SEC. 402. TAXABILITY
OF BENEFICIARY OF EMPLOYEES' TRUST.
402(a) TAXABILITY OF BENEFICIARY OF EXEMPT TRUST. --
Except as otherwise provided in this section, any amount actually
distributed to any distributee by any employees' trust described
in section 401(a) which is exempt from tax under section 501(a)
shall be taxable to the distributee, in the taxable year of
the distributee in which distributed, under section 72 (relating
to annuities).
402(b) TAXABILITY OF BENEFICIARY OF
NONEXEMPT TRUST. --
402(b)(1) CONTRIBUTIONS. --
Contributions to an employees' trust made by an employer during
a taxable year of the employer which ends with or within a taxable
year of the trust for which the trust is not exempt from tax
under section 501(a) shall be included in the gross income of
the employee in accordance with section 83 (relating to property
transferred in connection with performance of services), except
that the value of the employee's interest in the trust shall
be substituted for the fair market value of the property for
purposes of applying such section.
402(b)(2) DISTRIBUTIONS. --
The amount actually distributed or made available to any distributee
by any trust described in paragraph (1) shall be taxable to
the distributee, in the taxable year in which so distributed
or made available, under section 72 (relating to annuities),
except that distributions of income of such trust before the
annuity starting date (as defined in section 72(c)(4)) shall
be included in the gross income of the employee without regard
to section 72(e)(5) (relating to amounts not received as annuities).
402(b)(3) GRANTOR TRUSTS. --
A beneficiary of any trust described in paragraph (1) shall
not be considered the owner of any portion of such trust under
subpart E of part I of subchapter J (relating to grantors and
others treated as substantial owners).
402(b)(4) FAILURE TO MEET REQUIREMENTS
OF SECTION 410(b). --
402(b)(4)(A) HIGHLY COMPENSATED EMPLOYEES.
--If 1 of the reasons a trust is not exempt from tax under section
501(a) is the failure of the plan of which it is a part to meet
the requirements of section 401(a)(26) or 410(b), then a highly
compensated employee shall, in lieu of the amount determined
under paragraph (1) or (2) include in gross income for the taxable
year with or within which the taxable year of the trust ends
an amount equal to the vested accrued benefit of such employee
(other than the employee's investment in the contract) as of
the close of such taxable year of the trust.
402(b)(4)(B) FAILURE TO MEET COVERAGE
TESTS. --If 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 --
402(b)(4)(B)(i) such taxable
year, or
402(b)(4)(B)(ii) any preceding
period for which service was creditable to such employee under
the plan.
402(b)(4)(C) HIGHLY COMPENSATED EMPLOYEE.
--For purposes of this paragraph, the term `highly compensated
employee' has the meaning given such term by section 414(q).
402(c) RULES APPLICABLE TO ROLLOVERS
FROM EXEMPT TRUSTS. --
402(c)(1) EXCLUSION FROM INCOME. --
If --
402(c)(1)(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,
402(c)(1)(B) the distributee transfers any
portion of the property received in such distribution to an
eligible retirement plan, and
402(c)(1)(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.
402(c)(2) MAXIMUM AMOUNT WHICH MAY BE
ROLLED OVER. --
In 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 --
402(c)(2)(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
402(c)(2)(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)).
402(c)(3) TRANSFER MUST BE MADE WITHIN
60 DAYS OF RECEIPT. --
402(c)(3)(A) IN GENERAL. --Except
as provided in subparagraph (B), paragraph (1) shall not apply
to any transfer of a distribution made after the 60th day following
the day on which the distributee received the property distributed.
402(c)(3)(B) HARDSHIP EXCEPTION. --
The Secretary may waive the 60-day requirement under subparagraph
(A) where the failure to waive such requirement would be against
equity or good conscience, including casualty, disaster, or
other events beyond the reasonable control of the individual
subject to such requirement.
402(c)(4) ELIGIBLE ROLLOVER DISTRIBUTION.
--
For 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
--
402(c)(4)(A) any distribution
which is one of a series of substantially equal periodic payments
(not less frequently than annually) made --
402(c)(4)(A)(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
402(c)(4)(A)(ii) for a specified
period of 10 years or more,
402(c)(4)(B) any distribution
to the extent such distribution is required under section 401(a)(9),
and
402(c)(4)(C) any distribution
which is made upon hardship of the employee.
402(c)(5) TRANSFER TREATED AS ROLLOVER
CONTRIBUTION UNDER SECTION 408. --For purposes of this
title, a transfer to an eligible retirement plan described in
clause (i) or (ii) of paragraph (8)(B) resulting in any portion
of a distribution being excluded from gross income under paragraph
(1) shall be treated as a rollover contribution described in
section 408(d)(3).
402(c)(6) SALES OF DISTRIBUTED PROPERTY.
--For purposes of this subsection --
402(c)(6)(A) TRANSFER OF PROCEEDS FROM
SALE OF DISTRIBUTED PROPERTY TREATED AS TRANSFER OF DISTRIBUTED
PROPERTY. --The transfer of an amount equal to any
portion of the proceeds from the sale of property received in
the distribution shall be treated as the transfer of property
received in the distribution.
402(c)(6)(B) PROCEEDS ATTRIBUTABLE TO
INCREASE IN VALUE. --The excess of fair market value
of property on sale over its fair market value on distribution
shall be treated as property received in the distribution.
402(c)(6)(C) DESIGNATION WHERE AMOUNT
OF DISTRIBUTION EXCEEDS ROLLOVER CONTRIBUTION. --In
any case where part or all of the distribution consists of property
other than money --
402(c)(6)(C)(i) the portion
of the money or other property which is to be treated as attributable
to amounts not included in gross income, and
402(c)(6)(C)(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 law for designation,
once made, shall be irrevocable.
402(c)(6)(D) NONRECOGNITION OF GAIN
OR LOSS. --No gain or loss shall be recognized on any
sale described in subparagraph (A) to the extent that an amount
equal to the proceeds is transferred pursuant to paragraph (1).
402(c)(7) SPECIAL RULE FOR FROZEN DEPOSITS.
--
402(c)(7)(A) IN GENERAL. --The
60-day period described in paragraph (3) shall not --
402(c)(7)(A)(i) include any
period during which the amount transferred to the employee is
a frozen deposit, or
402(c)(7)(A)(ii) end earlier
than 10 days after such amount ceases to be a frozen deposit.
402(c)(7)(B) FROZEN DEPOSITS.
--For purposes of this subparagraph, the term "frozen deposit"
means any deposit which may not be withdrawn because of --
402(c)(7)(B)(i) the bankruptcy
or insolvency of any financial institution, or
402(c)(7)(B)(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.
402(c)(8) DEFINITIONS. --
For purposes of this subsection --
402(c)(8)(A) QUALIFIED TRUST. --The
term "qualified trust" means an employees' trust described
in section 401(a) which is exempt from tax under section 501(a).
402(c)(8)(B) ELIGIBLE RETIREMENT PLAN. --
The term "eligible retirement plan" means --
402(c)(8)(B)(i) an individual
retirement account described in section 408(a),
402(c)(8)(B)(ii) an individual
retirement annuity described in section 408(b) (other than an
endowment contract),
402(c)(8)(B)(iii) a qualified
trust,
402(c)(8)(B)(iv) an annuity
plan described in section 403(a),
402(c)(8)(B)(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
402(c)(8)(B)(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.
402(c)(9) ROLLOVER WHERE SPOUSE RECEIVES
DISTRIBUTION AFTER DEATH OF EMPLOYEE. --
If any distribution attributable to an employee is paid to the
spouse of the employee after the employee's death, the preceding
provisions of this subsection shall apply to such distribution
in the same manner as if the spouse were the employee.
402(c)(10) SEPARATE ACCOUNTING.
--Unless a plan described in clause (v) of paragraph (8)(B)
agrees to separately account for amounts rolled into such plan
from eligible retirement plans not described in such clause,
the plan described in such clause may not accept transfers or
rollovers from such retirement plans.
402(c)(11) DISTRIBUTIONS TO INHERITED
INDIVIDUAL RETIREMENT PLAN OF NONSPOUSE BENEFICIARY.
--
402(c)(11)(A) IN GENERAL. --If,
with respect to any portion of a distribution from an eligible
retirement plan 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
--
402(c)(11)(A)(i) the transfer
shall be treated as an eligible rollover distribution for purposes
of this subsection,
402(c)(11)(A)(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
402(c)(11)(A)(iii) section
401(a)(9)(B) (other than clause (iv) thereof) shall apply to
such plan.
402(c)(11)(B) CERTAIN TRUSTS TREATED
AS BENEFICIARIES. --For purposes of this paragraph,
to the extent provided in rules prescribed by the Secretary,
a trust maintained for the benefit of one or more designated
beneficiaries shall be treated in the same manner as a trust
designated beneficiary.
402(d) TAXABILITY OF BENEFICIARY OF
CERTAIN FOREIGN SITUS TRUSTS. --
For purposes of subsections (a), (b), and (c), a stock bonus,
pension, or profit-sharing trust which would qualify for exemption
from tax under section 501(a) except for the fact that it is
a trust created or organized outside the United States shall
be treated as if it were a trust exempt from tax under section
501(a).
402(e) OTHER RULES APPLICABLE TO EXEMPT
TRUSTS. --
402(e)(1) ALTERNATE PAYEES.
--
402(e)(1)(A) ALTERNATE PAYEE TREATED
AS DISTRIBUTEE. --For purposes of subsection (a) and
section 72, an alternate payee who is the spouse or former spouse
of the participant shall be treated as the distributee of any
distribution or payment made to the alternate payee under a
qualified domestic relations order (as defined in section 414(p)).
402(e)(1)(B) ROLLOVERS. --
If any amount is paid or distributed to an alternate payee who
is the spouse or former spouse of the participant by reason
of any qualified domestic relations order (within the meaning
of section 414(p)), subsection (c) shall apply to such distribution
in the same manner as if such alternate payee were the employee.
402(e)(2) DISTRIBUTIONS BY UNITED STATES
TO NONRESIDENT ALIENS. --
The 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 --
402(e)(2)(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
402(e)(2)(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.
402(e)(3) CASH OR DEFERRED ARRANGEMENTS.
--
For purposes of this title, contributions made by an employer
on behalf of an employee to a trust which is a part of a qualified
cash or deferred arrangement (as defined in section 401(k)(2))
or which is part of a salary reduction agreement under section
403(b) shall not be treated as distributed or made available
to the employee nor as contributions made to the trust by the
employee merely because the arrangement includes provisions
under which the employee has an election whether the contribution
will be made to the trust or received by the employee in cash.
402(e)(4) NET UNREALIZED APPRECIATION.
--
402(e)(4)(A) AMOUNTS ATTRIBUTABLE TO
EMPLOYEE CONTRIBUTIONS. --For purposes of subsection
(a) and section 72, in the case of a distribution other than
a lump sum distribution, the amount actually distributed to
any distributee from a trust described in subsection (a) shall
not include any net unrealized appreciation in securities of
the employer corporation attributable to amounts contributed
by the employee (other than deductible employee contributions
within the meaning of section 72(o)(5)). This subparagraph shall
not apply to a distribution to which subsection (c) applies.
402(e)(4)(B) AMOUNTS ATTRIBUTABLE TO EMPLOYER CONTRIBUTIONS.
--
For purposes of subsection (a) and section 72, in the case of
any lump sum distribution which includes securities of the employer
corporation, there shall be excluded from gross income the net
unrealized appreciation attributable to that part of the distribution
which consists of securities of the employer corporation. In
accordance with rules prescribed by the Secretary, a taxpayer
may elect, on the return of tax on which a lump sum distribution
is required to be included, not to have this subparagraph apply
to such distribution.
402(e)(4)(C) DETERMINATION OF AMOUNTS AND ADJUSTMENTS.
--
For purposes of subparagraphs (A) and (B), net unrealized appreciation
and the resulting adjustments to basis shall be determined in
accordance with regulations prescribed by the Secretary.
402(e)(4)(D) LUMP-SUM DISTRIBUTION. --
For purposes of this paragraph --
402(e)(4)(D)(i) IN GENERAL. --
The 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
--
402(e)(4)(D)(i)(I) on account
of the employee's death,
402(e)(4)(D)(i)(II) after the
employee attains age 591/2 ,
402(e)(4)(D)(i)(III) on account of the employee's
separation from service, or
402(e)(4)(D)(i)(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)).
402(e)(4)(D)(ii) AGGREGATION OF CERTAIN
TRUSTS AND PLANS. --For purposes of determining the
balance to the credit of an employee under clause (i) --
402(e)(4)(D)(ii)(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
402(e)(4)(D)(ii)(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.
402(e)(4)(D)(iii) COMMUNITY PROPERTY LAWS. --
The provisions of this paragraph shall be applied without regard
to community property laws.
402(e)(4)(D)(iv) AMOUNTS SUBJECT TO
PENALTY. --This paragraph shall not apply to amounts
described in subparagraph (A) of section 72(m)(5) to the extent
that section 72(m)(5) applies to such amounts.
402(e)(4)(D)(v) BALANCE TO CREDIT OF
EMPLOYEE NOT TO INCLUDE AMOUNTS PAYABLE UNDER QUALIFIED DOMESTIC
RELATIONS ORDER. --For purposes of this paragraph,
the balance to the credit of an employee shall not include any
amount payable to an alternate payee under a qualified domestic
relations order (within the meaning of section 414(p)).
402(e)(4)(D)(vi) TRANFERS TO COST-OF-LIVING
ARRANGEMENT NOT TREATED AS DISTRIBUTION. --For purposes
of this paragraph, the balance to the credit of an employee
under a defined contribution plan shall not include any amount
transferred from such defined contribution plan to a qualified
cost-of-living arrangement (within the meaning of section 415(k)(2))
under a defined benefit plan.
402(e)(4)(D)(vii) LUMP-SUM DISTRIBUTIONS OF ALTERNATE
PAYEES. --
If any distribution or payment of the balance to the credit
of an employee would be treated as a lump-sum distribution,
then, for purposes of this paragraph, the payment under a qualified
domestic relations order (within the meaning of section 414(p))
of the balance to the credit of an alternate payee who is the
spouse or former spouse of the employee shall be treated as
a lump-sum distribution. For purposes of this clause, the balance
to the credit of the alternate payee shall not include any amount
payable to the employee.
402(e)(4)(E) DEFINITIONS RELATING TO
SECURITIES. --For purposes of this paragraph --
402(e)(4)(E)(i) SECURITIES.
--The term "securities" means only shares of stock
and bonds or debentures issued by a corporation with interest
coupons or in registered form.
402(e)(4)(E)(ii) SECURITIES OF THE EMPLOYER.
--The term "securities of the employer corporation"
includes securities of a parent or subsidiary corporation (as
defined in subsections (e) and (f) of section 424) of the employer
corporation.
402(e)(5) [Stricken.]
402(e)(6) DIRECT TRUSTEE-TO-TRUSTEE TRANSFERS.
--
Any amount transferred in a direct trustee-to-trustee transfer
in accordance with section 401(a)(31) shall not be includible
in gross income for the taxable year of such transfer.
402(f) WRITTEN EXPLANATION TO RECIPIENTS
OF DISTRIBUTIONS ELIGIBLE FOR ROLLOVER TREATMENT. --
402(f)(1) IN GENERAL. --
The 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 --
402(f)(1)(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),
402(f)(1)(B) of the provision
which requires the withholding of tax on the distribution if
it is not directly transferred to an eligible retirement plan,
402(f)(1)(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,
402(f)(1)(D) if applicable,
of the provisions of subsections (d) and (e) of this section,
and
402(f)(1)(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.
402(f)(2) DEFINITIONS. --For
purposes of this subsection --
402(f)(2)(A) ELIGIBLE ROLLOVER DISTRIBUTION.
--The term "eligible rollover distribution" has the
same meaning as when used in subsection (c) of this section,
paragraph (4) of section 403(a), subparagraph (A) of section
403(b)(8), or subparagraph (A) of section 457(e)(16).
402(f)(2)(B) ELIGIBLE RETIREMENT PLAN.
--The term "eligible retirement plan" has the meaning
given such term by subsection (c)(8)(B).
402(g) LIMITATION ON EXCLUSION FOR ELECTIVE
DEFERRALS. --
402(g)(1) IN GENERAL. --
402(g)(1)(A) LIMITATION. --Notwithstanding
subsections (e)(3) and (h)(1)(B), the elective deferrals of
any individual for any taxable year shall be included in such
individual's gross income to the extent the amount of such deferrals
for the taxable year exceeds the applicable dollar amount. The
preceding sentence shall not apply to the portion of such excess
as does not exceed the designated Roth contributions of the
individual for the taxable year.
402(g)(1)(B) APPLICABLE DOLLAR AMOUNT.
--For purposes of subparagraph (A), the applicable dollar amount
shall be the amount determined in accordance with the following
table:
The
applicable
dollar
For taxable yearsbeginning incalendar year: amount:
2006 or thereafter .........................................
$15,000.
402(g)(1)(C) CATCH-UP CONTRIBUTIONS.
--In addition to subparagraph (A), in the case of an eligible
participant (as defined in section 414(v)), gross income shall
not include elective deferrals in excess of the applicable dollar
amount under subparagraph (B) to the extent that the amount
of such elective deferrals does not exceed the applicable dollar
amount under section 414(v)(2)(B)(i) for the taxable year (without
regard to the treatment of the elective deferrals by an applicable
employer plan under section 414(v)).
402(g)(2) DISTRIBUTION OF EXCESS DEFERRALS.
--
402(g)(2)(A) IN GENERAL. --If
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 --
402(g)(2)(A)(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
402(g)(2)(A)(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).
The distribution described in clause (ii) may
be made notwithstanding any other provision of law.
402(g)(2)(B) TREATMENT OF DISTRIBUTION
UNDER SECTION 401(k). --Except to the extent provided
under rules prescribed by the Secretary, notwithstanding the
distribution of any portion of an excess deferral from a plan
under subparagraph (A)(ii), such portion shall, for purposes
of applying section 401(k)(3)(A)(ii), be treated as an employer
contribution.
402(g)(2)(C) TAXATION OF DISTRIBUTION.
--In the case of a distribution to which subparagraph (A) applies
--
402(g)(2)(C)(i) except as provided
in clause (ii), such distribution shall not be included in gross
income, and
402(g)(2)(C)(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.
402(g)(2)(D) PARTIAL DISTRIBUTIONS.
--If a plan distributes only a portion of any excess deferral
and income allocable thereto, such portion shall be treated
as having been distributed ratably from the excess deferral
and the income.
402(g)(3) ELECTIVE DEFERRALS.
--
For purposes of this subsection, the term "elective deferrals"
means, with respect to any taxable year, the sum of --
402(g)(3)(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),
402(g)(3)(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),
402(g)(3)(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
402(g)(3)(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.
402(g)(4) COST-OF-LIVING ADJUSTMENT.
--
In the case of taxable years beginning after December 31, 2006,
the Secretary shall adjust the $15,000 amount under paragraph
(1)(B) at the same time and in the same manner as under section
415(d), except that the base period shall be the calendar quarter
beginning July 1, 2005, and any increase under this paragraph
which is not a multiple of $500 shall be rounded to the next
lowest multiple of $500.
402(g)(5) DISREGARD OF COMMUNITY PROPERTY
LAWS. --
This subsection shall be applied without regard to community
property laws.
402(g)(6) COORDINATION WITH SECTION
72. --
For purposes of applying section 72, any amount includible in
gross income for any taxable year under this subsection but
which is not distributed from the plan during such taxable year
shall not be treated as investment in the contract.
402(g)(7) SPECIAL RULE FOR CERTAIN ORGANIZATIONS.
--
402(g)(7)(A) IN GENERAL. --In
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:
402(g)(7)(A)(i) $3,000,
402(g)(7)(A)(ii) $15,000 reduced
by the sum of --
402(g)(7)(A)(ii)(I) the amounts
not included in gross income for prior taxable years by reason
of this paragraph, plus
402(g)(7)(A)(ii)(II) the aggregate
amount of designated Roth contributions (as defined in section
402A(c)) for prior taxable years, or
402(g)(7)(A)(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).
402(g)(7)(B) QUALIFIED ORGANIZATION.
--For purposes of this paragraph, the term "qualified organization"
means any educational organization, hospital, home health service
agency, health and welfare service agency, church, or convention
or association of churches. Such term includes any organization
described in section 414(e)(3)(B)(ii). Terms used in this subparagraph
shall have the same meaning as when used in section 415(c)(4)
(as in effect before the enactment of the Economic Growth and
Tax Relief Reconciliation Act of 2001).
402(g)(7)(C) QUALIFIED EMPLOYEE.
--For purposes of this paragraph, the term "qualified employee"
means any employee who has completed 15 years of service with
the qualified organization.
402(g)(7)(D) YEARS OF SERVICE. --
For purposes of this paragraph, the term "years of service"
has the meaning given such term by section 403(b).
402(g)(8) MATCHING CONTRIBUTIONS ON
BEHALF OF SELF-EMPLOYED INDIVIDUALS NOT TREATED AS ELECTIVE
EMPLOYER CONTRIBUTIONS. --
Except as provided in section 401(k)(3)(D)(ii), any matching
contribution described in section 401(m)(4)(A) which is made
on behalf of a self-employed individual (as defined in section
401(c)) shall not be treated as an elective employer contribution
under a qualified cash or deferred arrangement (as defined in
section 401(k)) for purposes of this title.
402(h) SPECIAL RULES FOR SIMPLIFIED
EMPLOYEE PENSIONS. --
For purposes of this chapter --
402(h)(1) IN GENERAL. --
Except 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)) --
402(h)(1)(A) shall not be treated
as distributed or made available to the employee or as contributions
made by the employee, and
402(h)(1)(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 employer 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.
402(h)(2) LIMITATIONS ON EMPLOYER CONTRIBUTIONS.
--
Contributions 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 --
402(h)(2)(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
402(h)(2)(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).
402(h)(3) DISTRIBUTIONS. --
Any amount paid or distributed out of an individual retirement
plan pursuant to a simplified employee pension shall be included
in gross income by the payee or distributee, as the case may
be, in accordance with the provisions of section 408(d).
402(i) TREATMENT OF SELF-EMPLOYED INDIVIDUALS.
--
For purposes of this section, except as otherwise provided in
subparagraph (A) of subsection (d)(4), the term "employee"
includes a self-employed individual (as defined in section 401(c)(1)(B))
and the employer of such individual shall be the person treated
as his employer under section 401(c)(4).
402(j) EFFECT OF DISPOSITION OF STOCK
BY PLAN ON NET UNREALIZED APPRECIATION. --
402(j)(1) IN GENERAL. --
For purposes of subsection (e)(4), in the case of any transaction
to which this subsection applies, the determination of net unrealized
appreciation shall be made without regard to such transaction.
402(j)(2) TRANSACTION TO WHICH SUBSECTION
APPLIES. --This subsection shall apply to any transaction
in which --
402(j)(2)(A) the plan trustee
exchanges the plan's securities of the employer corporation
for other such securities, or
402(j)(2)(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.
402(k) TREATMENT OF SIMPLE RETIREMENT ACCOUNTS.
--
Rules similar to the rules of paragraphs (1) and (3) of subsection
(h) shall apply to contributions and distributions with respect
to a simple retirement account under section 408(p).
402(l) DISTRIBUTIONS FROM GOVERNMENTAL
PLANS FOR HEALTH AND LONG-TERM CARE INSURANCE. --
402(l)(1) IN GENERAL. --In
the case of an employee who is an eligible retired public safety
officer who makes the election described in paragraph (6) with
respect to any taxable year of such employee, gross income of
such employee for such taxable year does not include any distribution
from an eligible retirement plan to the extent that the aggregate
amount of such distributions does not exceed the amount paid
by such employee for qualified health insurance premiums of
the employee, his spouse, or dependents (as defined in section
152) for such taxable year.
402(l)(2) LIMITATION. --The
amount which may be excluded from gross income for the taxable
year by reason of paragraph (1) shall not exceed $3,000.
402(l)(3) DISTRIBUTIONS MUST OTHERWISE
BE INCLUDIBLE. --
402(l)(3)(A) IN GENERAL. --An
amount shall be treated as a distribution for purposes of paragraph
(1) only to the extent that such amount would be includible
in gross income without regard to paragraph (1).
402(l)(3)(B) APPLICATION OF SECTION
72. --Notwithstanding section 72, in determining the
extent to which an amount is treated as a distribution for purposes
of subparagraph (A), the aggregate amounts distributed from
an eligible retirement plan in a taxable year (up to the amount
excluded under paragraph (1)) shall be treated as includible
in gross income (without regard to subparagraph (A)) to the
extent that such amount does not exceed the aggregate amount
which would have been so includible if all amounts distributed
from all eligible retirement plans were treated as 1 contract
for purposes of determining the inclusion of such distribution
under section 72. Proper adjustments shall be made in applying
section 72 to other distributions in such taxable year and subsequent
taxable years.
402(l)(4) DEFINITIONS. --For
purposes of this subsection --
402(l)(4)(A) ELIGIBLE RETIREMENT PLAN.
--For purposes of paragraph (1), the term "eligible
retirement plan" means a governmental plan (within the
meaning of section 414(d)) which is described in clause (iii),
(iv), (v), or (vi) of subsection (c)(8)(B).
402(l)(4)(B) ELIGIBLE RETIRED PUBLIC
SAFETY OFFICER. --The term "eligible retired public
safety officer" means an individual who, by reason of disability
or attainment of normal retirement age, is separated from service
as a public safety officer with the employer who maintains the
eligible retirement plan from which distributions subject to
paragraph (1) are made.
402(l)(4)(C) PUBLIC SAFETY OFFICER.
--The term "public safety officer" shall have the
same meaning given such term by section 1204(9)(A) of the Omnibus
Crime Control and Safe Streets Act of 1968 (42 U.S.C. 3796b(9)(A)).
402(l)(4)(D) QUALIFIED HEALTH INSURANCE
PREMIUMS. --The term "qualified health insurance
premiums" means premiums for coverage for the eligible
retired public safety officer, his spouse, and dependents, by
an accident or health insurance plan or qualified long-term
care insurance contract (as defined in section 7702B(b)).
402(l)(5) SPECIAL RULES. --For
purposes of this subsection --
402(l)(5)(A) DIRECT PAYMENT TO INSURER
REQUIRED. --Paragraph (1) shall only apply to a distribution
if payment of the premiums is made directly to the provider
of the accident or health insurance plan or qualified long-term
care insurance contract by deduction from a distribution from
the eligible retirement plan.
402(l)(5)(B) RELATED PLANS TREATED AS
1. --All eligible retirement plans of an employer shall
be treated as a single plan.
402(l)(6) ELECTION DESCRIBED.
--
402(l)(6)(A) IN GENERAL. --For
purposes of paragraph (1), an election is described in this
paragraph if the election is made by an employee after separation
from service with respect to amounts not distributed from an
eligible retirement plan to have amounts from such plan distributed
in order to pay for qualified health insurance premiums.
402(l)(6)(B) SPECIAL RULE.
--A plan shall not be treated as violating the requirements
of section 401, or as engaging in a prohibited transaction for
purposes of section 503(b), merely because it provides for an
election with respect to amounts that are otherwise distributable
under the plan or merely because of a distribution made pursuant
to an election described in subparagraph (A).
402(l)(7) COORDINATION WITH MEDICAL
EXPENSE DEDUCTION. --The amounts excluded from gross
income under paragraph (1) shall not be taken into account under
section 213.
402(l)(8) COORDINATION WITH DEDUCTION
FOR HEALTH INSURANCE COSTS OF SELF-EMPLOYED INDIVIDUALS.
--The amounts excluded from gross income under paragraph (1)
shall not be taken into account under section 162(l).
Presented by Alvin Brown and Associates,
tax attorney, formerly with the Office of the Chief Counsel of the
IRS.
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