6), (7), 1011A(j), (l), 1011B(j)(1), (2), (6), (k)(1), (2), title VI, §§ 6053(a), 6055(a), 6071(a), (span), Nov. 10, 1988, 102 Stat. 3458–3460, 3463, 3464, 3468–3470, 3483, 3492, 3493, 3696, 3697, 3705; Puspan. L. 101–140, title II, § 203(a)(5), Nov. 8, 1989, 103 Stat. 830; Puspan. L. 101–239, title VII, §§ 7311(a), 7811(g)(1), (h)(3), 7816(l), 7881(i)(1)(A), (4)(A), Dec. 19, 1989, 103 Stat. 2354, 2409, 2421, 2442; Puspan. L. 101–508, title XII, § 12011(span), Nov. 5, 1990, 104 Stat. 1388–571; Puspan. L. 102–318, title V, §§ 521(span)(5)–(8), 522(a)(1), July 3, 1992, 106 Stat. 310, 313; Puspan. L. 103–66, title XIII, § 13212(a), Aug. 10, 1993, 107 Stat. 471; Puspan. L. 103–465, title VII, §§ 732(a), 751(a)(9)(C), 766(span), 776(d), Dec. 8, 1994, 108 Stat. 5004, 5021, 5037, 5048; Puspan. L. 104–188, title I, §§ 1401(span)(5), (6), 1404(a), 1422(a), (span), 1426(a), 1431(span)(2), (c)(1)(B), 1432(a), (span), 1433(a)–(e), 1441(a), 1443(a), (span), 1445(a), 1459(a), (span), 1704(a), (t)(67), Aug. 20, 1996, 110 Stat. 1789, 1791, 1800, 1801, 1803–1809, 1811, 1820, 1878, 1890; Puspan. L. 105–34, title XV, §§ 1502(span), 1505(a)(1), (2), (span), 1525(a), 1530(c)(1), title XVI, § 1601(d)(2)(A), (B), (D), (3), Aug. 5, 1997, 111 Stat. 1059, 1063, 1072, 1078, 1088, 1089; Puspan. L. 106–554, § 1(a)(7) [title III, § 316(c)], Dec. 21, 2000, 114 Stat. 2763, 2763A–644; Puspan. L. 107–16, title VI, §§ 611(c), (f)(3), (g)(1), 641(e)(3), 643(span), 646(a)(1), 657(a), 666(a), June 7, 2001, 115 Stat. 97, 99, 120, 122, 126, 135, 143; Puspan. L. 107–147, title IV, § 411(o)(2), (q)(1), Mar. 9, 2002, 116 Stat. 48, 51; Puspan. L. 108–311, title IV, § 407(span), Oct. 4, 2004, 118 Stat. 1190; Puspan. L. 109–280, title I, § 114(a), title VIII, §§ 827(span)(1), 861(a), (span), title IX, §§ 901(a)(1), (2)(A), 902(a), (span), (d)(2)(C), (D), (e)(3)(B), 905(span), Aug. 17, 2006, 120 Stat. 853, 1000, 1020, 1021, 1026, 1029, 1033, 1035, 1038, 1050; Puspan. L. 110–245, title I, § 104(a),

CITE AS: 26 USC 401

§ 402. Taxability of beneficiary of employees’ trust
(a) Taxability of beneficiary of exempt trust
(b) Taxability of beneficiary of nonexempt trust
(1) Contributions
(2) Distributions
(3) Grantor trusts
(4) Failure to meet requirements of section 410(b)
(A) Highly compensated employees
(B) Failure to meet coverage testsIf a trust is not exempt from tax under section 501(a) for any taxable year solely because such trust is part of a plan which fails to meet the requirements of section 401(a)(26) or 410(b), paragraphs (1) and (2) shall not apply by reason of such failure to any employee who was not a highly compensated employee during—
(i) such taxable year, or
(ii) any preceding period for which service was creditable to such employee under the plan.
(C) Highly compensated employee
(c) Rules applicable to rollovers from exempt trusts
(1) Exclusion from incomeIf—
(A) any portion of the balance to the credit of an employee in a qualified trust is paid to the employee in an eligible rollover distribution,
(B) the distributee transfers any portion of the property received in such distribution to an eligible retirement plan, and
(C) in the case of a distribution of property other than money, the amount so transferred consists of the property distributed,
then such distribution (to the extent so transferred) shall not be includible in gross income for the taxable year in which paid.
(2) Maximum amount which may be rolled overIn the case of any eligible rollover distribution, the maximum amount transferred to which paragraph (1) applies shall not exceed the portion of such distribution which is includible in gross income (determined without regard to paragraph (1)). The preceding sentence shall not apply to such distribution to the extent—
(A) such portion is transferred in a direct trustee-to-trustee transfer to a qualified trust or to an annuity contract described in section 403(b) and such trust or contract provides for separate accounting for amounts so transferred (and earnings thereon), including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible, or
(B) such portion is transferred to an eligible retirement plan described in clause (i) or (ii) of paragraph (8)(B).
In the case of a transfer described in subparagraph (A) or (B), the amount transferred shall be treated as consisting first of the portion of such distribution that is includible in gross income (determined without regard to paragraph (1)).
(3) Time limit on transfers
(A) In general
(B) Hardship exception
(C) Rollover of certain plan loan offset amounts
(i) In general
(ii) Qualified plan loan offset amountFor purposes of this subparagraph, the term “qualified plan loan offset amount” means a plan loan offset amount which is treated as distributed from a qualified employer plan to a participant or beneficiary solely by reason of—(I) the termination of the qualified employer plan, or(II) the failure to meet the repayment terms of the loan from such plan because of the severance from employment of the participant.
(iii) Plan loan offset amount
(iv) Limitation
(v) Qualified employer plan
(4) Eligible rollover distributionFor purposes of this subsection, the term “eligible rollover distribution” means any distribution to an employee of all or any portion of the balance to the credit of the employee in a qualified trust; except that such term shall not include—
(A) any distribution which is one of a series of substantially equal periodic payments (not less frequently than annually) made—
(i) for the life (or life expectancy) of the employee or the joint lives (or joint life expectancies) of the employee and the employee’s designated beneficiary, or
(ii) for a specified period of 10 years or more,
(B) any distribution to the extent such distribution is required under section 401(a)(9), and
(C) any distribution which is made upon hardship of the employee.
If all or any portion of a distribution during 2020 is treated as an eligible rollover distribution but would not be so treated if the minimum distribution requirements under section 401(a)(9) had applied during 2020, such distribution shall not be treated as an eligible rollover distribution for purposes of section 401(a)(31) or 3405(c) or subsection (f) of this section.
(5) Transfer treated as rollover contribution under section 408
(6) Sales of distributed propertyFor purposes of this subsection—
(A) Transfer of proceeds from sale of distributed property treated as transfer of distributed property
(B) Proceeds attributable to increase in value
(C) Designation where amount of distribution exceeds rollover contributionIn any case where part or all of the distribution consists of property other than money—
(i) the portion of the money or other property which is to be treated as attributable to amounts not included in gross income, and
(ii) the portion of the money or other property which is to be treated as included in the rollover contribution,
shall be determined on a ratable basis unless the taxpayer designates otherwise. Any designation under this subparagraph for a taxable year shall be made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof). Any such designation, once made, shall be irrevocable.
(D) Nonrecognition of gain or loss
(7) Special rule for frozen deposits
(A) In generalThe 60-day period described in paragraph (3) shall not—
(i) include any period during which the amount transferred to the employee is a frozen deposit, or
(ii) end earlier than 10 days after such amount ceases to be a frozen deposit.
(B) Frozen depositsFor purposes of this subparagraph, the term “frozen deposit” means any deposit which may not be withdrawn because of—
(i) the bankruptcy or insolvency of any financial institution, or
(ii) any requirement imposed by the State in which such institution is located by reason of the bankruptcy or insolvency (or threat thereof) of 1 or more financial institutions in such State.
A deposit shall not be treated as a frozen deposit unless on at least 1 day during the 60-day period described in paragraph (3) (without regard to this paragraph) such deposit is described in the preceding sentence.
(8) DefinitionsFor purposes of this subsection—
(A) Qualified trust
(B) Eligible retirement planThe term “eligible retirement plan” means—
(i) an individual retirement account described in section 408(a),
(ii) an individual retirement annuity described in section 408(b) (other than an endowment contract),
(iii) a qualified trust,
(iv) an annuity plan described in section 403(a),
(v) an eligible deferred compensation plan described in section 457(b) which is maintained by an eligible employer described in section 457(e)(1)(A), and
(vi) an annuity contract described in section 403(b).
If any portion of an eligible rollover distribution is attributable to payments or distributions from a designated Roth account (as defined in section 402A), an eligible retirement plan with respect to such portion shall include only another designated Roth account and a Roth IRA.
(9) Rollover where spouse receives distribution after death of employee
(10) Separate accounting
(11) Distributions to inherited individual retirement plan of nonspouse beneficiary
(A) In generalIf, with respect to any portion of a distribution from an eligible retirement plan described in paragraph (8)(B)(iii) of a deceased employee, a direct trustee-to-trustee transfer is made to an individual retirement plan described in clause (i) or (ii) of paragraph (8)(B) established for the purposes of receiving the distribution on behalf of an individual who is a designated beneficiary (as defined by section 401(a)(9)(E)) of the employee and who is not the surviving spouse of the employee—
(i) the transfer shall be treated as an eligible rollover distribution,
(ii) the individual retirement plan shall be treated as an inherited individual retirement account or individual retirement annuity (within the meaning of section 408(d)(3)(C)) for purposes of this title, and
(iii) section 401(a)(9)(B) (other than clause (iv) thereof) shall apply to such plan.
(B) Certain trusts treated as beneficiaries
(12) In the case of an inadvertent benefit overpayment from a plan to which section 414(aa)(1) applies that is transferred to an eligible retirement plan by or on behalf of a participant or beneficiary—
(A) the portion of such overpayment with respect to which recoupment is not sought on behalf of the plan shall be treated as having been paid in an eligible rollover distribution if the payment would have been an eligible rollover distribution but for being an overpayment, and
(B) the portion of such overpayment with respect to which recoupment is sought on behalf of the plan shall be permitted to be returned to such plan and in such case shall be treated as an eligible rollover distribution transferred to such plan by the participant or beneficiary who received such overpayment (and the plans making and receiving such transfer shall be treated as permitting such transfer).
(13) Recontributions of withdrawals for home purchases
(A) General rule
(i) In general
(ii) Treatment of repayments
(B) Qualified distributionFor purposes of this paragraph, the term “qualified distribution” means any distribution—
(i) described in section 401(k)(2)(B)(i)(IV), 403(b)(7)(A)(i)(V), or 403(b)(11)(B),
(ii) which was to be used to purchase or construct a principal residence in a qualified disaster area, but which was not so used on account of the qualified disaster with respect to such area, and
(iii) which was received during the period beginning on the date which is 180 days before the first day of the incident period of such qualified disaster and ending on the date which is 30 days after the last day of such incident period.
(C) DefinitionsFor purposes of this paragraph—
(i) the terms “qualified disaster”, “qualified disaster area”, and “incident period” have the meaning given such terms under section 72(t)(11), and
(ii) the term “applicable period” has the meaning given such term under section 72(t)(8)(F).
(d) Taxability of beneficiary of certain foreign situs trusts
(e) Other rules applicable to exempt trusts
(1) Alternate payees
(A) Alternate payee treated as distributee
(B) Rollovers
(2) Distributions by United States to nonresident aliensThe amount includible under subsection (a) in the gross income of a nonresident alien with respect to a distribution made by the United States in respect of services performed by an employee of the United States shall not exceed an amount which bears the same ratio to the amount includible in gross income without regard to this paragraph as—
(A) the aggregate basic pay paid by the United States to such employee for such services, reduced by the amount of such basic pay which was not includible in gross income by reason of being from sources without the United States, bears to
(B) the aggregate basic pay paid by the United States to such employee for such services.
In the case of distributions under the civil service retirement laws, the term “basic pay” shall have the meaning provided in section 8331(3) of title 5, United States Code.
(3) Cash or deferred arrangements
(4) Net unrealized appreciation
(A) Amounts attributable to employee contributions
(B) Amounts attributable to employer contributions
(C) Determination of amounts and adjustments
(D) Lump-sum distributionFor purposes of this paragraph—
(i) In generalThe term “lump-sum distribution” means the distribution or payment within one taxable year of the recipient of the balance to the credit of an employee which becomes payable to the recipient—(I) on account of the employee’s death,(II) after the employee attains age 59½,(III) on account of the employee’s separation from service, or(IV) after the employee has become disabled (within the meaning of section 72(m)(7)),
 from a trust which forms a part of a plan described in section 401(a) and which is exempt from tax under section 501 or from a plan described in section 403(a). Subclause (III) of this clause shall be applied only with respect to an individual who is an employee without regard to section 401(c)(1), and subclause (IV) shall be applied only with respect to an employee within the meaning of section 401(c)(1). For purposes of this clause, a distribution to two or more trusts shall be treated as a distribution to one recipient. For purposes of this paragraph, the balance to the credit of the employee does not include the accumulated deductible employee contributions under the plan (within the meaning of section 72(o)(5)).
(ii) Aggregation of certain trusts and plansFor purposes of determining the balance to the credit of an employee under clause (i)—(I) all trusts which are part of a plan shall be treated as a single trust, all pension plans maintained by the employer shall be treated as a single plan, all profit-sharing plans maintained by the employer shall be treated as a single plan, and all stock bonus plans maintained by the employer shall be treated as a single plan, and(II) trusts which are not qualified trusts under section 401(a) and annuity contracts which do not satisfy the requirements of section 404(a)(2) shall not be taken into account.
(iii) Community property laws
(iv) Amounts subject to penalty
(v) Balance to credit of employee not to include amounts payable under qualified domestic relations order
(vi) Transfers to cost-of-living arrangement not treated as distribution
(vii) Lump-sum distributions of alternate payees
(E) Definitions relating to securitiesFor purposes of this paragraph—
(i) Securities
(ii) Securities of the employer
[(5) Repealed. Pub. L. 104–188, title I, § 1401(b)(13), Aug. 20, 1996, 110 Stat. 1789]
(6) Direct trustee-to-trustee transfers
(f) Written explanation to recipients of distributions eligible for rollover treatment
(1) In generalThe plan administrator of any plan shall, within a reasonable period of time before making an eligible rollover distribution, provide a written explanation to the recipient—
(A) of the provisions under which the recipient may have the distribution directly transferred to an eligible retirement plan and that the automatic distribution by direct transfer applies to certain distributions in accordance with section 401(a)(31)(B),
(B) of the provision which requires the withholding of tax on the distribution if it is not directly transferred to an eligible retirement plan,
(C) of the provisions under which the distribution will not be subject to tax if transferred to an eligible retirement plan within 60 days after the date on which the recipient received the distribution,
(D) if applicable, of the provisions of subsections (d) and (e) of this section, and
(E) of the provisions under which distributions from the eligible retirement plan receiving the distribution may be subject to restrictions and tax consequences which are different from those applicable to distributions from the plan making such distribution.
(2) DefinitionsFor purposes of this subsection—
(A) Eligible rollover distribution
(B) Eligible retirement plan
(g) Limitation on exclusion for elective deferrals
(1) In general
(A) Limitation
(B) Applicable dollar amount
(2) Distribution of excess deferrals
(A) In generalIf any amount (hereinafter in this paragraph referred to as “excess deferrals”) is included in the gross income of an individual under paragraph (1) (or would be included but for the last sentence thereof) for any taxable year—
(i) not later than the 1st March 1 following the close of the taxable year, the individual may allocate the amount of such excess deferrals among the plans under which the deferrals were made and may notify each such plan of the portion allocated to it, and
(ii) not later than the 1st April 15 following the close of the taxable year, each such plan may distribute to the individual the amount allocated to it under clause (i) (and any income allocable to such amount through the end of such taxable year).
The distribution described in clause (ii) may be made notwithstanding any other provision of law.
(B) Treatment of distribution under section 401(k)
(C) Taxation of distributionIn the case of a distribution to which subparagraph (A) applies—
(i) except as provided in clause (ii), such distribution shall not be included in gross income, and
(ii) any income on the excess deferral shall, for purposes of this chapter, be treated as earned and received in the taxable year in which such income is distributed.
No tax shall be imposed under section 72(t) on any distribution described in the preceding sentence.
(D) Partial distributions
(3) Elective deferralsFor purposes of this subsection, the term “elective deferrals” means, with respect to any taxable year, the sum of—
(A) any employer contribution under a qualified cash or deferred arrangement (as defined in section 401(k)) to the extent not includible in gross income for the taxable year under subsection (e)(3) (determined without regard to this subsection),
(B) any employer contribution to the extent not includible in gross income for the taxable year under subsection (h)(1)(B) (determined without regard to this subsection),
(C) any employer contribution to purchase an annuity contract under section 403(b) under a salary reduction agreement (within the meaning of section 3121(a)(5)(D)), and
(D) any elective employer contribution under section 408(p)(2)(A)(i).
An employer contribution shall not be treated as an elective deferral described in subparagraph (C) if under the salary reduction agreement such contribution is made pursuant to a one-time irrevocable election made by the employee at the time of initial eligibility to participate in the agreement or is made pursuant to a similar arrangement involving a one-time irrevocable election specified in regulations.
(4) Cost-of-living adjustment
(5) Disregard of community property laws
(6) Coordination with section 72
(7) Special rule for certain organizations
(A) In generalIn the case of a qualified employee of a qualified organization, with respect to employer contributions described in paragraph (3)(C) made by such organization, the limitation of paragraph (1) for any taxable year shall be increased by whichever of the following is the least:
(i) $3,000,
(ii) $15,000 reduced by the sum of—(I) the amounts not included in gross income for prior taxable years by reason of this paragraph, plus(II) the aggregate amount of designated Roth contributions (as defined in section 402A(c)) permitted for prior taxable years by reason of this paragraph, or
(iii) the excess of $5,000 multiplied by the number of years of service of the employee with the qualified organization over the employer contributions described in paragraph (3) made by the organization on behalf of such employee for prior taxable years (determined in the manner prescribed by the Secretary).
(B) Qualified organization
(C) Qualified employee
(D) Years of service
(8) Matching contributions on behalf of self-employed individuals not treated as elective employer contributions
(h) Special rules for simplified employee pensionsFor purposes of this chapter—
(1) In generalExcept as provided in paragraph (2), contributions made by an employer on behalf of an employee to an individual retirement plan pursuant to a simplified employee pension (as defined in section 408(k))—
(A) shall not be treated as distributed or made available to the employee or as contributions made by the employee,
(B) if such contributions are made pursuant to an arrangement under section 408(k)(6) under which an employee may elect to have the employer make contributions to the simplified employee pension on behalf of the employee, shall not be treated as distributed or made available or as contributions made by the employee merely because the simplified employee pension includes provisions for such election, and
(C) in the case of any contributions pursuant to a simplified employer pension which are made to an individual retirement plan designated as a Roth IRA, such contribution shall not be excludable from gross income.
(2) Limitations on employer contributionsContributions made by an employer to a simplified employee pension with respect to an employee for any year shall be treated as distributed or made available to such employee and as contributions made by the employee to the extent such contributions exceed the lesser of—
(A) 25 percent of the compensation (within the meaning of section 414(s)) from such employer includible in the employee’s gross income for the year (determined without regard to the employer contributions to the simplified employee pension), or
(B) the limitation in effect under section 415(c)(1)(A), reduced in the case of any highly compensated employee (within the meaning of section 414(q)) by the amount taken into account with respect to such employee under section 408(k)(3)(D).
(3) Distributions
(i) Treatment of self-employed individuals
(j) Effect of disposition of stock by plan on net unrealized appreciation
(1) In general
(2) Transaction to which subsection appliesThis subsection shall apply to any transaction in which—
(A) the plan trustee exchanges the plan’s securities of the employer corporation for other such securities, or
(B) the plan trustee disposes of securities of the employer corporation and uses the proceeds of such disposition to acquire securities of the employer corporation within 90 days (or such longer period as the Secretary may prescribe), except that this subparagraph shall not apply to any employee with respect to whom a distribution of money was made during the period after such disposition and before such acquisition.
(k) Treatment of simple retirement accounts
(l) Distributions from governmental plans for health and long-term care insurance
(1) In general
(2) Limitation
(3) Distributions must otherwise be includible
(A) In general
(B) Application of section 72
(4) DefinitionsFor purposes of this subsection—
(A) Eligible retirement plan
(B) Eligible retired public safety officer
(C) Public safety officer
(D) Qualified health insurance premiums
(5) Special rulesFor purposes of this subsection—
(A) Direct payment to insurer permitted
(i) In general
(ii) Reporting
(B) Related plans treated as 1
(6) Election described
(A) In general
(B) Special rule
(7) Coordination with medical expense deduction
(8) Coordination with deduction for health insurance costs of self-employed individuals
(Aug. 16, 1954, ch. 736, 68A Stat. 135; Pub. L. 86–437, §§ 1, 2(a), Apr. 22, 1960, 74 Stat. 79; Pub. L. 87–792, § 4(c), Oct. 10, 1962, 76 Stat. 825; Pub. L. 88–272, title II, §§ 221(c)(1), 232(e)(1)–(3), Feb. 26, 1964, 78 Stat. 75, 111; Pub. L. 91–172, title III, § 321(b)(1), title V, § 515(a)(1), Dec. 30, 1969, 83 Stat. 590, 643; Pub. L. 93–406, title II, §§ 2002(g)(5), 2005(a), (b)(1), (c)(1), (2), Sept. 2, 1974, 88 Stat. 968, 987, 990, 991: Pub. L. 94–267, § 1(a), Apr. 15, 1976, 90 Stat. 365; Pub. L. 94–455, title XIV, § 1402(b)(1)(C), (2), title XV, § 1512(a), title XIX, §§ 1901(a)(57)(A)–(C)(i), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1731, 1732, 1742, 1773, 1774, 1834; Pub. L. 95–30, title I, § 102(b)(4), May 23, 1977, 91 Stat. 137; Pub. L. 95–458, § 4(a), (c), Oct. 14, 1978, 92 Stat. 1257, 1259; Pub. L. 95–600, title I, §§ 101(d)(1), 135(b), 157(f)(1), (g)(1), (h)(1), Nov. 6, 1978, 92 Stat. 2770, 2787, 2806–2808; Pub. L. 96–222, title I, § 101(a)(14)(C), (E)(i), Apr. 1, 1980, 94 Stat. 204, 205; Pub. L. 96–608, § 2(a), Dec. 28, 1980, 94 Stat. 3551; Pub. L. 97–34, title III, §§ 311(b)(2), (3)(A), (c), 314(c)(1), Aug. 13, 1981, 95 Stat. 280, 286; Pub. L. 97–448, title I, §§ 101(b), 103(c)(7), (8)(A), (12)(D), Jan. 12, 1983, 96 Stat. 2366, 2376, 2377; Pub. L. 98–369, div. A, title IV, § 491(c)(2), (d)(9)–(11), title V, § 522(a)(1), (b)–(d)(8), title VII, § 713(c)(3), title X, § 1001(b)(3), (e), July 18, 1984, 98 Stat. 848, 849, 868–870, 957, 1011, 1012; Pub. L. 98–397, title II, §§ 204(c)(1), (3), (4), 207(a), Aug. 23, 1984, 98 Stat. 1448, 1449; Pub. L. 99–272, title XI, § 11012(c), Apr. 7, 1986, 100 Stat. 260; Pub. L. 99–514, title I, § 104(b)(5), title XI, §§ 1105(a), 1106(c)(2), 1108(b), 1112(c), 1121(c)(1), 1122(a), (b)(1)(A), (2), (e)(1), (2)(A), (g), title XVIII, §§ 1852(a)(5)(A), (b)(1)–(7), (c)(5), 1854(f)(2), 1875(c)(1)(A), 1898(a)(2), (3), (c)(1)(A), (7)(A)(i), (e), Oct. 22, 1986, 100 Stat. 2105, 2417, 2423, 2432, 2444, 2465, 2466, 2469, 2470, 2865–2867, 2881, 2894, 2942, 2943, 2951, 2954, 2955; Pub. L. 100–647, title I, §§ 1011(c)(1)–(6)(B), (11), (h)(4), 1011A(a)(1), (b)(4)(A)–(D), (5)–(8), (10), (c)(9), 1018(t)(8)(A), (C), (u)(1), (6), (7), title VI, § 6068(a), Nov. 10, 1988, 102 Stat. 3457–3459, 3464, 3472–3474, 3476, 3589, 3590, 3703; Pub. L. 101–239, title VII, § 7811(g)(2), (i)(13), Dec. 19, 1989, 103 Stat. 2409, 2411; Pub. L. 101–508, title XI, § 11801(c)(9)(I), Nov. 5, 1990, 104 Stat. 1388–526; Pub. L. 102–318, title V, §§ 521(a), (b)(9)–(11), 522(c)(1), July 3, 1992, 106 Stat. 300, 310, 311, 315; Pub. L. 103–465, title VII, § 732(c), Dec. 8, 1994, 108 Stat. 5005; Pub. L. 104–188, title I, §§ 1401(a)–(b)(2), (13), 1421(b)(3)(A), (9)(B), 1450(a)(2), 1704(t)(68), Aug. 20, 1996, 110 Stat. 1787–1789, 1796, 1798, 1814, 1891; Pub. L. 105–34, title XV, § 1501(a), Aug. 5, 1997, 111 Stat. 1058; Pub. L. 105–206, title VI, § 6005(c)(2)(A), July 22, 1998, 112 Stat. 800; Pub. L. 107–16, title VI, §§ 611(d)(1)–(3)(A), 617(b), (c), 632(a)(3)(G), 636(b)(1), 641(a)(2)(A), (B), (b)(2)–(d), (e)(4)–(6), 643(a), 644(a), 657(b), June 7, 2001, 115 Stat. 97, 98, 105, 114, 117, 119–123, 136; Pub. L. 107–147, title IV, § 411(l)(3), (o)(1), (p)(6), (q)(2), Mar. 9, 2002, 116 Stat. 47, 48, 51; Pub. L. 109–135, title IV, § 407(a), Dec. 21, 2005, 119 Stat. 2635; Pub. L. 109–280, title VIII, §§ 822(a), 829(a)(1), 845(a), Aug. 17, 2006, 120 Stat. 998, 1001, 1013; Pub. L. 110–172, § 8(a)(1), Dec. 29, 2007, 121 Stat. 2483; Pub. L. 110–458, title I, §§ 108(f)(1)–(2)(B), (j), 109(b)(3), title II, § 201(b), Dec. 23, 2008, 122 Stat. 5109–5111, 5117; Pub. L. 112–239, div. A, title X, § 1086(b)(3)(A), Jan. 2, 2013, 126 Stat. 1968; Pub. L. 113–295, div. A, title II, § 221(a)(57)(A), Dec. 19, 2014, 128 Stat. 4046; Pub. L. 115–97, title I, § 13613(a), (b), Dec. 22, 2017, 131 Stat. 2166; Pub. L. 115–141, div. U, title IV, § 401(a)(73), Mar. 23, 2018, 132 Stat. 1187; Pub. L. 116–136, div. A, title II, § 2203(b), Mar. 27, 2020, 134 Stat. 344; Pub. L. 117–328, div. T, title III, §§ 301(b)(2), 328(a), 331(b)(2), title VI, §§ 601(b)(1), (2), 603(b)(1), Dec. 29, 2022, 136 Stat. 5338, 5360, 5364, 5390, 5392.)

CITE AS: 26 USC 402

§ 402A. Optional treatment of elective deferrals as Roth contributions
(a) General ruleIf an applicable retirement plan includes a qualified Roth contribution program—
(1) any designated Roth contribution made by an employee pursuant to the program shall be treated as an elective deferral for purposes of this chapter, except that such contribution shall not be excludable from gross income,
(2) any designated Roth contribution which pursuant to the program is made by the employer on the employee’s behalf on account of the employee’s contribution, elective deferral, or (subject to the requirements of section 401(m)(13)) qualified student loan payment shall be treated as a matching contribution for purposes of this chapter, except that such contribution shall not be excludable from gross income,
(3) any designated Roth contribution which pursuant to the program is made by the employer on the employee’s behalf and which is a nonelective contribution shall be nonforfeitable and shall not be excludable from gross income, and
(4) such plan (and any arrangement which is part of such plan) shall not be treated as failing to meet any requirement of this chapter solely by reason of including such program.
(b) Qualified Roth contribution programFor purposes of this section—
(1) In general
(2) Separate accounting requiredA program shall not be treated as a qualified Roth contribution program unless the applicable retirement plan—
(A) establishes separate accounts (“designated Roth accounts”) for the designated Roth contributions of each employee and any earnings properly allocable to the contributions, and
(B) maintains separate recordkeeping with respect to each account.
(c) Definitions and rules relating to designated Roth contributionsFor purposes of this section—
(1) Designated Roth contributionThe term “designated Roth contribution” means any elective deferral, matching contribution, or nonelective contribution which—
(A) is excludable from gross income of an employee without regard to this section, and
(B) the employee designates (at such time and in such manner as the Secretary may prescribe) as not being so excludable.
(2) Designation limitsThe amount of elective deferrals which an employee may designate under paragraph (1) shall not exceed the excess (if any) of—
(A) the maximum amount of elective deferrals excludable from gross income of the employee for the taxable year (without regard to this section), over
(B) the aggregate amount of elective deferrals of the employee for the taxable year which the employee does not designate under paragraph (1).
(3) Rollover contributions
(A) In generalA rollover contribution of any payment or distribution from a designated Roth account which is otherwise allowable under this chapter may be made only if the contribution is to—
(i) another designated Roth account of the individual from whose account the payment or distribution was made, or
(ii) a Roth IRA of such individual.
(B) Coordination with limit
(4) Taxable rollovers to designated Roth accounts
(A) In generalNotwithstanding sections 402(c), 403(b)(8), and 457(e)(16), in the case of any distribution to which this paragraph applies—
(i) there shall be included in gross income any amount which would be includible were it not part of a qualified rollover contribution,
(ii) section 72(t) shall not apply, and
(iii) unless the taxpayer elects not to have this clause apply, any amount required to be included in gross income for any taxable year beginning in 2010 by reason of this paragraph shall be so included ratably over the 2-taxable-year period beginning with the first taxable year beginning in 2011.
Any election under clause (iii) for any distributions during a taxable year may not be changed after the due date for such taxable year.
(B) Distributions to which paragraph applies
(C) Coordination with limit
(D) Other rules
(E) Special rule for certain transfersIn the case of an applicable retirement plan which includes a qualified Roth contribution program—
(i) the plan may allow an individual to elect to have the plan transfer any amount not otherwise distributable under the plan to a designated Roth account maintained for the benefit of the individual,
(ii) such transfer shall be treated as a distribution to which this paragraph applies which was contributed in a qualified rollover contribution (within the meaning of section 408A(e)) to such account, and
(iii) the plan shall not be treated as violating the provisions of section 401(k)(2)(B)(i), 403(b)(7)(A)(ii),1
1 See References in Text note below.
403(b)(11), or 457(d)(1)(A), or of section 8433 of title 5, United States Code, solely by reason of such transfer.
(d) Distribution rulesFor purposes of this title—
(1) Exclusion
(2) Qualified distributionFor purposes of this subsection—
(A) In general
(B) Distributions within nonexclusion periodA payment or distribution from a designated Roth account shall not be treated as a qualified distribution if such payment or distribution is made within the 5-taxable-year period beginning with the earlier of—
(i) the first taxable year for which the individual made a designated Roth contribution to any designated Roth account established for such individual under the same applicable retirement plan, or
(ii) if a rollover contribution was made to such designated Roth account from a designated Roth account previously established for such individual under another applicable retirement plan, the first taxable year for which the individual made a designated Roth contribution to such previously established account.
(C) Distributions of excess deferrals and contributions and earnings thereon
(3) Treatment of distributions of certain excess deferralsNotwithstanding section 72, if any excess deferral under section 402(g)(2) attributable to a designated Roth contribution is not distributed on or before the 1st April 15 following the close of the taxable year in which such excess deferral is made, the amount of such excess deferral shall—
(A) not be treated as investment in the contract, and
(B) be included in gross income for the taxable year in which such excess is distributed.
(4) Aggregation rules
(5) Mandatory distribution rules not to apply before deathNotwithstanding sections 403(b)(10) and 457(d)(2), the following provisions shall not apply to any designated Roth account:
(A) Section 401(a)(9)(A).
(B) The incidental death benefit requirements of section 401(a).
(e) Pension-linked emergency savings accounts
(1) In generalAn applicable retirement plan—
(A) may—
(i) include a pension-linked emergency savings account established pursuant to section 801 of the Employee Retirement Income Security Act of 1974, which, except as otherwise provided in this subsection, shall be treated for purposes of this title as a designated Roth account, and
(ii) either—(I) offer to enroll an eligible participant in such pension-linked emergency savings account, or(II) automatically enroll an eligible participant in such account pursuant to an automatic contribution arrangement described in paragraph (4), and
(B) shall—
(i) separately account for contributions to such account and any earnings properly allocable to the contributions,
(ii) maintain separate recordkeeping with respect to each such account, and
(iii) allow withdrawals from such account in accordance with paragraph (7).
(2) Eligible participant
(A) In generalFor purposes of this subsection, the term “eligible participant”, with regard to a defined contribution plan, means an individual, without regard to whether the individual is otherwise a participant in such plan, who—
(i) meets any age, service, and other eligibility requirements of the plan, and
(ii) is not a highly compensated employee (as defined in section 414(q)).
(B) Eligible participant who becomes a highly compensated employee
(3) Contribution limitation
(A) In generalSubject to subparagraph (B), no contribution shall be accepted to a pension-linked emergency savings account to the extent such contribution would cause the portion of the account balance attributable to participant contributions to exceed the lesser of—
(i) $2,500; or
(ii) an amount determined by the plan sponsor of the pension-linked emergency savings account.
In the case of contributions made in taxable years beginning after December 31, 2024, the Secretary shall adjust the amount under clause (i) at the same time and in the same manner as the adjustment made under section 415(d), except that the base period shall be the calendar quarter beginning July 1, 2023. Any increase under the preceding sentence which is not a multiple of $100 shall be rounded to the next lowest multiple of $100.
(B) Excess contributionsTo the extent any contribution to the pension-linked emergency savings account of a participant for a taxable year would exceed the limitation of subparagraph (A)—
(i) in the case of an eligible participant with another designated Roth account under the defined contribution plan, the plan may provide that—(I) the participant may elect to increase the participant’s contribution to such other account, and(II) in the absence of such a participant election, the participant is deemed to have elected to increase the participant’s contributions to such account at the rate at which contributions were being made to the pension-linked emergency savings account, and
(ii) in any other case, such plan shall provide that such excess contributions will not be accepted.
(4) Automatic contribution arrangementFor purposes of this section—
(A) In generalAn automatic contribution arrangement described in this paragraph is an arrangement under which an eligible participant is treated as having elected to have the plan sponsor make elective contributions to a pension-linked emergency savings account at a participant contribution rate that is not more than 3 percent of the compensation of the eligible participant, unless the eligible participant, at any time (subject to such reasonable advance notice as is required by the plan administrator), affirmatively elects to—
(i) make contributions at a different rate, or
(ii) opt out of such contributions.
(B) Participant contribution rateFor purposes of an automatic contribution arrangement described in subparagraph (A), the plan sponsor—
(i) shall select a participant contribution rate under such automatic contribution arrangement which meets the requirements of subparagraph (A), and
(ii) may amend such rate (prior to the plan year for which such amendment would take effect) not more than once annually.
(5) Disclosure by plan sponsor
(A) In generalWith respect to a defined contribution plan which includes a pension-linked emergency savings account, the administrator of the plan shall, not less than 30 days and not more than 90 days prior to the date of the first contribution to the pension-linked emergency savings account, including any contribution under an automatic contribution arrangement described in section 801(d)(2) of the Employee Retirement Income Security Act of 1974, or the date of any adjustment to the participant contribution rate under section 801(d)(2)(B)(ii) of such Act, and not less than annually thereafter, shall furnish to the participant a notice describing—
(i) the purpose of the account, which is for short-term, emergency savings;
(ii) the limits on, and tax treatment of, contributions to the pension-linked emergency savings account of the participant;
(iii) any fees, expenses, restrictions, or charges associated with such pension-linked emergency savings account;
(iv) procedures for electing to make contributions or opting out of the pension-linked emergency savings account, changing participant contribution rates for such account, and making participant withdrawals from such pension-linked emergency savings account, including any limits on frequency;
(v) the amount of the intended contribution or the change in the percentage of the compensation of the participant of such contribution, if applicable;
(vi) the amount in the pension-linked emergency savings account and the amount or percentage of compensation that a participant has contributed to such account;
(vii) the designated investment option under section 801(c)(1)(A)(iii) of the Employee Retirement Income Security Act of 1974 for amounts contributed to the pension-linked emergency savings account;
(viii) the options under section 801(e) of such Act for the account balance of the pension-linked emergency savings account after termination of the employment of the participant; and
(ix) the ability of a participant who becomes a highly compensated employee (as such term is defined in section 414(q)) to, as described in section 801(b)(2) of the Employee Retirement Income Security Act of 1974, withdraw any account balance from a pension-linked emergency savings account and the restriction on the ability of such a participant to make further contributions to the pension-linked emergency savings account.
(B) Notice requirementsA notice furnished to a participant under subparagraph (A) shall be—
(i) sufficiently accurate and comprehensive to apprise the participant of the rights and obligations of the participant with regard to the pension-linked emergency savings account of the participant; and
(ii) written in a manner calculated to be understood by the average participant.
(C) Consolidated notices
(6) Employer matching contributions to a defined contribution plan for employee contributions to a pension-linked emergency savings account
(A) In general
(B) Coordination rule
(C) Matching contributions
(7) Distributions
(A) In general
(B) Treatment of distributionsAny distribution from a pension-linked emergency savings account in accordance with subparagraph (A)—
(i) shall be treated as a qualified distribution for purposes of subsection (d), and
(ii) shall be treated as meeting the requirements of sections 401(k)(2)(B)(i), 403(b)(7)(A)(i), 403(b)(11), and 457(d)(1)(A).
(8) Account balance after termination
(A) In generalUpon termination of employment of the participant, or termination by the plan sponsor of the pension-linked emergency savings account, the pension-linked emergency savings account of such participant in a defined contribution plan shall—
(i) allow, at the election of the participant, for transfer by the participant of the account balance of such account, in whole or in part, into another designated Roth account of the participant under the defined contribution plan; and
(ii) for any amounts in such account not transferred under paragraph (1), make such amounts available within a reasonable time to the participant.
(B) Prohibition of certain transfers
(C) Coordination with section 72
(9) Coordination with distribution of excess deferrals
(10) Treatment of account balances
(A) In general
(B) Termination
(11) Exception to plan amendment rules
(12) Anti-abuse rulesA plan of which a pension-linked emergency savings account is part—
(A) may employ reasonable procedures to limit the frequency or amount of matching contributions with respect to contributions to such account, solely to the extent necessary to prevent manipulation of the rules of the plan to cause matching contributions to exceed the intended amounts or frequency, and
(B) shall not be required to suspend matching contributions following any participant withdrawal of contributions, including elective deferrals and employee contributions, whether or not matched and whether or not made pursuant to an automatic contribution arrangement described in paragraph (4).
The Secretary, in consultation with the Secretary of Labor, shall issue regulations or other guidance not later than 12 months after the date of the enactment of the SECURE 2.0 Act of 2022 with respect to the anti-abuse rules described in the preceding sentence.
(f) Other definitionsFor purposes of this section—
(1) Applicable retirement planThe term “applicable retirement plan” means—
(A) an employees’ trust described in section 401(a) which is exempt from tax under section 501(a),
(B) a plan under which amounts are contributed by an individual’s employer for an annuity contract described in section 403(b), and
(C) an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A).
(2) Elective deferralThe term “elective deferral” means—
(A) any elective deferral described in subparagraph (A) or (C) of section 402(g)(3), and
(B) any elective deferral of compensation by an individual under an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A).
(3) Matching contributionThe term “matching contribution” means—
(A) any matching contribution described in section 401(m)(4)(A), and
(B) any contribution to an eligible deferred compensation plan (as defined in section 457(b)) by an eligible employer described in section 457(e)(1)(A) on behalf of an employee and on account of such employee’s elective deferral under such plan,
but only if such contribution is nonforfeitable at the time received.
(Added Pub. L. 107–16, title VI, § 617(a), June 7, 2001, 115 Stat. 103; amended Pub. L. 111–240, title II, §§ 2111(a), (b), 2112(a), Sept. 27, 2010, 124 Stat. 2565, 2566; Pub. L. 112–240, title IX, § 902(a), Jan. 2, 2013, 126 Stat. 2371; Pub. L. 113–295, div. A, title II, § 220(k), Dec. 19, 2014, 128 Stat. 4036; Pub. L. 117–328, div. T, title I, § 127(e)(1), title III, § 325(a), title VI, § 604(a)–(d), Dec. 29, 2022, 136 Stat. 5324, 5359, 5392.)

CITE AS: 26 USC 402A

§ 403. Taxation of employee annuities
(a) Taxability of beneficiary under a qualified annuity plan
(1) Distributee taxable under section 72
(2) Special rule for health and long-term care insurance
(3) Self-employed individuals
(4) Rollover amounts
(A) General ruleIf—
(i) any portion of the balance to the credit of an employee in an employee annuity described in paragraph (1) is paid to him in an eligible rollover distribution (within the meaning of section 402(c)(4)),
(ii) the employee transfers any portion of the property he receives in such distribution to an eligible retirement plan, and
(iii) in the case of a distribution of property other than money, the amount so transferred consists of the property distributed,
then such distribution (to the extent so transferred) shall not be includible in gross income for the taxable year in which paid.
(B) Certain rules made applicable
(5) Direct trustee-to-trustee transfer
(b) Taxability of beneficiary under annuity purchased by section 501(c)(3) organization or public school
(1) General ruleIf—
(A) an annuity contract is purchased—
(i) for an employee by an employer described in section 501(c)(3) which is exempt from tax under section 501(a),
(ii) for an employee (other than an employee described in clause (i)), who performs services for an educational organization described in section 170(b)(1) (A)(ii), by an employer which is a State, a political subdivision of a State, or an agency or instrumentality of any one or more of the foregoing, or
(iii) for the minister described in section 414(e)(5)(A) by the minister or by an employer,
(B) such annuity contract is not subject to subsection (a),
(C) the employee’s rights under the contract are nonforfeitable, except for failure to pay future premiums,
(D) except in the case of a contract purchased by a church, such contract is purchased under a plan which meets the nondiscrimination requirements of paragraph (12), and
(E) in the case of a contract purchased under a salary reduction agreement, the contract meets the requirements of section 401(a)(30),
then contributions and other additions by such employer for such annuity contract shall be excluded from the gross income of the employee for the taxable year to the extent that the aggregate of such contributions and additions (when expressed as an annual addition (within the meaning of section 415(c)(2))) does not exceed the applicable limit under section 415. The amount actually distributed to any distributee under such contract shall be taxable to the distributee (in the year in which so distributed) under section 72 (relating to annuities). For purposes of applying the rules of this subsection to contributions and other additions by an employer for a taxable year, amounts transferred to a contract described in this paragraph by reason of a rollover contribution described in paragraph (8) of this subsection or section 408(d)(3)(A)(ii) shall not be considered contributed by such employer.
(2) Special rule for health and long-term care insurance
(3) Includible compensationFor purposes of this subsection, the term “includible compensation” means, in the case of any employee, the amount of compensation which is received from the employer described in paragraph (1)(A), and which is includible in gross income (computed without regard to section 911) for the most recent period (ending not later than the close of the taxable year) which under paragraph (4) may be counted as one year of service, and which precedes the taxable year by no more than five years. Such term does not include any amount contributed by the employer for any annuity contract to which this subsection applies. Such term includes—
(A) any elective deferral (as defined in section 402(g)(3)), and
(B) any amount which is contributed or deferred by the employer at the election of the employee and which is not includible in the gross income of the employee by reason of section 125, 132(f)(4), or 457.
(4) Years of serviceIn determining the number of years of service for purposes of this subsection, there shall be included—
(A) one year for each full year during which the individual was a full-time employee of the organization purchasing the annuity for him, and
(B) a fraction of a year (determined in accordance with regulations prescribed by the Secretary) for each full year during which such individual was a part-time employee of such organization and for each part of a year during which such individual was a full-time or part-time employee of such organization.
In no case shall the number of years of service be less than one.
(5) Application to more than one annuity contract
[(6) Repealed. Pub. L. 107–147, title IV, § 411(p)(2), Mar. 9, 2002, 116 Stat. 50]
(7) Custodial accounts
(A) Amounts paid treated as contributionsFor purposes of this title, amounts paid by an employer described in paragraph (1)(A) to a custodial account which satisfies the requirements of section 401(f)(2) shall be treated as amounts contributed by him for an annuity contract for his employee if the amounts are to be held in that custodial account and are invested in regulated investment company stock or a group trust intended to satisfy the requirements of Internal Revenue Service Revenue Ruling 81–100 (or any successor guidance), and under the custodial account—
(i) no such amounts may be paid or made available to any distributee (unless such amount is a distribution to which section 72(t)(2)(G) applies) before—(I) the employee dies,(II) the employee attains age 59½,(III) the employee has a severance from employment,(IV) the employee becomes disabled (within the meaning of section 72(m)(7)),(V) subject to the provisions of paragraph (17), the employee encounters financial hardship, or(VI) except as may be otherwise provided by regulations, with respect to amounts invested in a lifetime income investment (as defined in section 401(a)(38)(B)(ii)), the date that is 90 days prior to the date that such lifetime income investment may no longer be held as an investment option under the contract, and
(ii) in the case of amounts described in clause (i)(VI), such amounts will be distributed only in the form of a qualified distribution (as defined in section 401(a)(38)(B)(i)) or a qualified plan distribution annuity contract (as defined in section 401(a)(38)(B)(iv)).
(B) Account treated as plan
(C) Regulated investment company
(D) Employee certificationIn determining whether a distribution is upon the financial hardship of an employee, the administrator of the plan may rely on a written certification by the employee that the distribution is—
(i) on account of a financial need of a type which is deemed in regulations prescribed by the Secretary to be an immediate and heavy financial need, and
(ii) not in excess of the amount required to satisfy such financial need, and
(8) Rollover amounts
(A) General ruleIf—
(i) any portion of the balance to the credit of an employee in an annuity contract described in paragraph (1) is paid to him in an eligible rollover distribution (within the meaning of section 402(c)(4)),
(ii) the employee transfers any portion of the property he receives in such distribution to an eligible retirement plan described in section 402(c)(8)(B), and
(iii) in the case of a distribution of property other than money, the property so transferred consists of the property distributed,
then such distribution (to the extent so transferred) shall not be includible in gross income for the taxable year in which paid.
(B) Certain rules made applicable
(9) Retirement income accounts provided by churches, etc.
(A) Amounts paid treated as contributionsFor purposes of this title—
(i) a retirement income account shall be treated as an annuity contract described in this subsection, and
(ii) amounts paid by an employer described in paragraph (1)(A) to a retirement income account shall be treated as amounts contributed by the employer for an annuity contract for the employee on whose behalf such account is maintained.
(B) Retirement income account
(10) Distribution requirements
(11) Requirement that distributions not begin before age 59½, severance from employment, death, or disabilityThis subsection shall not apply to any annuity contract unless under such contract distributions attributable to contributions made pursuant to a salary reduction agreement (within the meaning of section 402(g)(3)(C)) may be paid only—
(A) when the employee attains age 59½, has a severance from employment, dies, or becomes disabled (within the meaning of section 72(m)(7)),
(B) subject to the provisions of paragraph (17), in the case of hardship,
(C) for distributions to which section 72(t)(2)(G) applies, or
(D) except as may be otherwise provided by regulations, with respect to amounts invested in a lifetime income investment (as defined in section 401(a)(38)(B)(ii))—
(i) on or after the date that is 90 days prior to the date that such lifetime income investment may no longer be held as an investment option under the contract, and
(ii) in the form of a qualified distribution (as defined in section 401(a)(38)(B)(i)) or a qualified plan distribution annuity contract (as defined in section 401(a)(38)(B)(iv)).
In determining whether a distribution is upon hardship of an employee, the administrator of the plan may rely on a written certification by the employee that the distribution is on account of a financial need of a type which is deemed in regulations prescribed by the Secretary to be an immediate and heavy financial need and is not in excess of the amount required to satisfy such financial need, and that the employee has no alternative means reasonably available to satisfy such financial need. The Secretary may provide by regulations for exceptions to the rule of the preceding sentence in cases where the plan administrator has actual knowledge to the contrary of the employee’s certification, and for procedures for addressing cases of employee misrepresentation.
(12) Nondiscrimination requirements
(A) In generalFor purposes of paragraph (1)(D), a plan meets the nondiscrimination requirements of this paragraph if—
(i) with respect to contributions not made pursuant to a salary reduction agreement, such plan meets the requirements of paragraphs (4), (5), (17), and (26) of section 401(a), section 401(m), and section 410(b) in the same manner as if such plan were described in section 401(a), and
(ii) all employees of the organization may elect to have the employer make contributions of more than $200 pursuant to a salary reduction agreement if any employee of the organization may elect to have the organization make contributions for such contracts pursuant to such agreement.
For purposes of clause (i), a contribution shall be treated as not made pursuant to a salary reduction agreement if under the agreement it is made pursuant to a 1-time irrevocable election made by the employee at the time of initial eligibility to participate in the agreement or is made pursuant to a similar arrangement involving a one-time irrevocable election specified in regulations. For purposes of clause (ii), there may be excluded any employee who is a participant in an eligible deferred compensation plan (within the meaning of section 457) or a qualified cash or deferred arrangement of the organization or another annuity contract described in this subsection. Any nonresident alien described in section 410(b)(3)(C) may also be excluded. Subject to the conditions applicable under section 410(b)(4), there may be excluded for purposes of this subparagraph employees who are students performing services described in section 3121(b)(10) and employees who normally work less than 20 hours per week. The fact that the employer offers matching contributions on account of qualified student loan payments as described in section 401(m)(13) shall not be taken into account in determining whether the arrangement satisfies the requirements of clause (ii) (and any regulation thereunder).1
1 As to preceding sentence, see Effective Date of 2022 Amendment note below for section 110(e) of Pub. L. 117–328.
A plan shall not fail to satisfy clause (ii) solely by reason of offering a de minimis financial incentive (not derived from plan assets) to employees to elect to have the employer make contributions pursuant to a salary reduction agreement.
(B) Church
(C) State and local governmental plans
(13) Trustee-to-trustee transfers to purchase permissive service creditNo amount shall be includible in gross income by reason of a direct trustee-to-trustee transfer to a defined benefit governmental plan (as defined in section 414(d)) if such transfer is—
(A) for the purchase of permissive service credit (as defined in section 415(n)(3)(A)) under such plan, or
(B) a repayment to which section 415 does not apply by reason of subsection (k)(3) thereof.
(14) Death benefits under USERRA-qualified active military service
(15) Multiple employer plans
(A) In general
(B) Treatment of employers failing to meet requirements of plan
(i) In general
(ii) Additional requirements in case of non-governmental plans
(16) Safe harbor deferral-only plans for employers with no retirement plan
(A) In general
(B) Safe harbor deferral-only planFor purposes of this paragraph, the term “safe harbor deferral-only plan” means any plan which meets—
(i) the automatic deferral requirements of subparagraph (C),
(ii) the contribution limitations of subparagraph (D), and
(iii) the requirements of subparagraph (E) of section 401(k)(13).
(C) Automatic deferral
(i) In general
(ii) Election outThe election treated as having been made under clause (i) shall cease to apply with respect to any eligible employee if such eligible employee makes an affirmative election—(I) to not have such contributions made, or(II) to make elective contributions at a level specified in such affirmative election.
(iii) Qualified percentage
(D) Contribution limitations
(i) In generalThe requirements of this subparagraph are met if, under the plan—(I) the only contributions which may be made are elective contributions of eligible employees, and(II) the aggregate amount of such elective contributions which may be made with respect to any employee for any calendar year shall not exceed $6,000.
(ii) Cost-of-living adjustment
(iii) Catch-up contributions for individuals age 50 or over
(E) Eligible employerFor purposes of this paragraph—
(i) In general
(ii) Relief for acquisitions, etc.
(iii) Qualified plan
(F) Eligible employee
(17) Special rules relating to hardship withdrawalsFor purposes of paragraphs (7) and (11)—
(A) Amounts which may be withdrawnThe following amounts may be distributed upon hardship of the employee:
(i) Contributions made pursuant to a salary reduction agreement (within the meaning of section 3121(a)(5)(D)).
(ii) Qualified nonelective contributions (as defined in section 401(m)(4)(C)).
(iii) Qualified matching contributions described in section 401(k)(3)(D)(ii)(I).
(iv) Earnings on any contributions described in clause (i), (ii), or (iii).
(B) No requirement to take available loan
(c) Taxability of beneficiary under nonqualified annuities or under annuities purchased by exempt organizations
(Aug. 16, 1954, ch. 736, 68A Stat. 137; Pub. L. 85–866, title I, § 23(a)–(c), Sept. 2, 1958, 72 Stat. 1620–1622; Pub. L. 87–370, § 3(a), Oct. 4, 1961, 75 Stat. 801; Pub. L. 87–792, § 4(d), Oct. 10, 1962, 76 Stat. 825; Pub. L. 88–272, title II, § 232(e)(4)–(6), Feb. 26, 1964, 78 Stat. 111; Pub. L. 91–172, title III, § 321(b)(2), title V, § 515(a)(2), Dec. 30, 1969, 83 Stat. 591, 644; Pub. L. 93–406, title II, §§ 1022(e), 2002(g)(6), 2004(c)(4), 2005(b)(2), Sept. 2, 1974, 88 Stat. 940, 969, 986, 991; Pub. L. 94–267, § 1(b), Apr. 15, 1976, 90 Stat. 366; Pub. L. 94–455, title XIV, § 1402(b)(1)(D), (2), title XV, § 1504(a), title XIX, §§ 1901(a)(58), (b)(8)(A), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1731, 1732, 1738, 1774, 1794, 1834; Pub. L. 95–458, § 4(b), Oct. 14, 1978, 92 Stat. 1259; Pub. L. 95–600, title I, §§ 154(a), 156(a), (b), 157(g)(2), Nov. 6, 1978,

CITE AS: 26 USC 403

§ 404. Deduction for contributions of an employer to an employees’ trust or annuity plan and compensation under a deferred-payment plan
(a) General ruleIf contributions are paid by an employer to or under a stock bonus, pension, profit-sharing, or annuity plan, or if compensation is paid or accrued on account of any employee under a plan deferring the receipt of such compensation, such contributions or compensation shall not be deductible under this chapter; but, if they would otherwise be deductible, they shall be deductible under this section, subject, however, to the following limitations as to the amounts deductible in any year:
(1) Pension trusts
(A) In generalIn the taxable year when paid, if the contributions are paid into a pension trust (other than a trust to which paragraph (3) applies), and if such taxable year ends within or with a taxable year of the trust for which the trust is exempt under section 501(a), in the case of a defined benefit plan other than a multiemployer plan, in an amount determined under subsection (o), and in the case of any other plan in an amount determined as follows:
(i) the amount necessary to satisfy the minimum funding standard provided by section 412(a) for plan years ending within or with such taxable year (or for any prior plan year), if such amount is greater than the amount determined under clause (ii) or (iii) (whichever is applicable with respect to the plan),
(ii) the amount necessary to provide with respect to all of the employees under the trust the remaining unfunded cost of their past and current service credits distributed as a level amount, or a level percentage of compensation, over the remaining future service of each such employee, as determined under regulations prescribed by the Secretary, but if such remaining unfunded cost with respect to any 3 individuals is more than 50 percent of such remaining unfunded cost, the amount of such unfunded cost attributable to such individuals shall be distributed over a period of at least 5 taxable years,
(iii) an amount equal to the normal cost of the plan, as determined under regulations prescribed by the Secretary, plus, if past service or other supplementary pension or annuity credits are provided by the plan, an amount necessary to amortize the unfunded costs attributable to such credits in equal annual payments (until fully amortized) over 10 years, as determined under regulations prescribed by the Secretary.
In determining the amount deductible in such year under the foregoing limitations the funding method and the actuarial assumptions used shall be those used for such year under section 431, and the maximum amount deductible for such year shall be an amount equal to the full funding limitation for such year determined under section 431.
(B) Special rule in case of certain amendmentsIn the case of a multiemployer plan which the Secretary of Labor finds to be collectively bargained which makes an election under this subparagraph (in such manner and at such time as may be provided under regulations prescribed by the Secretary), if the full funding limitation determined under section 431(c)(6) for such year is zero, if as a result of any plan amendment applying to such plan year, the amount determined under section 431(c)(6)(A)(ii) exceeds the amount determined under section 431(c)(6)(A)(i), and if the funding method and the actuarial assumptions used are those used for such year under section 431, the maximum amount deductible in such year under the limitations of this paragraph shall be an amount equal to the lesser of—
(i) the full funding limitation for such year determined by applying section 431(c)(6) but increasing the amount referred to in subparagraph (A) thereof by the decrease in the present value of all unamortized liabilities resulting from such amendment, or
(ii) the normal cost under the plan reduced by the amount necessary to amortize in equal annual installments over 10 years (until fully amortized) the decrease described in clause (i).
In the case of any election under this subparagraph, the amount deductible under the limitations of this paragraph with respect to any of the plan years following the plan year for which such election was made shall be determined as provided under such regulations as may be prescribed by the Secretary to carry out the purposes of this subparagraph.
(C) Certain collectively-bargained plans
(D) Amount determined on basis of unfunded current liabilityIn the case of a defined benefit plan which is a multiemployer plan, except as provided in regulations, the maximum amount deductible under the limitations of this paragraph shall not be less than the excess (if any) of—
(i) 140 percent of the current liability of the plan determined under section 431(c)(6)(D), over
(ii) the value of the plan’s assets determined under section 431(c)(2).
(E) Carryover
(2) Employees’ annuities
(3) Stock bonus and profit-sharing trusts
(A) Limits on deductible contributions
(i) In generalIn the taxable year when paid, if the contributions are paid into a stock bonus or profit-sharing trust, and if such taxable year ends within or with a taxable year of the trust with respect to which the trust is exempt under section 501(a), in an amount not in excess of the greater of—(I) 25 percent of the compensation otherwise paid or accrued during the taxable year to the beneficiaries under the stock bonus or profit-sharing plan, or(II) the amount such employer is required to contribute to such trust under section 401(k)(11) for such year.
(ii) Carryover of excess contributions
(iii) Certain retirement plans excluded
(iv) 2 or more trusts treated as 1 trust
(v) Defined contribution plans subject to the funding standards
(B) Profit-sharing plan of affiliated group
(4) Trusts created or organized outside the United States
(5) Other plans
(6) Time when contributions deemed made
(7) Limitation on deductions where combination of defined contribution plan and defined benefit plan
(A) In generalIf amounts are deductible under the foregoing paragraphs of this subsection (other than paragraph (5)) in connection with 1 or more defined contribution plans and 1 or more defined benefit plans or in connection with trusts or plans described in 2 or more of such paragraphs, the total amount deductible in a taxable year under such plans shall not exceed the greater of—
(i) 25 percent of the compensation otherwise paid or accrued during the taxable year to the beneficiaries under such plans, or
(ii) the amount of contributions made to or under the defined benefit plans to the extent such contributions do not exceed the amount of employer contributions necessary to satisfy the minimum funding standard provided by section 412 with respect to any such defined benefit plans for the plan year which ends with or within such taxable year (or for any prior plan year).
A defined contribution plan which is a pension plan shall not be treated as failing to provide definitely determinable benefits merely by limiting employer contributions to amounts deductible under this section. In the case of a defined benefit plan which is a single employer plan, the amount necessary to satisfy the minimum funding standard provided by section 412 shall not be less than the excess (if any) of the plan’s funding target (as defined in section 430(d)(1)) over the value of the plan’s assets (as determined under section 430(g)(3)).
(B) Carryover of contributions in excess of the deductible limit
(C) Paragraph not to apply in certain cases
(i) Beneficiary test
(ii) Elective deferrals
(iii) LimitationIn the case of employer contributions to 1 or more defined contribution plans—(I) if such contributions do not exceed 6 percent of the compensation otherwise paid or accrued during the taxable year to the beneficiaries under such plans, this paragraph shall not apply to such contributions or to employer contributions to the defined benefit plans to which this paragraph would otherwise apply by reason of contributions to the defined contribution plans, and(II) if such contributions exceed 6 percent of such compensation, this paragraph shall be applied by only taking into account such contributions to the extent of such excess.
 For purposes of this clause, amounts carried over from preceding taxable years under subparagraph (B) shall be treated as employer contributions to 1 or more defined contributions plans to the extent attributable to employer contributions to such plans in such preceding taxable years.
(iv) Guaranteed plans
(v) Multiemployer plans
(D) Insurance contract plans
(8) Self-employed individualsIn the case of a plan included in paragraph (1), (2), or (3) which provides contributions or benefits for employees some or all of whom are employees within the meaning of section 401(c)(1), for purposes of this section—
(A) the term “employee” includes an individual who is an employee within the meaning of section 401(c)(1), and the employer of such individual is the person treated as his employer under section 401(c)(4);
(B) the term “earned income” has the meaning assigned to it by section 401(c)(2);
(C) the contributions to such plan on behalf of an individual who is an employee within the meaning of section 401(c)(1) shall be considered to satisfy the conditions of section 162 or 212 to the extent that such contributions do not exceed the earned income of such individual (determined without regard to the deductions allowed by this section) derived from the trade or business with respect to which such plan is established, and to the extent that such contributions are not allocable (determined in accordance with regulations prescribed by the Secretary) to the purchase of life, accident, health, or other insurance; and
(D) any reference to compensation shall, in the case of an individual who is an employee within the meaning of section 401(c)(1), be considered to be a reference to the earned income of such individual derived from the trade or business with respect to which the plan is established.
(9) Certain contributions to employee stock ownership plans
(A) Principal payments
(B) Interest payment
(C) S corporations
(D) Qualified gratuitous transfers
(10) Contributions by certain ministers to retirement income accountsIn the case of contributions made by a minister described in section 414(e)(5) to a retirement income account described in section 403(b)(9) and not by a person other than such minister, such contributions—
(A) shall be treated as made to a trust which is exempt from tax under section 501(a) and which is part of a plan which is described in section 401(a), and
(B) shall be deductible under this subsection to the extent such contributions do not exceed the limit on elective deferrals under section 402(g) or the limit on annual additions under section 415.
For purposes of this paragraph, all plans in which the minister is a participant shall be treated as one plan.
(11) Determinations relating to deferred compensationFor purposes of determining under this section—
(A) whether compensation of an employee is deferred compensation; and
(B) when deferred compensation is paid,
no amount shall be treated as received by the employee, or paid, until it is actually received by the employee.
(12) Definition of compensation
(b) Method of contributions, etc., having the effect of a plan; certain deferred benefits
(1) Method of contributions, etc., having the effect of a planIf—
(A) there is no plan, but
(B) there is a method or arrangement of employer contributions or compensation which has the effect of a stock bonus, pension, profit-sharing, or annuity plan, or other plan deferring the receipt of compensation (including a plan described in paragraph (2)),
subsection (a) shall apply as if there were such a plan.
(2) Plans providing certain deferred benefits
(A) In general
(B) Exception
(c) Certain negotiated plansIf contributions are paid by an employer—
(1) under a plan under which such contributions are held in trust for the purpose of paying (either from principal or income or both) for the benefit of employees and their families and dependents at least medical or hospital care, or pensions on retirement or death of employees; and
(2) such plan was established prior to January 1, 1954, as a result of an agreement between employee representatives and the Government of the United States during a period of Government operation, under seizure powers, of a major part of the productive facilities of the industry in which such employer is engaged,
such contributions shall not be deductible under this section nor be made nondeductible by this section, but the deductibility thereof shall be governed solely by section 162 (relating to trade or business expenses). For purposes of this chapter and subtitle B, in the case of any individual who before July 1, 1974, was a participant in a plan described in the preceding sentence—
(A) such individual, if he is or was an employee within the meaning of section 401(c)(1), shall be treated (with respect to service covered by the plan) as being an employee other than an employee within the meaning of section 401(c)(1) and as being an employee of a participating employer under the plan,
(B) earnings derived from service covered by the plan shall be treated as not being earned income within the meaning of section 401(c)(2), and
(C) such individual shall be treated as an employee of a participating employer under the plan with respect to service before July 1, 1975, covered by the plan.
Section 277 (relating to deductions incurred by certain membership organizations in transactions with members) does not apply to any trust described in this subsection. The first and third sentences of this subsection shall have no application with respect to amounts contributed to a trust on or after any date on which such trust is qualified for exemption from tax under section 501(a).
(d) Deductibility of payments of deferred compensation, etc., to independent contractorsIf a plan would be described in so much of subsection (a) as precedes paragraph (1) thereof (as modified by subsection (b)) but for the fact that there is no employer-employee relationship, the contributions or compensation—
(1) shall not be deductible by the payor thereof under this chapter, but
(2) shall (if they would be deductible under this chapter but for paragraph (1)) be deductible under this subsection for the taxable year in which an amount attributable to the contribution or compensation is includible in the gross income of the persons participating in the plan.
(e) Contributions allocable to life insurance protection for self-employed individuals
[(f) Repealed. Pub. L. 98–369, div. A, title VII, § 713(b)(3), July 18, 1984, 98 Stat. 957]
(g) Certain employer liability payments considered as contributions
(1) In general
(2) Controlled group deductions
(3) Timing of deduction of contributions
(A) In general
(B) Contributions under standard terminations
(C) Contributions to certain trusts
(4) References to Employee Retirement Income Security Act of 1974
(h) Special rules for simplified employee pensions
(1) In generalEmployer contributions to a simplified employee pension shall be treated as if they are made to a plan subject to the requirements of this section. Employer contributions to a simplified employee pension are subject to the following limitations:
(A) Contributions made for a year are deductible—
(i) in the case of a simplified employee pension maintained on a calendar year basis, for the taxable year with or within which the calendar year ends, or
(ii) in the case of a simplified employee pension which is maintained on the basis of the taxable year of the employer, for such taxable year.
(B) Contributions shall be treated for purposes of this subsection as if they were made for a taxable year if such contributions are made on account of such taxable year and are made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof).
(C) The amount deductible in a taxable year for a simplified employee pension shall not exceed 25 percent of the compensation paid to the employees during the calendar year ending with or within the taxable year (or during the taxable year in the case of a taxable year described in subparagraph (A)(ii)). The excess of the amount contributed over the amount deductible for a taxable year shall be deductible in the succeeding taxable years in order of time, subject to the 25 percent limit of the preceding sentence.
(2) Effect on certain trusts
(3) Coordination with subsection (a)(7)
[(i) Repealed. Pub. L. 99–514, title XI, § 1171(b)(6), Oct. 22, 1986, 100 Stat. 2513]
(j) Special rules relating to application with section 415
(1) No deduction in excess of section 415 limitationIn computing the amount of any deduction allowable under paragraph (1), (2), (3), (4), (7), or (9) of subsection (a) for any year—
(A) in the case of a defined benefit plan, there shall not be taken into account any benefits for any year in excess of any limitation on such benefits under section 415 for such year, or
(B) in the case of a defined contribution plan, the amount of any contributions otherwise taken into account shall be reduced by any annual additions in excess of the limitation under section 415 for such year.
(2) No advance funding of cost-of-living adjustments
(k) Deduction for dividends paid on certain employer securities
(1) General rule
(2) Applicable dividendFor purposes of this subsection—
(A) In generalThe term “applicable dividend” means any dividend which, in accordance with the plan provisions—
(i) is paid in cash to the participants in the plan or their beneficiaries,
(ii) is paid to the plan and is distributed in cash to participants in the plan or their beneficiaries not later than 90 days after the close of the plan year in which paid,
(iii) is, at the election of such participants or their beneficiaries—(I) payable as provided in clause (i) or (ii), or(II) paid to the plan and reinvested in qualifying employer securities, or
(iv) is used to make payments on a loan described in subsection (a)(9) the proceeds of which were used to acquire the employer securities (whether or not allocated to participants) with respect to which the dividend is paid.
(B) Limitation on certain dividends
(3) Applicable employer securitiesFor purposes of this subsection, the term “applicable employer securities” means, with respect to any dividend, employer securities which are held on the record date for such dividend by an employee stock ownership plan which is maintained by—
(A) the corporation paying such dividend, or
(B) any other corporation which is a member of a controlled group of corporations (within the meaning of section 409(l)(4)) which includes such corporation.
(4) Time for deduction
(A) In general
(B) Reinvestment dividends
(C) Repayment of loans
(5) Other rulesFor purposes of this subsection—
(A) Disallowance of deduction
(B) Plan qualification
(6) DefinitionsFor purposes of this subsection—
(A) Employer securities
(B) Employee stock ownership plan
(7) Full vesting
(l) Limitation on amount of annual compensation taken into account
(m) Special rules for simple retirement accounts
(1) In general
(2) Timing
(A) Deduction
(B) Contributions after end of year
(n) Elective deferrals not taken into account for purposes of deduction limits
(o) Deduction limit for single-employer plansFor purposes of subsection (a)(1)(A)—
(1) In generalIn the case of a defined benefit plan to which subsection (a)(1)(A) applies (other than a multiemployer plan), the amount determined under this subsection for any taxable year shall be equal to the greater of—
(A) the sum of the amounts determined under paragraph (2) with respect to each plan year ending with or within the taxable year, or
(B) the sum of the minimum required contributions under section 430 for such plan years.
(2) Determination of amount
(A) In generalThe amount determined under this paragraph for any plan year shall be equal to the excess (if any) of—
(i) the sum of—(I) the funding target for the plan year,(II) the target normal cost for the plan year, and(III) the cushion amount for the plan year, over
(ii) the value (determined under section 430(g)(3)) of the assets of the plan which are held by the plan as of the valuation date for the plan year.
(B) Special rule for certain employersIf section 430(i) does not apply to a plan for a plan year, the amount determined under subparagraph (A)(i) for the plan year shall in no event be less than the sum of—
(i) the funding target for the plan year (determined as if section 430(i) applied to the plan), plus
(ii) the target normal cost for the plan year (as so determined).
(3) Cushion amountFor purposes of paragraph (2)(A)(i)(III)—
(A) In generalThe cushion amount for any plan year is the sum of—
(i) 50 percent of the funding target for the plan year, and
(ii) the amount by which the funding target for the plan year would increase if the plan were to take into account—(I) increases in compensation which are expected to occur in succeeding plan years, or(II) if the plan does not base benefits for service to date on compensation, increases in benefits which are expected to occur in succeeding plan years (determined on the basis of the average annual increase in benefits over the 6 immediately preceding plan years).
(B) Limitations
(i) In general
(ii) Expected increases
(4) Special rules for plans with 100 or fewer participants
(A) In general
(B) Rule for determining number of participants
(5) Special rule for terminating plans
(6) Actuarial assumptions
(7) Definitions
(8) CSEC plans
(Aug. 16, 1954, ch. 736, 68A Stat. 138; Pub. L. 85–866, title I, § 24, Sept. 2, 1958, 72 Stat. 1623; Pub. L. 87–792, § 3, Oct. 10, 1962, 76 Stat. 819; Pub. L. 87–863, § 2(b), Oct. 23, 1962, 76 Stat. 1141; Pub. L. 89–809, title II, § 204(a), (b)(2), (3), Nov. 13, 1966, 80 Stat. 1577; Pub. L. 91–172, title III, § 321(b)(3), Dec. 30, 1969, 83 Stat. 591; Pub. L. 93–406, title II, §§ 1013(c), 1016(a)(3), 2001(a), (g)(2)(E), (F), 2004(b), (c)(1), 2007(a), (b), title IV, § 4401(a), formerly § 4081(a), Sept. 2, 1974, 88 Stat. 921, 929, 952, 957, 986, 993, 994, 1033, renumbered § 4401(a), Pub. L. 96–364, title I, § 108(a), Sept. 26, 1980, 94 Stat. 1267; Pub. L. 94–267, § 1(c)(3), Apr. 15, 1976, 90 Stat. 367; Pub. L. 94–455, title XV, § 1502(a)(2), title XIX, §§ 1901(a)(59), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1737, 1774, 1834; Pub. L. 95–600, title I, §§ 133(a), (b), 141(f)(9), 152(f), Nov. 6, 1978, 92 Stat. 2783, 2795, 2799; Pub. L. 96–222, title I, § 101(a)(10)(E), (J)(ii), Apr. 1, 1980, 94 Stat. 202, 204; Pub. L. 96–364, title II, § 205, Sept. 26, 1980, 94 Stat. 1287; Pub. L. 97–34, title III, §§ 312(a), 331(b), 333(a), Aug. 13, 1981, 95 Stat. 283, 293, 296; Pub. L. 97–248, title II, §§ 235(f), 237(e)(2), 238(a), 253(b), Sept. 3, 1982, 96 Stat. 507, 512, 533; Pub. L. 98–369, div. A, title IV, § 474(r)(14), title V, §§ 512(a), 542(a), title VII, § 713(b)(3), (d)(4)(A), (5), (6), (9), July 18, 1984, 98 Stat. 842, 862, 890, 957, 958; Pub. L. 99–272, title XI, § 11011(c)(1), (2), Apr. 7, 1986, 100 Stat. 257, 258; Pub. L. 99–514, title XI, §§ 1106(d)(2), 1108(c), 1112(d)(2), 1131(a), (b), 1136(b), 1171(b)(6), 1173(a), title XVIII, §§ 1848(c), 1851(b)(2)(A)–(C)(ii), 1854(b)(2)–(5), 1875(c)(7), Oct. 22, 1986, 100 Stat. 2424, 2433, 2445, 2476, 2477, 2486, 2513, 2515, 2857, 2863, 2878, 2895; Pub. L. 100–203, title IX, § 9307(c), (d), title X, § 10201(b)(2), (3), Dec. 22, 1987, 101 Stat. 1330–357, 1330–387; Pub. L. 100–647, title I, §§ 1011(d)(1), (4), (f)(6), 1011A(e)(4), 1011B(h)(3), (6), 1018(t)(4)(A), (5), title II, § 2005(b), Nov. 10, 1988, 102 Stat. 3459, 3463, 3478, 3491, 3492, 3588, 3589, 3610; Pub. L. 101–239, title VII, §§ 7302(a), 7841(b)(1), Dec. 19, 1989, 103 Stat. 2351, 2428; Pub. L. 101–508, title XI, § 11812(b)(7), Nov. 5, 1990, 104 Stat. 1388–535; Pub. L. 102–318, title V, § 522(a)(2), July 3, 1992, 106 Stat. 314; Pub. L. 103–66, title XIII, § 13212(c)(1), Aug. 10, 1993, 107 Stat. 472; Pub. L. 103–465, title VII, § 751(a)(11), Dec. 8, 1994, 108 Stat. 5022; Pub. L. 104–188, title I, §§ 1316(d)(1), (2), 1421(b)(2), 1431(b)(3), 1461(b), 1704(q)(1), (t)(76), Aug. 20, 1996, 110 Stat. 1786, 1795, 1803, 1823, 1887, 1891; Pub. L. 105–34, title XV, § 1530(c)(2), title XVI, § 1601(d)(2)(C), Aug. 5, 1997, 111 Stat. 1078, 1088; Pub. L. 105–206, title VI, § 6015(d), title VII, § 7001(a), July 22, 1998, 112 Stat. 821, 827; Pub. L. 107–16, title VI, §§ 611(c)(1), 614(a), 616(a)–(b)(2)(A), 632(a)(3)(B), 652(a), 662(a), (b), June 7, 2001, 115 Stat. 97, 102, 103, 114, 129, 142; Pub. L. 107–147, title IV, § 411(l)(1), (2), (4), (s), (w), Mar. 9, 2002, 116 Stat. 47

CITE AS: 26 USC 404

§ 404A. Deduction for certain foreign deferred compensation plans
(a) General ruleAmounts paid or accrued by an employer under a qualified foreign plan—
(1) shall not be allowable as a deduction under this chapter, but
(2) if they would otherwise be deductible, shall be allowed as a deduction under this section for the taxable year for which such amounts are properly taken into account under this section.
(b) Rules for qualified funded plansFor purposes of this section—
(1) In general
(2) Payment after close of taxable yearFor purposes of paragraph (1), a payment made after the close of a taxable year shall be treated as made on the last day of such year if the payment is made—
(A) on account of such year, and
(B) not later than the time prescribed by law for filing the return for such year (including extensions thereof).
(3) LimitationsIn the case of a qualified funded plan, the amount allowable as a deduction for the taxable year shall be subject to—
(A) in the case of—
(i) a plan under which the benefits are fixed or determinable, limitations similar to those contained in clauses (ii) and (iii) of subparagraph (A) of section 404(a)(1) (determined without regard to the last sentence of such subparagraph (A)), or
(ii) any other plan, limitations similar to the limitations contained in paragraph (3) of section 404(a), and
(B) limitations similar to those contained in paragraph (7) of section 404(a).
(4) CarryoverIf—
(A) the aggregate of the contributions paid during the taxable year reduced by any contributions not allowable as a deduction under paragraphs (1) and (2) of subsection (g), exceeds
(B) the amount allowable as a deduction under subsection (a) (determined without regard to subsection (d)),
such excess shall be treated as an amount paid in the succeeding taxable year.
(5) Amounts must be paid to qualified trust, etc.In the case of a qualified funded plan, a contribution shall be taken into account only if it is paid—
(A) to a trust (or the equivalent of a trust) which meets the requirements of section 401(a)(2),
(B) for a retirement annuity, or
(C) to a participant or beneficiary.
(c) Rules relating to qualified reserve plansFor purposes of this section—
(1) In general
(2) Income item
(3) Rights must be nonforfeitable, etc.In the case of a qualified reserve plan, an item shall be taken into account for a taxable year only if—
(A) there is no substantial risk that the rights of the employee will be forfeited, and
(B) such item meets such additional requirements as the Secretary may by regulations prescribe as necessary or appropriate to ensure that the liability will be satisfied.
(4) Spreading of certain increases and decreases in reservesThere shall be amortized over a 10-year period any increase or decrease to the reserve on account of—
(A) the adoption of the plan or a plan amendment,
(B) experience gains and losses,
(C) any change in actuarial assumptions,
(D) changes in the interest rate under subsection (g)(3)(B), and
(E) such other factors as may be prescribed by regulations.
(d) Amounts taken into account must be consistent with amounts allowed under foreign law
(1) General ruleIn the case of any plan, the amount allowed as a deduction under subsection (a) for any taxable year shall equal—
(A) the lesser of—
(i) the cumulative United States amount, or
(ii) the cumulative foreign amount, reduced by
(B) the aggregate amount determined under this section for all prior taxable years.
(2) Cumulative amounts definedFor purposes of paragraph (1)—
(A) Cumulative United States amount
(B) Cumulative foreign amount
(3) Effect on earnings and profits, etc.
(e) Qualified foreign planFor purposes of this section, the term “qualified foreign plan” means any written plan of an employer for deferring the receipt of compensation but only if—
(1) such plan is for the exclusive benefit of the employer’s employees or their beneficiaries,
(2) 90 percent or more of the amounts taken into account for the taxable year under the plan are attributable to services—
(A) performed by nonresident aliens, and
(B) the compensation for which is not subject to tax under this chapter, and
(3) the employer elects (at such time and in such manner as the Secretary shall by regulations prescribe) to have this section apply to such plan.
(f) Funded and reserve plansFor purposes of this section—
(1) Qualified funded plan
(2) Qualified reserve plan
(g) Other special rules
(1) No deduction for certain amountsExcept as provided in section 404(a)(5), no deduction shall be allowed under this section for any item to the extent such item is attributable to services—
(A) performed by a citizen or resident of the United States who is a highly compensated employee (within the meaning of section 414(q)), or
(B) performed in the United States the compensation for which is subject to tax under this chapter.
(2) Taxpayer must furnish information
(A) In generalNo deduction shall be allowed under this section with respect to any plan for any taxable year unless the taxpayer furnishes to the Secretary with respect to such plan (at such time as the Secretary may by regulations prescribe)—
(i) a statement from the foreign tax authorities specifying the amount of the deduction allowed in computing taxable income under foreign law for such year with respect to such plan,
(ii) if the return under foreign tax law shows the deduction for plan contributions or reserves as a separate, identifiable item, a copy of the foreign tax return for the taxable year, or
(iii) such other statement, return, or other evidence as the Secretary prescribes by regulation as being sufficient to establish the amount of the deduction under foreign law.
(B) Redetermination where foreign tax deduction is adjusted
(3) Actuarial assumptions must be reasonable; full funding
(A) In general
(B) Interest rate for reserve plan
(i) In general
(ii) Rate remains in effect so long as it falls within permissible range
(iii) Permissible range
(4) Accounting method
(5) Section 481 applies to election
(h) Regulations
(Added Pub. L. 96–603, § 2(a), Dec. 28, 1980, 94 Stat. 3505; amended Pub. L. 99–514, title XI, § 1114(b)(8), title XVIII, § 1851(b)(2)(C)(iii), Oct. 22, 1986, 100 Stat. 2451, 2863; Pub. L. 100–647, title I, § 1012(b)(4), Nov. 10, 1988, 102 Stat. 3496; Pub. L. 109–280, title VIII, § 801(c)(4), Aug. 17, 2006, 120 Stat. 995; Pub. L. 115–141, div. U, title IV, § 401(a)(74), Mar. 23, 2018, 132 Stat. 1187.)

CITE AS: 26 USC 404A

[§ 405. Repealed. Pub. L. 98–369, div. A, title IV, § 491(a), July 18, 1984, 98 Stat. 848]

CITE AS: 26 USC 405

§ 406. Employees of foreign affiliates covered by section 3121(l) agreements
(a) Treatment as employees of American employer
For purposes of applying this part with respect to a pension, profit-sharing, or stock bonus plan described in section 401(a) or an annuity plan described in section 403(a), of an American employer (as defined in section 3121(h)), an individual who is a citizen or resident of the United States and who is an employee of a foreign affiliate (as defined in section 3121(l)(6)) of such American employer shall be treated as an employee of such American employer, if—
(1) such American employer has entered into an agreement under section 3121(l) which applies to the foreign affiliate of which such individual is an employee;
(2) the plan of such American employer expressly provides for contributions or benefits for individuals who are citizens or residents of the United States and who are employees of its foreign affiliates to which an agreement entered into by such American employer under section 3121(l) applies; and
(3) contributions under a funded plan of deferred compensation (whether or not a plan described in section 401(a) or 403(a)) are not provided by any other person with respect to the remuneration paid to such individual by the foreign affiliate.
(b) Special rules for application of section 401(a)
(1) Nondiscrimination requirements
For purposes of applying section 401(a)(4) and section 410(b) with respect to an individual who is treated as an employee of an American employer under subsection (a)—
(A) if such individual is a highly compensated employee (within the meaning of section 414(q)), he shall be treated as having such capacity with respect to such American employer; and
(B) the determination of whether such individual is a highly compensated employee (as so defined) shall be made by treating such individual’s total compensation (determined with the application of paragraph (2) of this subsection) as compensation paid by such American employer and by determining such individual’s status with regard to such American employer.
(2) Determination of compensation
For purposes of applying paragraph (5) of section 401(a) with respect to an individual who is treated as an employee of an American employer under subsection (a)—
(A) the total compensation of such individual shall be the remuneration paid to such individual by the foreign affiliate which would constitute his total compensation if his services had been performed for such American employer, and the basic or regular rate of compensation of such individual shall be determined under regulations prescribed by the Secretary; and
(B) such individual shall be treated as having paid the amount paid by such American employer which is equivalent to the tax imposed by section 3101.
[(c) Repealed. Pub. L. 104–188, title I, § 1401(b)(7), Aug. 20, 1996, 110 Stat. 1789]
(d) Deductibility of contributions
For purposes of applying section 404 with respect to contributions made to or under a pension, profit-sharing, stock bonus, or annuity plan by an American employer, or by another taxpayer which is entitled to deduct its contributions under section 404(a)(3)(B), on behalf of an individual who is treated as an employee of such American employer under subsection (a)—
(1) except as provided in paragraph (2), no deduction shall be allowed to such American employer or to any other taxpayer which is entitled to deduct its contributions under such sections,
(2) there shall be allowed as a deduction to the foreign affiliate of which such individual is an employee an amount equal to the amount which (but for paragraph (1)) would be deductible under section 404 by the American employer if he were an employee of the American employer, and
(3) any reference to compensation shall be considered to be a reference to the total compensation of such individual (determined with the application of subsection (b)(2)).
Any amount deductible by a foreign affiliate under this subsection shall be deductible for its taxable year with or within which the taxable year of such American employer ends.
(e) Treatment as employee under related provisions
An individual who is treated as an employee of an American employer under subsection (a) shall also be treated as an employee of such American employer, with respect to the plan described in subsection (a)(2), for purposes of applying the following provisions of this title:
(1) Section 72(f) (relating to special rules for computing employees’ contributions).
(2) Section 2039 (relating to annuities).
(Added Pub. L. 88–272, title II, § 220(a), Feb. 26, 1964, 78 Stat. 58; amended Pub. L. 91–172, title V, § 515(c)(2), Dec. 30, 1969, 83 Stat. 645; Pub. L. 93–406, title II, §§ 1016(a)(4), 2005(c)(12), Sept. 2, 1974, 88 Stat. 929, 992; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 98–21, title III, § 321(c), (e)(2)(A)–(D)(i), Apr. 20, 1983, 97 Stat. 119, 120; Pub. L. 98–369, div. A, title IV, § 491(d)(13)–(15), July 18, 1984, 98 Stat. 849; Pub. L. 99–514, title XI, §§ 1112(d)(3), 1114(b)(9)(A), (C), title XVIII, § 1852(e)(2)(C), Oct. 22, 1986, 100 Stat. 2445, 2451, 2868; Pub. L. 100–647, title I, § 1011A(b)(1)(C), (16), Nov. 10, 1988, 102 Stat. 3472, 3475; Pub. L. 101–239, title VII, §§ 7811(g)(3), 7831(f), title X, § 10201(b)(1), (2), Dec. 19, 1989, 103 Stat. 2409, 2427, 2472; Pub. L. 102–318, title V, § 521(b)(14), July 3, 1992, 106 Stat. 311; Pub. L. 104–188, title I, §§ 1401(b)(7), 1402(b)(2), Aug. 20, 1996, 110 Stat. 1789, 1790.)

CITE AS: 26 USC 406

§ 407. Certain employees of domestic subsidiaries engaged in business outside the United States
(a) Treatment as employees of domestic parent corporation
(1) In general
For purposes of applying this part with respect to a pension, profit-sharing, or stock bonus plan described in section 401(a) or an annuity plan described in section 403(a), of a domestic parent corporation, an individual who is a citizen or resident of the United States and who is an employee of a domestic subsidiary (within the meaning of paragraph (2)) of such domestic parent corporation shall be treated as an employee of such domestic parent corporation, if—
(A) the plan of such domestic parent corporation expressly provides for contributions or benefits for individuals who are citizens or residents of the United States and who are employees of its domestic subsidiaries; and
(B) contributions under a funded plan of deferred compensation (whether or not a plan described in section 401(a) or 403(a)) are not provided by any other person with respect to the remuneration paid to such individual by the domestic subsidiary.
(2) Definitions
For purposes of this section—
(A) Domestic subsidiary
A corporation shall be treated as a domestic subsidiary for any taxable year only if—
(i) such corporation is a domestic corporation 80 percent or more of the outstanding voting stock of which is owned by another domestic corporation;
(ii) 95 percent or more of its gross income for the three-year period immediately preceding the close of its taxable year which ends on or before the close of the taxable year of such other domestic corporation (or for such part of such period during which the corporation was in existence), was derived from sources without the United States; and
(iii) 90 percent or more of its gross income for such period (or such part) was derived from the active conduct of a trade or business.
If for the period (or part thereof) referred to in clauses (ii) and (iii) such corporation has no gross income, the provisions of clauses (ii) and (iii) shall be treated as satisfied if it is reasonable to anticipate that, with respect to the first taxable year thereafter for which such corporation has gross income, the provisions of such clauses will be satisfied.
(B) Domestic parent corporation
(b) Special rules for application of section 401(a)
(1) Nondiscrimination requirements
For purposes of applying section 401(a)(4) and section 410(b) with respect to an individual who is treated as an employee of a domestic parent corporation under subsection (a)—
(A) if such individual is a highly compensated employee (within the meaning of section 414(q)), he shall be treated as having such capacity with respect to such domestic parent corporation; and
(B) the determination of whether such individual is a highly compensated employee (as so defined) shall be made by treating such individual’s total compensation (determined with the application of paragraph (2) of this subsection) as compensation paid by such domestic parent corporation and by determining such individual’s status with regard to such domestic parent corporation.
(2) Determination of compensation
[(c) Repealed. Pub. L. 104–188, title I, § 1401(b)(8), Aug. 20, 1996, 110 Stat. 1789]
(d) Deductibility of contributions
For purposes of applying section 404 with respect to contributions made to or under a pension, profit-sharing, stock bonus, or annuity plan by a domestic parent corporation, or by another corporation which is entitled to deduct its contributions under section 404(a)(3)(B), on behalf of an individual who is treated as an employee of such domestic corporation under subsection (a)—
(1) except as provided in paragraph (2), no deduction shall be allowed to such domestic parent corporation or to any other corporation which is entitled to deduct its contributions under such sections,
(2) there shall be allowed as a deduction to the domestic subsidiary of which such individual is an employee an amount equal to the amount which (but for paragraph (1)) would be deductible under section 404 by the domestic parent corporation if he were an employee of the domestic parent corporation, and
(3) any reference to compensation shall be considered to be a reference to the total compensation of such individual (determined with the application of subsection (b)(2)).
Any amount deductible by a domestic subsidiary under this subsection shall be deductible for its taxable year with or within which the taxable year of such domestic parent corporation ends.
(e) Treatment as employee under related provisions
An individual who is treated as an employee of a domestic parent corporation under subsection (a) shall also be treated as an employee of such domestic parent corporation, with respect to the plan described in subsection (a)(1)(A), for purposes of applying the following provisions of this title:
(1) Section 72(f) (relating to special rules for computing employees’ contributions).
(2) Section 2039 (relating to annuities).
(Added Pub. L. 88–272, title II, § 220(b), Feb. 26, 1964, 78 Stat. 60; amended Pub. L. 91–172, title V, § 515(c)(3), Dec. 30, 1969, 83 Stat. 646; Pub. L. 93–406, title II, §§ 1016(a)(5), 2005(c)(13), Sept. 2, 1974, 88 Stat. 929, 992; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 98–21, title III, § 321(d), Apr. 20, 1983, 97 Stat. 119; Pub. L. 98–369, div. A, title IV, § 491(d)(16)–(18), July 18, 1984, 98 Stat. 850; Pub. L. 99–514, title XI, §§ 1112(d)(3), 1114(b)(9)(B), (C), title XVIII, § 1852(e)(2)(D), Oct. 22, 1986, 100 Stat. 2445, 2451, 2868; Pub. L. 100–647, title I, § 1011A(b)(1)(C), (16), Nov. 10, 1988, 102 Stat. 3472, 3475; Pub. L. 101–239, title VII, §§ 7811(g)(3), 7831(f), Dec. 19, 1989, 103 Stat. 2409, 2427; Pub. L. 102–318, title V, § 521(b)(15), July 3, 1992, 106 Stat. 311; Pub. L. 104–188, title I, §§ 1401(b)(8), 1402(b)(2), Aug. 20, 1996, 110 Stat. 1789, 1790.)

CITE AS: 26 USC 407

§ 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 annuityFor 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 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 employeesA 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 72For 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 contributionAn amount is described in this paragraph as a rollover contribution if it meets the requirements of subparagraphs (A) and (B).
(A) In generalParagraph (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 generalIn 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 annuityAn 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 generalIf—(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 rulesIn 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 returnParagraph (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 generalIn 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 informationIf—
(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 generalSo 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 distributionFor 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 generalA 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 entityFor 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 deductibleA 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 interestsA 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 generalIn 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 limitationThe 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 generalIf, 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 generalIf, 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 accountIf 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) ReportsThe 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 generalFor 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 requirementsThis 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 permittedA 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 formulaThe 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 generalA 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 percentageClause (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 percentageFor 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 pensionsThis 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 contributionsThis 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) DefinitionsFor purposes of this subsection and subsection (l)—
(A) Employee, employer, or owner-employee
(B) Compensation
(C) YearThe 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 descriptionThe 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 definedFor 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 bullionFor 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 platispan 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, platispan, or palladium bullion of a fineness equal to or exceeding the minimum fineness that a contract market (as described in section 5 of the Commodity Exchange Act, 7 U.S.C. 7) requires for metals which may be delivered in satisfaction of a regulated futures contract,
if such bullion is in the physical possession of a trustee described under subsection (a) of this section.1
1 So in original. Concluding provisions probably should be part of subpar. (B).
(n) BankFor 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 limitFor purposes of this paragraph—
(i) In generalThe 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 generalAny 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 suppliedThe 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 incomeIn 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 generalFor 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 generalFor 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) DefinitionsFor 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 generalFor 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 generalSubject 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 paymentFor purposes of this subparagraph—(I) In general(II) Qualified higher education expenses
(iii) Applicable rulesClause (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 inflationIn 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 generalThe 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 requirementsThe 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) DefinitionsFor 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 limitationIn 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 generalAn 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 requirementFor 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 contributionsThe 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 ruleIf—
(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) DefinitionsFor purposes of this subsection—
(A) Qualified employer plan
(B) Voluntary employee contributionThe 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

§ 408A. Roth IRAs
(a) General rule
(b) Roth IRA
(c) Treatment of contributions
(1) No deduction allowed
(2) Contribution limitThe aggregate amount of contributions for any taxable year to all Roth IRAs maintained for the benefit of an individual shall not exceed the excess (if any) of—
(A) the maximum amount allowable as a deduction under section 219 with respect to such individual for such taxable year (computed without regard to subsection (g) of such section), over
(B) the aggregate amount of contributions for such taxable year to all other individual retirement plans (other than Roth IRAs) maintained for the benefit of the individual.
(3) Limits based on modified adjusted gross income
(A) Dollar limitThe amount determined under paragraph (2) for any taxable year shall not exceed an amount equal to the amount determined under paragraph (2)(A) for such taxable year, reduced (but not below zero) by the amount which bears the same ratio to such amount as—
(i) the excess of—(I) the taxpayer’s adjusted gross income for such taxable year, over(II) the applicable dollar amount, bears to
(ii) $15,000 ($10,000 in the case of a joint return or a married individual filing a separate return).
The rules of subparagraphs (B) and (C) of section 219(g)(2) shall apply to any reduction under this subparagraph.
(B) DefinitionsFor purposes of this paragraph—
(i) adjusted gross income shall be determined in the same manner as under section 219(g)(3), except that any amount included in gross income under subsection (d)(3) shall not be taken into account, and
(ii) the applicable dollar amount is—(I) in the case of a taxpayer filing a joint return, $150,000,(II) in the case of any other taxpayer (other than a married individual filing a separate return), $95,000, and(III) in the case of a married individual filing a separate return, zero.
(C) Marital status
(D) Inflation adjustmentIn the case of any taxable year beginning in a calendar year after 2006, the dollar amounts in subclauses (I) and (II) of subparagraph (B)(ii) shall each 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 2005” for “calendar year 2016” in subparagraph (A)(ii) thereof.
Any increase determined under the preceding sentence shall be rounded to the nearest multiple of $1,000.
(E) Special rule for certain transfers from qualified tuition programsThe amount determined under subparagraph (A) shall be increased by the lesser of—
(i) the amount of contributions described in section 529(c)(3)(E) for the taxable year, or
(ii) the amount of the reduction determined under such subparagraph (determined without regard to this subparagraph).
(4) Mandatory distribution rules not to apply before deathNotwithstanding subsections (a)(6) and (b)(3) of section 408 (relating to required distributions), the following provisions shall not apply to any Roth IRA:
(A) Section 401(a)(9)(A).
(B) The incidental death benefit requirements of section 401(a).
(5) Rollover contributions
(A) In general
(B) Coordination with limit
(i) In general
(ii) Exception for rollovers from qualified tuition programs
(6) Time when contributions made
(d) Distribution rulesFor purposes of this title—
(1) Exclusion
(2) Qualified distributionFor purposes of this subsection—
(A) In generalThe term “qualified distribution” means any payment or distribution—
(i) made on or after the date on which the individual attains age 59½,
(ii) made to a beneficiary (or to the estate of the individual) on or after the death of the individual,
(iii) attributable to the individual’s being disabled (within the meaning of section 72(m)(7)), or
(iv) which is a qualified special purpose distribution.
(B) Distributions within nonexclusion period
(C) Distributions of excess contributions and earnings
(3) Rollovers from an eligible retirement plan other than a Roth IRA
(A) In generalNotwithstanding sections 402(c), 403(b)(8), 408(d)(3), and 457(e)(16), in the case of any distribution to which this paragraph applies—
(i) there shall be included in gross income any amount which would be includible were it not part of a qualified rollover contribution,
(ii) section 72(t) shall not apply, and
(iii) unless the taxpayer elects not to have this clause apply, any amount required to be included in gross income for any taxable year beginning in 2010 by reason of this paragraph shall be so included ratably over the 2-taxable-year period beginning with the first taxable year beginning in 2011.
Any election under clause (iii) for any distributions during a taxable year may not be changed after the due date for such taxable year.
(B) Distributions to which paragraph applies
(C) Conversions
(D) Additional reporting requirements
(E) Special rules for contributions to which 2-year averaging appliesIn the case of a qualified rollover contribution to a Roth IRA of a distribution to which subparagraph (A)(iii) applied, the following rules shall apply:
(i) Acceleration of inclusion(I) In general(II) Limitation on aggregate amount included
(ii) Death of distributee(I) In general(II) Special rule for surviving spouse
(F) Special rule for applying section 72
(i) In generalIf—(I) any portion of a distribution from a Roth IRA is properly allocable to a qualified rollover contribution described in this paragraph; and(II) such distribution is made within the 5-taxable year period beginning with the taxable year in which such contribution was made,
 then section 72(t) shall be applied as if such portion were includible in gross income.
(ii) Limitation
(4) Aggregation and ordering rules
(A) Aggregation rules
(B) Ordering rulesFor purposes of applying this section and section 72 to any distribution from a Roth IRA, such distribution shall be treated as made—
(i) from contributions to the extent that the amount of such distribution, when added to all previous distributions from the Roth IRA, does not exceed the aggregate contributions to the Roth IRA; and
(ii) from such contributions in the following order:(I) Contributions other than qualified rollover contributions to which paragraph (3) applies.(II) Qualified rollover contributions to which paragraph (3) applies on a first-in, first-out basis.
Any distribution allocated to a qualified rollover contribution under clause (ii)(II) shall be allocated first to the portion of such contribution required to be included in gross income.
(5) Qualified special purpose distribution
(6) Taxpayer may make adjustments before due date
(A) In general
(B) Special rules
(i) Transfer of earnings
(ii) No deduction
(iii) Conversions
(7) Due date
(e) Qualified rollover contributionFor purposes of this section—
(1) In generalThe term “qualified rollover contribution” means a rollover contribution—
(A) to a Roth IRA from another such account,
(B) from an eligible retirement plan, but only if—
(i) in the case of an individual retirement plan, such rollover contribution meets the requirements of section 408(d)(3), and
(ii) in the case of any eligible retirement plan (as defined in section 402(c)(8)(B) other than clauses (i) and (ii) thereof), such rollover contribution meets the requirements of section 402(c), 403(b)(8), or 457(e)(16), as applicable, and
“(C)
(2) Military death gratuity
(A) In generalThe term “qualified rollover contribution” includes a contribution to a Roth IRA maintained for the benefit of an individual made before the end of the 1-year period beginning on the date on which such individual receives an amount under section 1477 of title 10, United States Code, or section 1967 of title 38 of such Code, with respect to a person, to the extent that such contribution does not exceed—
(i) the sum of the amounts received during such period by such individual under such sections with respect to such person, reduced by
(ii) the amounts so received which were contributed to a Coverdell education savings account under section 530(d)(9).
(B) Annual limit on number of rollovers not to apply
(C) Application of section 72
(3) Simple retirement accounts
(Added Pub. L. 105–34, title III, § 302(a), Aug. 5, 1997, 111 Stat. 825; amended Pub. L. 105–206, title VI, § 6005(b)(1)–(7), (9), title VII, § 7004(a), July 22, 1998, 112 Stat. 796–800, 833; Pub. L. 105–277, div. J, title IV, § 4002(j), Oct. 21, 1998, 112 Stat. 2681–908; Pub. L. 107–16, title VI, § 617(e)(1), June 7, 2001, 115 Stat. 106; Pub. L. 109–222, title V, § 512(a), (b), May 17, 2006, 120 Stat. 365; Pub. L. 109–280, title VIII, §§ 824(a), (b), 833(c), Aug. 17, 2006, 120 Stat. 998, 1004; Pub. L. 110–245, title I, § 109(a), (b), June 17, 2008, 122 Stat. 1631, 1632; Pub. L. 110–458, title I, § 108(d), (h), Dec. 23, 2008, 122 Stat. 5109; Pub. L. 115–97, title I, §§ 11002(d)(1)(W), 13611(a), Dec. 22, 2017, 131 Stat. 2060, 2165; Pub. L. 115–141, div. U, title IV, § 401(a)(77), (78), Mar. 23, 2018, 132 Stat. 1187; Pub. L. 116–94, div. O, title I, § 107(c), Dec. 20, 2019, 133 Stat. 3149; Pub. L. 117–328, div. T, title I, § 126(b), title IV, § 401(b)(5), title VI, § 601(a), (c)(2), (d), Dec. 29, 2022, 136 Stat. 5316, 5388, 5390.)

CITE AS: 26 USC 408A

§ 409. Qualifications for tax credit employee stock ownership plans
(a) Tax credit employee stock ownership plan definedExcept as otherwise provided in this title, for purposes of this title, the term “tax credit employee stock ownership plan” means a defined contribution plan which—
(1) meets the requirements of section 401(a),
(2) is designed to invest primarily in employer securities, and
(3) meets the requirements of subsections (b), (c), (d), (e), (f), (g), (h), and (o) of this section.
(b) Required allocation of employer securities
(1) In generalA plan meets the requirements of this subsection if—
(A) the plan provides for the allocation for the plan year of all employer securities transferred to it or purchased by it (because of the requirements of section 41(c)(1)(B)) 1
1 See References in Text note below.
to the accounts of all participants who are entitled to share in such allocation, and
(B) for the plan year the allocation to each participant so entitled is an amount which bears substantially the same proportion to the amount of all such securities allocated to all such participants in the plan for that year as the amount of compensation paid to such participant during that year bears to the compensation paid to all such participants during that year.
(2) Compensation in excess of $100,000 disregarded
(3) Determination of compensation
(4) Suspension of allocation in certain cases
(c) Participants must have nonforfeitable rights
(d) Employer securities must stay in the planA plan meets the requirements of this subsection only if it provides that no employer security allocated to a participant’s account under subsection (b) (or allocated to a participant’s account in connection with matched employer and employee contributions) may be distributed from that account before the end of the 84th month beginning after the month in which the security is allocated to the account. To the extent provided in the plan, the preceding sentence shall not apply in the case of—
(1) death, disability, separation from service, or termination of the plan;
(2) a transfer of a participant to the employment of an acquiring employer from the employment of the selling corporation in the case of a sale to the acquiring corporation of substantially all of the assets used by the selling corporation in a trade or business conducted by the selling corporation, or
(3) with respect to the stock of a selling corporation, a disposition of such selling corporation’s interest in a subsidiary when the participant continues employment with such subsidiary.
This subsection shall not apply to any distribution required under section 401(a)(9) or to any distribution or reinvestment required under section 401(a)(28).
(e) Voting rights
(1) In general
(2) Requirements where employer has a registration-type class of securities
(3) Requirement for other employers
(4) Registration-type class of securities definedFor purposes of this subsection, the term, “registration-type class of securities” means—
(A) a class of securities required to be registered under section 12 of the Securities Exchange Act of 1934, and
(B) a class of securities which would be required to be so registered except for the exemption from registration provided in subsection (g)(2)(H) of such section 12.
(5) 1 vote per participantA plan meets the requirements of paragraph (3) with respect to an issue if—
(A) the plan permits each participant 1 vote with respect to such issue, and
(B) the trustee votes the shares held by the plan in the proportion determined after application of subparagraph (A).
(f) Plan must be established before employer’s due date
(1) In general
(2) Special rule for first year
(g) Transferred amounts must stay in plan even though investment credit is redetermined or recaptured
(h) Right to demand employer securities; put option
(1) In generalA plan meets the requirements of this subsection if a participant who is entitled to a distribution from the plan—
(A) has a right to demand that his benefits be distributed in the form of employer securities, and
(B) if the employer securities are not readily tradable on an established market, has a right to require that the employer repurchase employer securities under a fair valuation formula.
(2) Plan may distribute cash in certain cases
(A) In general
(B) Exception for certain plans restricted from distributing securities
(i) In general
(ii) Applicable plansThis subparagraph shall apply to a plan which otherwise meets the requirements of this subsection or section 4975(e)(7) and which is established and maintained by—(I) an employer whose charter or bylaws restrict the ownership of substantially all outstanding employer securities to employees or to a trust described in section 401(a), or(II) an S corporation.
(3) Special rule for banks
(4) Put option period
(5) Payment requirement for total distributionIf an employer is required to repurchase employer securities which are distributed to the employee as part of a total distribution, the requirements of paragraph (1)(B) shall be treated as met if—
(A) the amount to be paid for the employer securities is paid in substantially equal periodic payments (not less frequently than annually) over a period beginning not later than 30 days after the exercise of the put option described in paragraph (4) and not exceeding 5 years, and
(B) there is adequate security provided and reasonable interest paid on the unpaid amounts referred to in subparagraph (A).
For purposes of this paragraph, the term “total distribution” means the distribution within 1 taxable year to the recipient of the balance to the credit of the recipient’s account.
(6) Payment requirement for installment distributions
(7) Exception where employee elected diversification
(i) Reimbursement for expenses of establishing and administering planA plan which otherwise meets the requirements of this section shall not be treated as failing to meet such requirements merely because it provides that—
(1) Expenses of establishing planAs reimbursement for the expenses of establishing the plan, the employer may withhold from amounts due the plan for the taxable year for which the plan is established (or the plan may pay) so much of the amounts paid or incurred in connection with the establishment of the plan as does not exceed the sum of—
(A) 10 percent of the first $100,000 which the employer is required to transfer to the plan for that taxable year under section 41(c)(1)(B),1 and
(B) 5 percent of any amount so required to be transferred in excess of the first $100,000; and
(2) Administrative expensesAs reimbursement for the expenses of administering the plan, the employer may withhold from amounts due the plan (or the plan may pay) so much of the amounts paid or incurred during the taxable year as expenses of administering the plan as does not exceed the lesser of—
(A) the sum of—
(i) 10 percent of the first $100,000 of the dividends paid to the plan with respect to stock of the employer during the plan year ending with or within the employer’s taxable year, and
(ii) 5 percent of the amount of such dividends in excess of $100,000 or
(B) $100,000.
(j) Conditional contributions to the planA plan which otherwise meets the requirements of this section shall not be treated as failing to satisfy such requirements (or as failing to satisfy the requirements of section 401(a) of this title or of section 403(c)(1) of the Employee Retirement Income Security Act of 1974) merely because of the return of a contribution (or a provision permitting such a return) if—
(1) the contribution to the plan is conditioned on a determination by the Secretary that such plan meets the requirements of this section,
(2) the application for a determination described in paragraph (1) is filed with the Secretary not later than 90 days after the date on which an employee plan credit is claimed, and
(3) the contribution is returned within 1 year after the date on which the Secretary issues notice to the employer that such plan does not satisfy the requirements of this section.
(k) Requirements relating to certain withdrawalsNotwithstanding any other law or rule of law—
(1) the withdrawal from a plan which otherwise meets the requirements of this section by the employer of an amount contributed for purposes of the matching employee plan credit shall not be considered to make the benefits forfeitable, and
(2) the plan shall not, by reason of such withdrawal, fail to be for the exclusive benefit of participants or their beneficiaries,
if the withdrawn amounts were not matched by employee contributions or were in excess of the limitations of section 415. Any withdrawal described in the preceding sentence shall not be considered to violate the provisions of section 403(c)(1) of the Employee Retirement Income Security Act of 1974. For purposes of this subsection, the reference to the matching employee plan credit shall refer to such credit as in effect before the enactment of the Tax Reform Act of 1984.
(l) Employer securities definedFor purposes of this section—
(1) In general
(2) Special rule where there is no readily tradable common stockIf there is no common stock which meets the requirements of paragraph (1), the term “employer securities” means common stock issued by the employer (or by a corporation which is a member of the same controlled group) having a combination of voting power and dividend rights equal to or in excess of—
(A) that class of common stock of the employer (or of any other such corporation) having the greatest voting power, and
(B) that class of common stock of the employer (or of any other such corporation) having the greatest dividend rights.
(3) Preferred stock may be issued in certain cases
(4) Application to controlled group of corporations
(A) In general
(B) Where common parent owns at least 50 percent of first tier subsidiary
(C) Where common parent owns 100 percent of first tier subsidiary
(5) Nonvoting common stock may be acquired in certain cases
(m) Nonrecognition of gain or loss on contribution of employer securities to tax credit employee stock ownership plan
(n) Securities received in certain transactions
(1) In generalA plan to which section 1042 applies and an eligible worker-owned cooperative (within the meaning of section 1042(c)) shall provide that no portion of the assets of the plan or cooperative attributable to (or allocable in lieu of) employer securities acquired by the plan or cooperative in a sale to which section 1042 applies may accrue (or be allocated directly or indirectly under any plan of the employer meeting the requirements of section 401(a))—
(A) during the nonallocation period, for the benefit of—
(i) any taxpayer who makes an election under section 1042(a) with respect to employer securities,
(ii) any individual who is related to the taxpayer (within the meaning of section 267(b)), or
(B) for the benefit of any other person who owns (after application of section 318(a)) more than 25 percent of—
(i) any class of outstanding stock of the corporation which issued such employer securities or of any corporation which is a member of the same controlled group of corporations (within the meaning of subsection (l)(4)) as such corporation, or
(ii) the total value of any class of outstanding stock of any such corporation.
For purposes of subparagraph (B), section 318(a) shall be applied without regard to the employee trust exception in paragraph (2)(B)(i).
(2) Failure to meet requirementsIf a plan fails to meet the requirements of paragraph (1)—
(A) the plan shall be treated as having distributed to the person described in paragraph (1) the amount allocated to the account of such person in violation of paragraph (1) at the time of such allocation,
(B) the provisions of section 4979A shall apply, and
(C) the statutory period for the assessment of any tax imposed by section 4979A shall not expire before the date which is 3 years from the later of—
(i) the 1st allocation of employer securities in connection with a sale to the plan to which section 1042 applies, or
(ii) the date on which the Secretary is notified of such failure.
(3) Definitions and special rulesFor purposes of this subsection—
(A) Lineal descendantsParagraph (1)(A)(ii) shall not apply to any individual if—
(i) such individual is a lineal descendant of the taxpayer, and
(ii) the aggregate amount allocated to the benefit of all such lineal descendants during the nonallocation period does not exceed more than 5 percent of the employer securities (or amounts allocated in lieu thereof) held by the plan which are attributable to a sale to the plan by any person related to such descendants (within the meaning of section 267(c)(4)) in a transaction to which section 1042 applied.
(B) 25-percent shareholdersA person shall be treated as failing to meet the stock ownership limitation under paragraph (1)(B) if such person fails such limitation—
(i) at any time during the 1-year period ending on the date of sale of qualified securities to the plan or cooperative, or
(ii) on the date as of which qualified securities are allocated to participants in the plan or cooperative.
(C) Nonallocation periodThe term “nonallocation period” means the period beginning on the date of the sale of the qualified securities and ending on the later of—
(i) the date which is 10 years after the date of sale, or
(ii) the date of the plan allocation attributable to the final payment of acquisition indebtedness incurred in connection with such sale.
(o) Distribution and payment requirementsA plan meets the requirements of this subsection if—
(1) Distribution requirement
(A) In generalThe plan provides that, if the participant and, if applicable pursuant to sections 401(a)(11) and 417, with the consent of the participant’s spouse elects, the distribution of the participant’s account balance in the plan will commence not later than 1 year after the close of the plan year—
(i) in which the participant separates from service by reason of the attainment of normal retirement age under the plan, disability, or death, or
(ii) which is the 5th plan year following the plan year in which the participant otherwise separates from service, except that this clause shall not apply if the participant is reemployed by the employer before distribution is required to begin under this clause.
(B) Exception for certain financed securities
(C) Limited distribution periodThe plan provides that, unless the participant elects otherwise, the distribution of the participant’s account balance will be in substantially equal periodic payments (not less frequently than annually) over a period not longer than the greater of—
(i) 5 years, or
(ii) in the case of a participant with an account balance in excess of $800,000, 5 years plus 1 additional year (but not more than 5 additional years) for each $160,000 or fraction thereof by which such balance exceeds $800,000.
(2) Cost-of-living adjustment
(p) Prohibited allocations of securities in an S corporation
(1) In general
(2) Failure to meet requirements
(A) In general
(B) Cross reference
(3) Nonallocation yearFor purposes of this subsection—
(A) In generalThe term “nonallocation year” means any plan year of an employee stock ownership plan if, at any time during such plan year—
(i) such plan holds employer securities consisting of stock in an S corporation, and
(ii) disqualified persons own at least 50 percent of the number of shares of stock in the S corporation.
(B) Attribution rulesFor purposes of subparagraph (A)—
(i) In generalThe rules of section 318(a) shall apply for purposes of determining ownership, except that—(I) in applying paragraph (1) thereof, the members of an individual’s family shall include members of the family described in paragraph (4)(D), and(II) paragraph (4) thereof shall not apply.
(ii) Deemed-owned shares
Solely for purposes of applying paragraph (5), this subparagraph shall be applied after the attribution rules of paragraph (5) have been applied.
(4) Disqualified personFor purposes of this subsection—
(A) In generalThe term “disqualified person” means any person if—
(i) the aggregate number of deemed-owned shares of such person and the members of such person’s family is at least 20 percent of the number of deemed-owned shares of stock in the S corporation, or
(ii) in the case of a person not described in clause (i), the number of deemed-owned shares of such person is at least 10 percent of the number of deemed-owned shares of stock in such corporation.
(B) Treatment of family members
(C) Deemed-owned shares
(i) In generalThe term “deemed-owned shares” means, with respect to any person—(I) the stock in the S corporation constituting employer securities of an employee stock ownership plan which is allocated to such person under the plan, and(II) such person’s share of the stock in such corporation which is held by such plan but which is not allocated under the plan to participants.
(ii) Person’s share of unallocated stock
(D) Member of familyFor purposes of this paragraph, the term “member of the family” means, with respect to any individual—
(i) the spouse of the individual,
(ii) an ancestor or lineal descendant of the individual or the individual’s spouse,
(iii) a brother or sister of the individual or the individual’s spouse and any lineal descendant of the brother or sister, and
(iv) the spouse of any individual described in clause (ii) or (iii).
A spouse of an individual who is legally separated from such individual under a decree of divorce or separate maintenance shall not be treated as such individual’s spouse for purposes of this subparagraph.
(5) Treatment of synthetic equityFor purposes of paragraphs (3) and (4), in the case of a person who owns synthetic equity in the S corporation, except to the extent provided in regulations, the shares of stock in such corporation on which such synthetic equity is based shall be treated as outstanding stock in such corporation and deemed-owned shares of such person if such treatment of synthetic equity of 1 or more such persons results in—
(A) the treatment of any person as a disqualified person, or
(B) the treatment of any year as a nonallocation year.
For purposes of this paragraph, synthetic equity shall be treated as owned by a person in the same manner as stock is treated as owned by a person under the rules of paragraphs (2) and (3) of section 318(a). If, without regard to this paragraph, a person is treated as a disqualified person or a year is treated as a nonallocation year, this paragraph shall not be construed to result in the person or year not being so treated.
(6) DefinitionsFor purposes of this subsection—
(A) Employee stock ownership plan
(B) Employer securities
(C) Synthetic equity
(7) Regulations and guidance
(A) In general
(B) Avoidance or evasion
(Added Pub. L. 95–600, title I, § 141(a), Nov. 6, 1978, 92 Stat. 2787, § 409A; amended Pub. L. 96–222, title I, § 101(a)(7)(D)–(F), (I), (J), (L)(i)(VI), (ii)(I), (II), (iii)(V), (v)(VI), (VII), Apr. 1, 1980, 94 Stat. 198–200; Pub. L. 96–605, title II, § 224(a), Dec. 28, 1980, 94 Stat. 3528; Pub. L. 97–34, title III, §§ 331(c)(1), 334, 336, 337(a), Aug. 13, 1981, 95 Stat. 293, 297, 298; Pub. L. 97–448, title I, § 103(h), (i), Jan. 12, 1983, 96 Stat. 2379; renumbered § 409 and amended Pub. L. 98–369, div. A, title IV, §§ 474(r)(15), 491(e)(1), July 18, 1984, 98 Stat. 843, 852; Pub. L. 99–514, title XI, §§ 1172(b)(1), 1174(a)(1), (b)(1), (2), (c)(1)(A), 1176(b), title XVIII, §§ 1852(a)(4)(B), 1854(a)(3)(A), (f)(1), (3)(C), 1899A(11), Oct. 22, 1986, 100 Stat. 2514, 2516, 2517, 2520, 2865, 2873, 2881, 2882, 2958; Pub. L. 100–647, title I, §§ 1011B(g)(1), (2), (i)(1), (3), (j)(3), (5), (k)(3), 1018(t)(4)(B), (C), (H), Nov. 10, 1988, 102 Stat. 3490, 3492, 3493, 3588, 3589; Pub. L. 101–239, title VII, §§ 7304(a)(2)(A), (B), 7811(h)(1), Dec. 19, 1989, 103 Stat. 2352, 2353, 2409; Pub. L. 105–34, title XV, § 1506(a), Aug. 5, 1997, 111 Stat. 1064; Pub. L. 107–16, title VI, § 656(a), June 7, 2001, 115 Stat. 131; Pub. L. 107–147, title IV, § 411(j)(2), Mar. 9, 2002, 116 Stat. 47; Pub. L. 109–280, title IX, § 901(a)(2)(B), Aug. 17, 2006, 120 Stat. 1029; Pub. L. 113–295, div. A, title II, § 221(a)(54), Dec. 19, 2014, 128 Stat. 4045; Pub. L. 115–141, div. U, title IV, § 401(a)(79), Mar. 23, 2018, 132 Stat. 1187.)

CITE AS: 26 USC 409

§ 409A. Inclusion in gross income of deferred compensation under nonqualified deferred compensation plans
(a) Rules relating to constructive receipt
(1) Plan failures
(A) Gross income inclusion
(i) In general
If at any time during a taxable year a nonqualified deferred compensation plan—
(I) fails to meet the requirements of paragraphs (2), (3), and (4), or(II) is not operated in accordance with such requirements,
 all compensation deferred under the plan for the taxable year and all preceding taxable years shall be includible in gross income for the taxable year to the extent not subject to a substantial risk of forfeiture and not previously included in gross income.
(ii) Application only to affected participants
(B) Interest and additional tax payable with respect to previously deferred compensation
(i) In general
If compensation is required to be included in gross income under subparagraph (A) for a taxable year, the tax imposed by this chapter for the taxable year shall be increased by the sum of—
(I) the amount of interest determined under clause (ii), and(II) an amount equal to 20 percent of the compensation which is required to be included in gross income.
(ii) Interest
(2) Distributions
(A) In general
The requirements of this paragraph are met if the plan provides that compensation deferred under the plan may not be distributed earlier than—
(i) separation from service as determined by the Secretary (except as provided in subparagraph (B)(i)),
(ii) the date the participant becomes disabled (within the meaning of subparagraph (C)),
(iii) death,
(iv) a specified time (or pursuant to a fixed schedule) specified under the plan at the date of the deferral of such compensation,
(v) to the extent provided by the Secretary, a change in the ownership or effective control of the corporation, or in the ownership of a substantial portion of the assets of the corporation, or
(vi) the occurrence of an unforeseeable emergency.
(B) Special rules
(i) Specified employees
(ii) Unforeseeable emergency
For purposes of subparagraph (A)(vi)—
(I) In general(II) Limitation on distributions
(C) Disabled
For purposes of subparagraph (A)(ii), a participant shall be considered disabled if the participant—
(i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or
(ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the participant’s employer.
(3) Acceleration of benefits
(4) Elections
(A) In general
(B) Initial deferral decision
(i) In general
(ii) First year of eligibility
(iii) Performance-based compensation
(C) Changes in time and form of distribution
The requirements of this subparagraph are met if, in the case of a plan which permits under a subsequent election a delay in a payment or a change in the form of payment—
(i) the plan requires that such election may not take effect until at least 12 months after the date on which the election is made,
(ii) in the case of an election related to a payment not described in clause (ii), (iii), or (vi) of paragraph (2)(A), the plan requires that the payment with respect to which such election is made be deferred for a period of not less than 5 years from the date such payment would otherwise have been made, and
(iii) the plan requires that any election related to a payment described in paragraph (2)(A)(iv) may not be made less than 12 months prior to the date of the first scheduled payment under such paragraph.
(b) Rules relating to funding
(1) Offshore property in a trust
In the case of assets set aside (directly or indirectly) in a trust (or other arrangement determined by the Secretary) for purposes of paying deferred compensation under a nonqualified deferred compensation plan, for purposes of section 83 such assets shall be treated as property transferred in connection with the performance of services whether or not such assets are available to satisfy claims of general creditors—
(A) at the time set aside if such assets (or such trust or other arrangement) are located outside of the United States, or
(B) at the time transferred if such assets (or such trust or other arrangement) are subsequently transferred outside of the United States.
This paragraph shall not apply to assets located in a foreign jurisdiction if substantially all of the services to which the nonqualified deferred compensation relates are performed in such jurisdiction.
(2) Employer’s financial health
In the case of compensation deferred under a nonqualified deferred compensation plan, there is a transfer of property within the meaning of section 83 with respect to such compensation as of the earlier of—
(A) the date on which the plan first provides that assets will become restricted to the provision of benefits under the plan in connection with a change in the employer’s financial health, or
(B) the date on which assets are so restricted,
whether or not such assets are available to satisfy claims of general creditors.
(3) Treatment of employer’s defined benefit plan during restricted period
(A) In general
If—
(i) during any restricted period with respect to a single-employer defined benefit plan, assets are set aside or reserved (directly or indirectly) in a trust (or other arrangement as determined by the Secretary) or transferred to such a trust or other arrangement for purposes of paying deferred compensation of an applicable covered employee under a nonqualified deferred compensation plan of the plan sponsor or member of a controlled group which includes the plan sponsor, or
(ii) a nonqualified deferred compensation plan of the plan sponsor or member of a controlled group which includes the plan sponsor provides that assets will become restricted to the provision of benefits under the plan to an applicable covered employee in connection with such restricted period (or other similar financial measure determined by the Secretary) with respect to the defined benefit plan, or assets are so restricted,
such assets shall, for purposes of section 83, be treated as property transferred in connection with the performance of services whether or not such assets are available to satisfy claims of general creditors. Clause (i) shall not apply with respect to any assets which are so set aside before the restricted period with respect to the defined benefit plan.
(B) Restricted period
For purposes of this section, the term “restricted period” means, with respect to any plan described in subparagraph (A)—
(i) any period during which the plan is in at-risk status (as defined in section 430(i)),
(ii) any period the plan sponsor is a debtor in a case under title 11, United States Code, or similar Federal or State law, and
(iii) the 12-month period beginning on the date which is 6 months before the termination date of the plan if, as of the termination date, the plan is not sufficient for benefit liabilities (within the meaning of section 4041 of the Employee Retirement Income Security Act of 1974).
(C) Special rule for payment of taxes on deferred compensation included in income
If an employer provides directly or indirectly for the payment of any Federal, State, or local income taxes with respect to any compensation required to be included in gross income by reason of this paragraph—
(i) interest shall be imposed under subsection (a)(1)(B)(i)(I) on the amount of such payment in the same manner as if such payment was part of the deferred compensation to which it relates,
(ii) such payment shall be taken into account in determining the amount of the additional tax under subsection (a)(1)(B)(i)(II) in the same manner as if such payment was part of the deferred compensation to which it relates, and
(iii) no deduction shall be allowed under this title with respect to such payment.
(D) Other definitions
For purposes of this section—
(i) Applicable covered employee
The term “applicable covered employee” means any—
(I) covered employee of a plan sponsor,(II) covered employee of a member of a controlled group which includes the plan sponsor, and(III) former employee who was a covered employee at the time of termination of employment with the plan sponsor or a member of a controlled group which includes the plan sponsor.
(ii) Covered employee
(4) Income inclusion for offshore trusts and employer’s financial health
(5) Interest on tax liability payable with respect to transferred property
(A) In general
If amounts are required to be included in gross income by reason of paragraph (1), (2), or (3) for a taxable year, the tax imposed by this chapter for such taxable year shall be increased by the sum of—
(i) the amount of interest determined under subparagraph (B), and
(ii) an amount equal to 20 percent of the amounts required to be included in gross income.
(B) Interest
(c) No inference on earlier income inclusion or requirement of later inclusion
(d) Other definitions and special rules
For purposes of this section:
(1) Nonqualified deferred compensation plan
The term “nonqualified deferred compensation plan” means any plan that provides for the deferral of compensation, other than—
(A) a qualified employer plan, and
(B) any bona fide vacation leave, sick leave, compensatory time, disability pay, or death benefit plan.
(2) Qualified employer plan
The term “qualified employer plan” means—
(A) any plan, contract, pension, account, or trust described in subparagraph (A) or (B) of section 219(g)(5) (without regard to subparagraph (A)(iii)),
(B) any eligible deferred compensation plan (within the meaning of section 457(b)), and
(C) any plan described in section 415(m).
(3) Plan includes arrangements, etc.
(4) Substantial risk of forfeiture
(5) Treatment of earnings
(6) Aggregation rules
(7) Treatment of qualified stock
(e) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations—
(1) providing for the determination of amounts of deferral in the case of a nonqualified deferred compensation plan which is a defined benefit plan,
(2) relating to changes in the ownership and control of a corporation or assets of a corporation for purposes of subsection (a)(2)(A)(v),
(3) exempting arrangements from the application of subsection (b) if such arrangements will not result in an improper deferral of United States tax and will not result in assets being effectively beyond the reach of creditors,
(4) defining financial health for purposes of subsection (b)(2), and
(5) disregarding a substantial risk of forfeiture in cases where necessary to carry out the purposes of this section.
(Added Pub. L. 108–357, title VIII, § 885(a), Oct. 22, 2004, 118 Stat. 1634; amended Pub. L. 109–135, title IV, § 403(hh)(2), Dec. 21, 2005, 119 Stat. 2631; Pub. L. 109–280, title I, § 116(a), (b), Aug. 17, 2006, 120 Stat. 856, 858; Pub. L. 110–458, title I, § 101(e), Dec. 23, 2008, 122 Stat. 5100; Pub. L. 115–97, title I, § 13603(c)(2), Dec. 22, 2017, 131 Stat. 2164; Pub. L. 115–141, div. U, title IV, § 401(a)(80), Mar. 23, 2018, 132 Stat. 1187.)

CITE AS: 26 USC 409A