USC 2007 ed., current through 2008-01-08 · in effect Jan 8, 2008 to Jan 5, 2009 · last amended by Pub. L. 110-172
(c) Rules applicable to rollovers from exempt trusts
(1) Exclusion from income If—
(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 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—
(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) Transfer must be made within 60 days of receipt
(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.
(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.
(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—
(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.
(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).
(6) Sales of distributed property For purposes of this subsection—
(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.
(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.
(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—
(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 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).
(7) Special rule for frozen deposits
(A) In general The 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 deposits For 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) Definitions For purposes of this subsection—
(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).
(B) Eligible retirement plan The term “eligible retirement plan” means—
(ii) an individual retirement annuity described in
section 408(b) (other than an endowment contract),
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 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.
(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.
(11) Distributions to inherited individual retirement plan of nonspouse beneficiary
(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—
(i) the transfer shall be treated as an eligible rollover distribution for purposes of this subsection,
(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
(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.
(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).
(e) Other rules applicable to exempt trusts
(1) Alternate payees
(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)).
(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.
(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—
(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 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.
(4) Net unrealized appreciation
(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.
(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.
(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.
(D) Lump-sum distribution For purposes of this paragraph—
(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—
(I) on account of the employee's death,
(II) after the employee attains age 591/2,
(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 plans For 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 The provisions of this paragraph shall be applied without regard to community property laws.
(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.
(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)).
(vi) Transfers 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.
(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.
(E) Definitions relating to securities For purposes of this paragraph—
(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.
(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.
(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.
(f) Written explanation to recipients of distributions eligible for rollover treatment
(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—
(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) Definitions For purposes of this subsection—
(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).
(B) Eligible retirement plan The term “eligible retirement plan” has the meaning given such term by
subsection (c)(8)(B).
(g) Limitation on exclusion for elective deferrals
(1) In general
(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.
(B) Applicable dollar amount For purposes of subparagraph (A), the applicable dollar amount shall be the amount determined in accordance with the following table:
For taxable yearsThe applicable
beginning in dollar amount:
calendar year:
2002$11,000
2003$12,000
2004$13,000
2005$14,000
2006 or thereafter$15,000.
(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)).
(2) Distribution of excess deferrals
(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—
(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).
The distribution described in clause (ii) may be made notwithstanding any other provision of law.
(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.
(C) Taxation of distribution In 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 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.
(3) Elective deferrals For 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),
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 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.
(5) Disregard of community property laws This subsection shall be applied without regard to community property laws.
(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.
(7) Special rule for certain organizations
(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:
(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 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).
(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.
(D) Years of service For purposes of this paragraph, the term “years of service” has the meaning given such term by
section 403(b).
(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.
(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).
(l) Distributions from governmental plans for health and long-term care insurance
(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.
(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.
(3) Distributions must otherwise be includible
(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).
(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.
(4) Definitions For purposes of this subsection—
(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).
(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.
(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)).
(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)).
(5) Special rules For purposes of this subsection—
(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.
(B) Related plans treated as 1 All eligible retirement plans of an employer shall be treated as a single plan.
(6) Election described
(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.
(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).
(7) Coordination with medical expense deduction The amounts excluded from gross income under paragraph (1) shall not be taken into account under
section 213.
(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).