Internal Revenue Code:Sec. 72. Annuities; certain proceeds of endowment and life insurance contracts
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TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter B - Computation of Taxable Income
PART II - ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME
Statute
Sec. 72. Annuities; certain proceeds of endowment and life
insurance contracts
(a) General rule for annuities
Except as otherwise provided in this chapter, gross income
includes any amount received as an annuity (whether for a period
certain or during one or more lives) under an annuity, endowment,
or life insurance contract.
(b) Exclusion ratio
(1) In general
Gross income does not include that part of any amount received
as an annuity under an annuity, endowment, or life insurance
contract which bears the same ratio to such amount as the
investment in the contract (as of the annuity starting date)
bears to the expected return under the contract (as of such
date).
(2) Exclusion limited to investment
The portion of any amount received as an annuity which is
excluded from gross income under paragraph (1) shall not exceed
the unrecovered investment in the contract immediately before the
receipt of such amount.
(3) Deduction where annuity payments cease before entire
investment recovered
(A) In general
If -
(i) after the annuity starting date, payments as an annuity
under the contract cease by reason of the death of an
annuitant, and
(ii) as of the date of such cessation, there is unrecovered
investment in the contract,
the amount of such unrecovered investment (in excess of any
amount specified in subsection (e)(5) which was not included in
gross income) shall be allowed as a deduction to the annuitant
for his last taxable year.
(B) Payments to other persons
In the case of any contract which provides for payments
meeting the requirements of subparagraphs (B) and (C) of
subsection (c)(2), the deduction under subparagraph (A) shall
be allowed to the person entitled to such payments for the
taxable year in which such payments are received.
(C) Net operating loss deductions provided
For purposes of section 172, a deduction allowed under this
paragraph shall be treated as if it were attributable to a
trade or business of the taxpayer.
(4) Unrecovered investment
For purposes of this subsection, the unrecovered investment in
the contract as of any date is -
(A) the investment in the contract (determined without regard
to subsection (c)(2)) as of the annuity starting date, reduced
by
(B) the aggregate amount received under the contract on or
after such annuity starting date and before the date as of
which the determination is being made, to the extent such
amount was excludable from gross income under this subtitle.
(c) Definitions
(1) Investment in the contract
For purposes of subsection (b), the investment in the contract
as of the annuity starting date is -
(A) the aggregate amount of premiums or other consideration
paid for the contract, minus
(B) the aggregate amount received under the contract before
such date, to the extent that such amount was excludable from
gross income under this subtitle or prior income tax laws.
(2) Adjustment in investment where there is refund feature
If -
(A) the expected return under the contract depends in whole
or in part on the life expectancy of one or more individuals;
(B) the contract provides for payments to be made to a
beneficiary (or to the estate of an annuitant) on or after the
death of the annuitant or annuitants; and
(C) such payments are in the nature of a refund of the
consideration paid,
then the value (computed without discount for interest) of such
payments on the annuity starting date shall be subtracted from
the amount determined under paragraph (1). Such value shall be
computed in accordance with actuarial tables prescribed by the
Secretary. For purposes of this paragraph and of subsection
(e)(2)(A), the term ''refund of the consideration paid'' includes
amounts payable after the death of an annuitant by reason of a
provision in the contract for a life annuity with minimum period
of payments certain, but (if part of the consideration was
contributed by an employer) does not include that part of any
payment to a beneficiary (or to the estate of the annuitant)
which is not attributable to the consideration paid by the
employee for the contract as determined under paragraph (1)(A).
(3) Expected return
For purposes of subsection (b), the expected return under the
contract shall be determined as follows:
(A) Life expectancy
If the expected return under the contract, for the period on
and after the annuity starting date, depends in whole or in
part on the life expectancy of one or more individuals, the
expected return shall be computed with reference to actuarial
tables prescribed by the Secretary.
(B) Installment payments
If subparagraph (A) does not apply, the expected return is
the aggregate of the amounts receivable under the contract as
an annuity.
(4) Annuity starting date
For purposes of this section, the annuity starting date in the
case of any contract is the first day of the first period for
which an amount is received as an annuity under the contract;
except that if such date was before January 1, 1954, then the
annuity starting date is January 1, 1954.
(d) Special rules for qualified employer retirement plans
(1) Simplified method of taxing annuity payments
(A) In general
In the case of any amount received as an annuity under a
qualified employer retirement plan -
(i) subsection (b) shall not apply, and
(ii) the investment in the contract shall be recovered as
provided in this paragraph.
(B) Method of recovering investment in contract
(i) In general
Gross income shall not include so much of any monthly
annuity payment under a qualified employer retirement plan as
does not exceed the amount obtained by dividing -
(I) the investment in the contract (as of the annuity
starting date), by
(II) the number of anticipated payments determined under
the table contained in clause (iii) (or, in the case of a
contract to which subsection (c)(3)(B) applies, the number
of monthly annuity payments under such contract).
(ii) Certain rules made applicable
Rules similar to the rules of paragraphs (2) and (3) of
subsection (b) shall apply for purposes of this paragraph.
(iii) Number of anticipated payments
If the annuity is payable over the life of a single
individual, the number of anticipated payments shall be
determined as follows:
If the age of the
annuitant on The number
the annuity starting of anticipated
date is: payments is:
Not more than 55 360
More than 55 but not more than 60 310
More than 60 but not more than 65 260
More than 65 but not more than 70 210
More than 70 160.
(iv) Number of anticipated payments where more than one life
If the annuity is payable over the lives of more than 1
individual, the number of anticipated payments shall be
determined as follows:
If the combined ages of
annuitants are: The number is:
Not more than 110 410
More than 110 but not more than 120 360
More than 120 but not more than 130 310
More than 130 but not more than 140 260
More than 140 210.
(C) Adjustment for refund feature not applicable
For purposes of this paragraph, investment in the contract
shall be determined under subsection (c)(1) without regard to
subsection (c)(2).
(D) Special rule where lump sum paid in connection with
commencement of annuity payments
If, in connection with the commencement of annuity payments
under any qualified employer retirement plan, the taxpayer
receives a lump-sum payment -
(i) such payment shall be taxable under subsection (e) as
if received before the annuity starting date, and
(ii) the investment in the contract for purposes of this
paragraph shall be determined as if such payment had been so
received.
(E) Exception
This paragraph shall not apply in any case where the primary
annuitant has attained age 75 on the annuity starting date
unless there are fewer than 5 years of guaranteed payments
under the annuity.
(F) Adjustment where annuity payments not on monthly basis
In any case where the annuity payments are not made on a
monthly basis, appropriate adjustments in the application of
this paragraph shall be made to take into account the period on
the basis of which such payments are made.
(G) Qualified employer retirement plan
For purposes of this paragraph, the term ''qualified employer
retirement plan'' means any plan or contract described in
paragraph (1), (2), or (3) of section 4974(c).
(2) Treatment of employee contributions under defined
contribution plans
For purposes of this section, employee contributions (and any
income allocable thereto) under a defined contribution plan may
be treated as a separate contract.
(e) Amounts not received as annuities
(1) Application of subsection
(A) In general
This subsection shall apply to any amount which -
(i) is received under an annuity, endowment, or life
insurance contract, and
(ii) is not received as an annuity,
if no provision of this subtitle (other than this subsection)
applies with respect to such amount.
(B) Dividends
For purposes of this section, any amount received which is in
the nature of a dividend or similar distribution shall be
treated as an amount not received as an annuity.
(2) General rule
Any amount to which this subsection applies -
(A) if received on or after the annuity starting date, shall
be included in gross income, or
(B) if received before the annuity starting date -
(i) shall be included in gross income to the extent
allocable to income on the contract, and
(ii) shall not be included in gross income to the extent
allocable to the investment in the contract.
(3) Allocation of amounts to income and investment
For purposes of paragraph (2)(B) -
(A) Allocation to income
Any amount to which this subsection applies shall be treated
as allocable to income on the contract to the extent that such
amount does not exceed the excess (if any) of -
(i) the cash value of the contract (determined without
regard to any surrender charge) immediately before the amount
is received, over
(ii) the investment in the contract at such time.
(B) Allocation to investment
Any amount to which this subsection applies shall be treated
as allocable to investment in the contract to the extent that
such amount is not allocated to income under subparagraph (A).
(4) Special rules for application of paragraph (2)(B)
For purposes of paragraph (2)(B) -
(A) Loans treated as distributions
If, during any taxable year, an individual -
(i) receives (directly or indirectly) any amount as a loan
under any contract to which this subsection applies, or
(ii) assigns or pledges (or agrees to assign or pledge) any
portion of the value of any such contract,
such amount or portion shall be treated as received under the
contract as an amount not received as an annuity. The
preceding sentence shall not apply for purposes of determining
investment in the contract, except that the investment in the
contract shall be increased by any amount included in gross
income by reason of the amount treated as received under the
preceding sentence.
(B) Treatment of policyholder dividends
Any amount described in paragraph (1)(B) shall not be
included in gross income under paragraph (2)(B)(i) to the
extent such amount is retained by the insurer as a premium or
other consideration paid for the contract.
(C) Treatment of transfers without adequate consideration
(i) In general
If an individual who holds an annuity contract transfers it
without full and adequate consideration, such individual
shall be treated as receiving an amount equal to the excess
of -
(I) the cash surrender value of such contract at the time
of transfer, over
(II) the investment in such contract at such time,
under the contract as an amount not received as an annuity.
(ii) Exception for certain transfers between spouses or
former spouses
Clause (i) shall not apply to any transfer to which section
1041(a) (relating to transfers of property between spouses or
incident to divorce) applies.
(iii) Adjustment to investment in contract of transferee
If under clause (i) an amount is included in the gross
income of the transferor of an annuity contract, the
investment in the contract of the transferee in such contract
shall be increased by the amount so included.
(5) Retention of existing rules in certain cases
(A) In general
In any case to which this paragraph applies -
(i) paragraphs (2)(B) and (4)(A) shall not apply, and
(ii) if paragraph (2)(A) does not apply,
the amount shall be included in gross income, but only to the
extent it exceeds the investment in the contract.
(B) Existing contracts
This paragraph shall apply to contracts entered into before
August 14, 1982. Any amount allocable to investment in the
contract after August 13, 1982, shall be treated as from a
contract entered into after such date.
(C) Certain life insurance and endowment contracts
Except as provided in paragraph (10) and except to the extent
prescribed by the Secretary by regulations, this paragraph
shall apply to any amount not received as an annuity which is
received under a life insurance or endowment contract.
(D) Contracts under qualified plans
Except as provided in paragraph (8), this paragraph shall
apply to any amount received -
(i) from a trust described in section 401(a) which is
exempt from tax under section 501(a),
(ii) from a contract -
(I) purchased by a trust described in clause (i),
(II) purchased as part of a plan described in section
403(a),
(III) described in section 403(b), or
(IV) provided for employees of a life insurance company
under a plan described in section 818(a)(3), or
(iii) from an individual retirement account or an
individual retirement annuity.
Any dividend described in section 404(k) which is received by a
participant or beneficiary shall, for purposes of this
subparagraph, be treated as paid under a separate contract to
which clause (ii)(I) applies.
(E) Full refunds, surrenders, redemptions, and maturities
This paragraph shall apply to -
(i) any amount received, whether in a single sum or
otherwise, under a contract in full discharge of the
obligation under the contract which is in the nature of a
refund of the consideration paid for the contract, and
(ii) any amount received under a contract on its complete
surrender, redemption, or maturity.
In the case of any amount to which the preceding sentence
applies, the rule of paragraph (2)(A) shall not apply.
(6) Investment in the contract
For purposes of this subsection, the investment in the contract
as of any date is -
(A) the aggregate amount of premiums or other consideration
paid for the contract before such date, minus
(B) the aggregate amount received under the contract before
such date, to the extent that such amount was excludable from
gross income under this subtitle or prior income tax laws.
((7) Repealed. Pub. L. 100-647, title I, Sec. 1011A(b)(9)(A),
Nov. 10, 1988, 102 Stat. 3474)
(8) Extension of paragraph (2)(b) (FOOTNOTE 1) to qualified plans
(FOOTNOTE 1) So in original. Probably should be paragraph
''(2)(B)''.
(A) In general
Notwithstanding any other provision of this subsection, in
the case of any amount received before the annuity starting
date from a trust or contract described in paragraph (5)(D),
paragraph (2)(B) shall apply to such amounts.
(B) Allocation of amount received
For purposes of paragraph (2)(B), the amount allocated to the
investment in the contract shall be the portion of the amount
described in subparagraph (A) which bears the same ratio to
such amount as the investment in the contract bears to the
account balance. The determination under the preceding
sentence shall be made as of the time of the distribution or at
such other time as the Secretary may prescribe.
(C) Treatment of forfeitable rights
If an employee does not have a nonforfeitable right to any
amount under any trust or contract to which subparagraph (A)
applies, such amount shall not be treated as part of the
account balance.
(D) Investment in the contract before 1987
In the case of a plan which on May 5, 1986, permitted
withdrawal of any employee contributions before separation from
service, subparagraph (A) shall apply only to the extent that
amounts received before the annuity starting date (when
increased by amounts previously received under the contract
after December 31, 1986) exceed the investment in the contract
as of December 31, 1986.
(9) Extension of paragraph (2)(B) to qualified tuition programs
and Coverdell education savings accounts
Notwithstanding any other provision of this subsection,
paragraph (2)(B) shall apply to amounts received under a
qualified tuition program (as defined in section 529(b)) or under
a Coverdell education savings account (as defined in section
530(b)). The rule of paragraph (8)(B) shall apply for purposes of
this paragraph.
(10) Treatment of modified endowment contracts
(A) In general
Notwithstanding paragraph (5)(C), in the case of any modified
endowment contract (as defined in section 7702A) -
(i) paragraphs (2)(B) and (4)(A) shall apply, and
(ii) in applying paragraph (4)(A), ''any person'' shall be
substituted for ''an individual''.
(B) Treatment of certain burial contracts
Notwithstanding subparagraph (A), paragraph (4)(A) shall not
apply to any assignment (or pledge) of a modified endowment
contract if such assignment (or pledge) is solely to cover the
payment of expenses referred to in section 7702(e)(2)(C)(iii)
and if the maximum death benefit under such contract does not
exceed $25,000.
(11) Special rules for certain combination contracts
providing long-term care insurance.--Notwithstanding paragraphs
(2), (5)(C), and (10), in the case of any charge against the
cash value of an annuity contract or the cash surrender value of
a life insurance contract made as payment for coverage under a
qualified long-term care insurance contract which is part of or
a rider on such annuity or life insurance contract--
(A) the investment in the contract shall be
reduced (but not below zero) by such charge, and
(B) such charge shall not be includible in gross
income.
(12) Anti-abuse rules
(A) In general
For purposes of determining the amount includible in gross
income under this subsection -
(i) all modified endowment contracts issued by the same
company to the same policyholder during any calendar year
shall be treated as 1 modified endowment contract, and
(ii) all annuity contracts issued by the same company to
the same policyholder during any calendar year shall be
treated as 1 annuity contract.
The preceding sentence shall not apply to any contract
described in paragraph (5)(D).
(B) Regulatory authority
The Secretary may by regulations prescribe such additional
rules as may be necessary or appropriate to prevent avoidance
of the purposes of this subsection through serial purchases of
contracts or otherwise.
(f) Special rules for computing employees' contributions
In computing, for purposes of subsection (c)(1)(A), the aggregate
amount of premiums or other consideration paid for the contract,
and for purposes of subsection (e)(6), the aggregate premiums or
other consideration paid, amounts contributed by the employer shall
be included, but only to the extent that -
(1) such amounts were includible in the gross income of the
employee under this subtitle or prior income tax laws; or
(2) if such amounts had been paid directly to the employee at
the time they were contributed, they would not have been
includible in the gross income of the employee under the law
applicable at the time of such contribution.
Paragraph (2) shall not apply to amounts which were contributed by
the employer after December 31, 1962, and which would not have been
includible in the gross income of the employee by reason of the
application of section 911 if such amounts had been paid directly
to the employee at the time of contribution. The preceding
sentence shall not apply to amounts which were contributed by the
employer, as determined under regulations prescribed by the
Secretary, to provide pension or annuity credits, to the extent
such credits are attributable to services performed before January
1, 1963, and are provided pursuant to pension or annuity plan
provisions in existence on March 12, 1962, and on that date
applicable to such services, or to the extent such credits are
attributable to services performed as a foreign missionary (within
the meaning of section 403(b)(2)(D)(iii), as in effect before the
enactment of the Economic Growth and Tax Relief Reconciliation Act
of 2001). (FOOTNOTE 2)
(FOOTNOTE 2) So in original. The period probably should be
preceded by a closing parenthesis.
(g) Rules for transferee where transfer was for value
Where any contract (or any interest therein) is transferred (by
assignment or otherwise) for a valuable consideration, to the
extent that the contract (or interest therein) does not, in the
hands of the transferee, have a basis which is determined by
reference to the basis in the hands of the transferor, then -
(1) for purposes of this section, only the actual value of such
consideration, plus the amount of the premiums and other
consideration paid by the transferee after the transfer, shall be
taken into account in computing the aggregate amount of the
premiums or other consideration paid for the contract;
(2) for purposes of subsection (c)(1)(B), there shall be taken
into account only the aggregate amount received under the
contract by the transferee before the annuity starting date, to
the extent that such amount was excludable from gross income
under this subtitle or prior income tax laws; and
(3) the annuity starting date is January 1, 1954, or the first
day of the first period for which the transferee received an
amount under the contract as an annuity, whichever is the later.
For purposes of this subsection, the term ''transferee'' includes a
beneficiary of, or the estate of, the transferee.
(h) Option to receive annuity in lieu of lump sum
If -
(1) a contract provides for payment of a lump sum in full
discharge of an obligation under the contract, subject to an
option to receive an annuity in lieu of such lump sum;
(2) the option is exercised within 60 days after the day on
which such lump sum first became payable; and
(3) part or all of such lump sum would (but for this
subsection) be includible in gross income by reason of subsection
(e)(1),
then, for purposes of this subtitle, no part of such lump sum shall
be considered as includible in gross income at the time such lump
sum first became payable.
((i) Repealed. Pub. L. 94-455, title XIX, Sec. 1951(b)(1)(A), Oct.
4, 1976, 90 Stat. 1836)
(j) Interest
Notwithstanding any other provision of this section, if any
amount is held under an agreement to pay interest thereon, the
interest payments shall be included in gross income.
((k) Repealed. Pub. L. 98-369, div. A, title IV, Sec. 421(b)(1),
July 18, 1984, 98 Stat. 794)
(l) Face-amount certificates
For purposes of this section, the term ''endowment contract''
includes a face-amount certificate, as defined in section 2(a)(15)
of the Investment Company Act of 1940 (15 U.S.C., sec. 80a-2),
issued after December 31, 1954.
(m) Special rules applicable to employee annuities and
distributions under employee plans
((1) Repealed. Pub. L. 93-406, title II, Sec. 2001(h)(2), Sept.
2, 1974, 88 Stat. 957)
(2) Computation of consideration paid by the employee
In computing -
(A) the aggregate amount of premiums or other consideration
paid for the contract for purposes of subsection (c)(1)(A)
(relating to the investment in the contract), and
(B) the aggregate premiums or other consideration paid for
purposes of subsection (e)(6) (relating to certain amounts not
received as an annuity),
any amount allowed as a deduction with respect to the contract
under section 404 which was paid while the employee was an
employee within the meaning of section 401(c)(1) shall be treated
as consideration contributed by the employer, and there shall not
be taken into account any portion of the premiums or other
consideration for the contract paid while the employee was an
owner-employee which is properly allocable (as determined under
regulations prescribed by the Secretary) to the cost of life,
accident, health, or other insurance.
(3) Life insurance contracts
(A) This paragraph shall apply to any life insurance contract
-
(i) purchased as a part of a plan described in section
403(a), or
(ii) purchased by a trust described in section 401(a) which
is exempt from tax under section 501(a) if the proceeds of
such contract are payable directly or indirectly to a
participant in such trust or to a beneficiary of such
participant.
(B) Any contribution to a plan described in subparagraph
(A)(i) or a trust described in subparagraph (A)(ii) which is
allowed as a deduction under section 404, and any income of a
trust described in subparagraph (A)(ii), which is determined in
accordance with regulations prescribed by the Secretary to have
been applied to purchase the life insurance protection under a
contract described in subparagraph (A), is includible in the
gross income of the participant for the taxable year when so
applied.
(C) In the case of the death of an individual insured under a
contract described in subparagraph (A), an amount equal to the
cash surrender value of the contract immediately before the
death of the insured shall be treated as a payment under such
plan or a distribution by such trust, and the excess of the
amount payable by reason of the death of the insured over such
cash surrender value shall not be includible in gross income
under this section and shall be treated as provided in section
101.
((4) Repealed. Pub. L. 97-248, title II, Sec. 236(b)(1), Sept. 3,
1982, 96 Stat. 510)
(5) Penalties applicable to certain amounts received by 5-percent
owners
(A) This paragraph applies to amounts which are received from
a qualified trust described in section 401(a) or under a plan
described in section 403(a) at any time by an individual who
is, or has been, a 5-percent owner, or by a successor of such
an individual, but only to the extent such amounts are
determined, under regulations prescribed by the Secretary, to
exceed the benefits provided for such individual under the plan
formula.
(B) If a person receives an amount to which this paragraph
applies, his tax under this chapter for the taxable year in
which such amount is received shall be increased by an amount
equal to 10 percent of the portion of the amount so received
which is includible in his gross income for such taxable year.
(C) For purposes of this paragraph, the term ''5-percent
owner'' means any individual who, at any time during the 5 plan
years preceding the plan year ending in the taxable year in
which the amount is received, is a 5-percent owner (as defined
in section 416(i)(1)(B)).
(6) Owner-employee defined
For purposes of this subsection, the term ''owner-employee''
has the meaning assigned to it by section 401(c)(3) and includes
an individual for whose benefit an individual retirement account
or annuity described in section 408(a) or (b) is maintained. For
purposes of the preceding sentence, the term ''owner-employee''
shall include an employee within the meaning of section
401(c)(1).
(7) Meaning of disabled
For purposes of this section, an individual shall be considered
to be disabled if he 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
to be of long-continued and indefinite duration. An individual
shall not be considered to be disabled unless he furnishes proof
of the existence thereof in such form and manner as the Secretary
may require.
((8) Repealed. Pub. L. 97-248, title II, Sec. 236(b)(1), Sept. 3,
1982, 96 Stat. 510)
((9) Repealed. Pub. L. 98-369, div. A, title VII, Sec.
713(d)(1), July 18, 1984, 98 Stat. 957)
(10) Determination of investment in the contract in the case of
qualified domestic relations orders
Under regulations prescribed by the Secretary, in the case of a
distribution or payment made to an alternate payee who is the
spouse or former spouse of the participant pursuant to a
qualified domestic relations order (as defined in section
414(p)), the investment in the contract as of the date prescribed
in such regulations shall be allocated on a pro rata basis
between the present value of such distribution or payment and the
present value of all other benefits payable with respect to the
participant to which such order relates.
(n) Annuities under retired serviceman's family protection plan or
survivor benefit plan
Subsection (b) shall not apply in the case of amounts received
after December 31, 1965, as an annuity under chapter 73 of title 10
of the United States Code, but all such amounts shall be excluded
from gross income until there has been so excluded (under section
122(b)(1) or this section, including amounts excluded before
January 1, 1966) an amount equal to the consideration for the
contract (as defined by section 122(b)(2)), plus any amount treated
pursuant to section 101(b)(2)(D) (as in effect on the day before
the date of the enactment of the Small Business Job Protection Act
of 1996) as additional consideration paid by the employee.
Thereafter all amounts so received shall be included in gross
income.
(o) Special rules for distributions from qualified plans to which
employee made deductible contributions
(1) Treatment of contributions
For purposes of this section and sections 402 and 403,
notwithstanding section 414(h), any deductible employee
contribution made to a qualified employer plan or government plan
shall be treated as an amount contributed by the employer which
is not includible in the gross income of the employee.
((2) Repealed. Pub. L. 100-647, title I, Sec. 1011A(c)(8), Nov.
10, 1988, 102 Stat. 3476)
(3) Amounts constructively received
(A) In general
For purposes of this subsection, rules similar to the rules
provided by subsection (p) (other than the exception contained
in paragraph (2) thereof) shall apply.
(B) Purchase of life insurance
To the extent any amount of accumulated deductible employee
contributions of an employee are applied to the purchase of
life insurance contracts, such amount shall be treated as
distributed to the employee in the year so applied.
(4) Special rule for treatment of rollover amounts
For purposes of sections 402(c), 403(a)(4), and 403(b)(8),
408(d)(3), and 457(e)(16), the Secretary shall prescribe
regulations providing for such allocations of amounts
attributable to accumulated deductible employee contributions,
and for such other rules, as may be necessary to insure that such
accumulated deductible employee contributions do not become
eligible for additional tax benefits (or freed from limitations)
through the use of rollovers.
(5) Definitions and special rules
For purposes of this subsection -
(A) Deductible employee contributions
The term ''deductible employee contributions'' means any
qualified voluntary employee contribution (as defined in
section 219(e)(2)) made after December 31, 1981, in a taxable
year beginning after such date and made for a taxable year
beginning before January 1, 1987, and allowable as a deduction
under section 219(a) for such taxable year.
(B) Accumulated deductible employee contributions
The term ''accumulated deductible employee contributions''
means the deductible employee contributions -
(i) increased by the amount of income and gain allocable to
such contributions, and
(ii) reduced by the sum of the amount of loss and expense
allocable to such contributions and the amounts distributed
with respect to the employee which are attributable to such
contributions (or income or gain allocable to such
contributions).
(C) Qualified employer plan
The term ''qualified employer plan'' has the meaning given to
such term by subsection (p)(3)(A)(i).
(D) Government plan
The term ''government plan'' has the meaning given such term
by subsection (p)(3)(B).
(6) Ordering rules
Unless the plan specifies otherwise, any distribution from such
plan shall not be treated as being made from the accumulated
deductible employee contributions, until all other amounts to the
credit of the employee have been distributed.
(p) Loans treated as distributions
For purposes of this section -
(1) Treatment as distributions
(A) Loans
If during any taxable year a participant or beneficiary
receives (directly or indirectly) any amount as a loan from a
qualified employer plan, such amount shall be treated as having
been received by such individual as a distribution under such
plan.
(B) Assignments or pledges
If during any taxable year a participant or beneficiary
assigns (or agrees to assign) or pledges (or agrees to pledge)
any portion of his interest in a qualified employer plan, such
portion shall be treated as having been received by such
individual as a loan from such plan.
(2) Exception for certain loans
(A) General rule
Paragraph (1) shall not apply to any loan to the extent that
such loan (when added to the outstanding balance of all other
loans from such plan whether made on, before, or after August
13, 1982), does not exceed the lesser of -
(i) $50,000, reduced by the excess (if any) of -
(I) the highest outstanding balance of loans from the
plan during the 1-year period ending on the day before the
date on which such loan was made, over
(II) the outstanding balance of loans from the plan on
the date on which such loan was made, or
(ii) the greater of (I) one-half of the present value of
the nonforfeitable accrued benefit of the employee under the
plan, or (II) $10,000.
For purposes of clause (ii), the present value of the
nonforfeitable accrued benefit shall be determined without
regard to any accumulated deductible employee contributions (as
defined in subsection (o)(5)(B)).
(B) Requirement that loan be repayable within 5 years
(i) In general
Subparagraph (A) shall not apply to any loan unless such
loan, by its terms, is required to be repaid within 5 years.
(ii) Exception for home loans
Clause (i) shall not apply to any loan used to acquire any
dwelling unit which within a reasonable time is to be used
(determined at the time the loan is made) as the principal
residence of the participant.
(C) Requirement of level amortization
Except as provided in regulations, this paragraph shall not
apply to any loan unless substantially level amortization of
such loan (with payments not less frequently than quarterly) is
required over the term of the loan.
(D) Related employers and related plans
For purposes of this paragraph -
(i) the rules of subsections (b), (c), and (m) of section
414 shall apply, and
(ii) all plans of an employer (determined after the
application of such subsections) shall be treated as 1 plan.
(3) Denial of interest deductions in certain cases
(A) In general
No deduction otherwise allowable under this chapter shall be
allowed under this chapter for any interest paid or accrued on
any loan to which paragraph (1) does not apply by reason of
paragraph (2) during the period described in subparagraph (B).
(B) Period to which subparagraph (A) applies
For purposes of subparagraph (A), the period described in
this subparagraph is the period -
(i) on or after the 1st day on which the individual to whom
the loan is made is a key employee (as defined in section
416(i)), or
(ii) such loan is secured by amounts attributable to
elective deferrals described in subparagraph (A) or (C) of
section 402(g)(3).
(4) Qualified employer plan, etc.
For purposes of this subsection -
(A) Qualified employer plan
(i) In general
The term ''qualified employer plan'' means -
(I) a plan described in section 401(a) which includes a
trust exempt from tax under section 501(a),
(II) an annuity plan described in section 403(a), and
(III) a plan under which amounts are contributed by an
individual's employer for an annuity contract described in
section 403(b).
(ii) Special rule
The term ''qualified employer plan'' shall include any plan
which was (or was determined to be) a qualified employer plan
or a government plan.
(B) Government plan
The term ''government plan'' means any plan, whether or not
qualified, established and maintained for its employees by the
United States, by a State or political subdivision thereof, or
by an agency or instrumentality of any of the foregoing.
(5) Special rules for loans, etc., from certain contracts
For purposes of this subsection, any amount received as a loan
under a contract purchased under a qualified employer plan (and
any assignment or pledge with respect to such a contract) shall
be treated as a loan under such employer plan.
(q) 10-percent penalty for premature distributions from annuity
contracts
(1) Imposition of penalty
If any taxpayer receives any amount under an annuity contract,
the taxpayer's tax under this chapter for the taxable year in
which such amount is received shall be increased by an amount
equal to 10 percent of the portion of such amount which is
includible in gross income.
(2) Subsection not to apply to certain distributions
Paragraph 1 shall not apply to any distribution -
(A) made on or after the date on which the taxpayer attains
age 59 1/2,
(B) made on or after the death of the holder (or, where the
holder is not an individual, the death of the primary annuitant
(as defined in subsection (s)(6)(B))),
(C) attributable to the taxpayer's becoming disabled within
the meaning of subsection (m)(7),
(D) which is a part of a series of substantially equal
periodic payments (not less frequently than annually) made for
the life (or life expectancy) of the taxpayer or the joint
lives (or joint life expectancies) of such taxpayer and his
designated beneficiary,
(E) from a plan, contract, account, trust, or annuity
described in subsection (e)(5)(D),
(F) allocable to investment in the contract before August 14,
1982, or (FOOTNOTE 3)
(FOOTNOTE 3) So in original. The word ''or'' probably should
not appear.
(G) under a qualified funding asset (within the meaning of
section 130(d), but without regard to whether there is a
qualified assignment),
(H) to which subsection (t) applies (without regard to
paragraph (2) thereof),
(I) under an immediate annuity contract (within the meaning
of section 72(u)(4)), or
(J) which is purchased by an employer upon the termination of
a plan described in section 401(a) or 403(a) and which is held
by the employer until such time as the employee separates from
service.
(3) Change in substantially equal payments
If -
(A) paragraph (1) does not apply to a distribution by reason
of paragraph (2)(D), and
(B) the series of payments under such paragraph are
subsequently modified (other than by reason of death or
disability) -
(i) before the close of the 5-year period beginning on the
date of the first payment and after the taxpayer attains age
59 1/2, or
(ii) before the taxpayer attains age 59 1/2,
the taxpayer's tax for the 1st taxable year in which such
modification occurs shall be increased by an amount, determined
under regulations, equal to the tax which (but for paragraph
(2)(D)) would have been imposed, plus interest for the deferral
period (within the meaning of subsection (t)(4)(B)).
(r) Certain railroad retirement benefits treated as received under
employer plans
(1) In general
Notwithstanding any other provision of law, any benefit
provided under the Railroad Retirement Act of 1974 (other than a
tier 1 railroad retirement benefit) shall be treated for purposes
of this title as a benefit provided under an employer plan which
meets the requirements of section 401(a).
(2) Tier 2 taxes treated as contributions
(A) In general
For purposes of paragraph (1) -
(i) the tier 2 portion of the tax imposed by section 3201
(relating to tax on employees) shall be treated as an
employee contribution,
(ii) the tier 2 portion of the tax imposed by section 3211
(relating to tax on employee representatives) shall be
treated as an employee contribution, and
(iii) the tier 2 portion of the tax imposed by section 3221
(relating to tax on employers) shall be treated as an
employer contribution.
(B) Tier 2 portion
For purposes of subparagraph (A) -
(i) After 1984
With respect to compensation paid after 1984, the tier 2
portion shall be the taxes imposed by sections 3201(b),
3211(b), and 3221(b).
(ii) After September 30, 1981, and before 1985
With respect to compensation paid before 1985 for services
rendered after September 30, 1981, the tier 2 portion shall
be -
(I) so much of the tax imposed by section 3201 as is
determined at the 2 percent rate, and
(II) so much of the taxes imposed by sections 3211 and
3221 as is determined at the 11.75 percent rate.
With respect to compensation paid for services rendered after
December 31, 1983, and before 1985, subclause (I) shall be
applied by substituting ''2.75 percent'' for ''2 percent'',
and subclause (II) shall be applied by substituting ''12.75
percent'' for ''11.75 percent''.
(iii) Before October 1, 1981
With respect to compensation paid for services rendered
during any period before October 1, 1981, the tier 2 portion
shall be the excess (if any) of -
(I) the tax imposed for such period by section 3201,
3211, or 3221, as the case may be (other than any tax
imposed with respect to man-hours), over
(II) the tax which would have been imposed by such
section for such period had the rates of the comparable
taxes imposed by chapter 21 for such period applied under
such section.
(C) Contributions not allocable to supplemental annuity or
windfall benefits
For purposes of paragraph (1), no amount treated as an
employee contribution under this paragraph shall be allocated
to -
(i) any supplemental annuity paid under section 2(b) of the
Railroad Retirement Act of 1974, or
(ii) any benefit paid under section 3(h), 4(e), or 4(h) of
such Act.
(3) Tier 1 railroad retirement benefit
For purposes of paragraph (1), the term ''tier 1 railroad
retirement benefit'' has the meaning given such term by section
86(d)(4).
(s) Required distributions where holder dies before entire interest
is distributed
(1) In general
A contract shall not be treated as an annuity contract for
purposes of this title unless it provides that -
(A) if any holder of such contract dies on or after the
annuity starting date and before the entire interest in such
contract has been distributed, the remaining portion of such
interest will be distributed at least as rapidly as under the
method of distributions being used as of the date of his death,
and
(B) if any holder of such contract dies before the annuity
starting date, the entire interest in such contract will be
distributed within 5 years after the death of such holder.
(2) Exception for certain amounts payable over life of
beneficiary
If -
(A) any portion of the holder's interest is payable to (or
for the benefit of) a designated beneficiary,
(B) 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
(C) such distributions begin not later than 1 year after the
date of the holder's death or such later date as the Secretary
may by regulations prescribe,
then for purposes of paragraph (1), the portion referred to in
subparagraph (A) shall be treated as distributed on the day on
which such distributions begin.
(3) Special rule where surviving spouse beneficiary
If the designated beneficiary referred to in paragraph (2)(A)
is the surviving spouse of the holder of the contract, paragraphs
(1) and (2) shall be applied by treating such spouse as the
holder of such contract.
(4) Designated beneficiary
For purposes of this subsection, the term ''designated
beneficiary'' means any individual designated a beneficiary by
the holder of the contract.
(5) Exception for certain annuity contracts
This subsection shall not apply to any annuity contract -
(A) which is provided -
(i) under a plan described in section 401(a) which includes
a trust exempt from tax under section 501, or
(ii) under a plan described in section 403(a),
(B) which is described in section 403(b),
(C) which is an individual retirement annuity or provided
under an individual retirement account or annuity, or
(D) which is a qualified funding asset (as defined in section
130(d), but without regard to whether there is a qualified
assignment).
(6) Special rule where holder is corporation or other
non-individual
(A) In general
For purposes of this subsection, if the holder of the
contract is not an individual, the primary annuitant shall be
treated as the holder of the contract.
(B) Primary annuitant
For purposes of subparagraph (A), the term ''primary
annuitant'' means the individual, the events in the life of
whom are of primary importance in affecting the timing or
amount of the payout under the contract.
(7) Treatment of changes in primary annuitant where holder of
contract is not an individual
For purposes of this subsection, in the case of a holder of an
annuity contract which is not an individual, if there is a change
in a primary annuitant (as defined in paragraph (6)(B)), such
change shall be treated as the death of the holder.
(t) 10-percent additional tax on early distributions from qualified
retirement plans
(1) Imposition of additional tax
If any taxpayer receives any amount from a qualified retirement
plan (as defined in section 4974(c)), the taxpayer's tax under
this chapter for the taxable year in which such amount is
received shall be increased by an amount equal to 10 percent of
the portion of such amount which is includible in gross income.
(2) Subsection not to apply to certain distributions
Except as provided in paragraphs (3) and (4), paragraph (1)
shall not apply to any of the following distributions:
(A) In general
Distributions which are -
(i) made on or after the date on which the employee attains
age 59 1/2,
(ii) made to a beneficiary (or to the estate of the
employee) on or after the death of the employee,
(iii) attributable to the employee's being disabled within
the meaning of subsection (m)(7),
(iv) part of a series of substantially equal periodic
payments (not less frequently than annually) made for the
life (or life expectancy) of the employee or the joint lives
(or joint life expectancies) of such employee and his
designated beneficiary,
(v) made to an employee after separation from service after
attainment of age 55,
(vi) dividends paid with respect to stock of a corporation
which are described in section 404(k), or
(vii) made on account of a levy under section 6331 on the
qualified retirement plan.
(B) Medical expenses
Distributions made to the employee (other than distributions
described in subparagraph (A), (C), or (D)) to the extent such
distributions do not exceed the amount allowable as a deduction
under section 213 to the employee for amounts paid during the
taxable year for medical care (determined without regard to
whether the employee itemizes deductions for such taxable
year).
(C) Payments to alternate payees pursuant to qualified domestic
relations orders
Any distribution to an alternate payee pursuant to a
qualified domestic relations order (within the meaning of
section 414(p)(1)).
(D) Distributions to unemployed individuals for health
insurance premiums
(i) In general
Distributions from an individual retirement plan to an
individual after separation from employment -
(I) if such individual has received unemployment
compensation for 12 consecutive weeks under any Federal or
State unemployment compensation law by reason of such
separation,
(II) if such distributions are made during any taxable
year during which such unemployment compensation is paid or
the succeeding taxable year, and
(III) to the extent such distributions do not exceed the
amount paid during the taxable year for insurance described
in section 213(d)(1)(D) with respect to the individual and
the individual's spouse and dependents (as defined in
section 152, determined without regard to
subsections (b)(1), (b)(2), and (d)(1)(B) thereof).
(ii) Distributions after reemployment
Clause (i) shall not apply to any distribution made after
the individual has been employed for at least 60 days after
the separation from employment to which clause (i) applies.
(iii) Self-employed individuals
To the extent provided in regulations, a self-employed
individual shall be treated as meeting the requirements of
clause (i)(I) if, under Federal or State law, the individual
would have received unemployment compensation but for the
fact the individual was self-employed.
(E) Distributions from individual retirement plans for higher
education expenses
Distributions to an individual from an individual retirement
plan to the extent such distributions do not exceed the
qualified higher education expenses (as defined in paragraph
(7)) of the taxpayer for the taxable year. Distributions shall
not be taken into account under the preceding sentence if such
distributions are described in subparagraph (A), (C), or (D) or
to the extent paragraph (1) does not apply to such
distributions by reason of subparagraph (B).
(F) Distributions from certain plans for first home purchases
Distributions to an individual from an individual retirement
plan which are qualified first-time homebuyer distributions (as
defined in paragraph (8)). Distributions shall not be taken
into account under the preceding sentence if such distributions
are described in subparagraph (A), (C), (D), or (E) or to the
extent paragraph (1) does not apply to such distributions by
reason of subparagraph (B).
(G) Distributions from retirement plans to
individuals called to active duty.--
(i) In general.--Any qualified reservist
distribution.
(ii) Amount distributed may be repaid.--Any
individual who receives a qualified reservist
distribution may, at any time during the 2-year
period beginning on the day after the end of the
active duty period, make one or more contributions
to an individual retirement plan of such
individual in an aggregate amount not to exceed
the amount of such distribution. The dollar
limitations otherwise applicable to contributions
to individual retirement plans shall not apply to
any contribution made pursuant to the preceding
sentence. No deduction shall be allowed for any
contribution pursuant to this clause.
(iii) Qualified reservist distribution.--For
purposes of this subparagraph, the term `qualified
reservist distribution' means any distribution to
an individual if--
(I) such distribution is from an
individual retirement plan, or from
amounts attributable to employer
contributions made pursuant to elective
deferrals described in subparagraph (A)
or (C) of section 402(g)(3) or section
501(c)(18)(D)(iii),
(II) such individual was (by
reason of being a member of a reserve
component (as defined in section 101 of
title 37, United States Code)) ordered
or called to active duty for a period in
excess of 179 days or for an indefinite
period, and
(III) such distribution is made
during the period beginning on the date
of such order or call and ending at the
close of the active duty period.
(iv) Application of subparagraph.--This
subparagraph applies to individuals ordered or
called to active duty after September 11, 2001,
and before December 31, 2007. In no event shall
the 2-year period referred to in clause (ii) end
before the date which is 2 years after the date of
the enactment of this subparagraph.
(3) Limitations
(A) Certain exceptions not to apply to individual retirement
plans
Subparagraphs (A)(v) and (C) of paragraph (2) shall not apply
to distributions from an individual retirement plan.
(B) Periodic payments under qualified plans must begin after
separation
Paragraph (2)(A)(iv) shall not apply to any amount paid from
a trust described in section 401(a) which is exempt from tax
under section 501(a) or from a contract described in section
72(e)(5)(D)(ii) unless the series of payments begins after the
employee separates from service.
(4) Change in substantially equal payments
(A) In general
If -
(i) paragraph (1) does not apply to a distribution by
reason of paragraph (2)(A)(iv), and
(ii) the series of payments under such paragraph are
subsequently modified (other than by reason of death or
disability) -
(I) before the close of the 5-year period beginning with
the date of the first payment and after the employee
attains age 59 1/2, or
(II) before the employee attains age 59 1/2,
the taxpayer's tax for the 1st taxable year in which such
modification occurs shall be increased by an amount, determined
under regulations, equal to the tax which (but for paragraph
(2)(A)(iv)) would have been imposed, plus interest for the
deferral period.
(B) Deferral period
For purposes of this paragraph, the term ''deferral period''
means the period beginning with the taxable year in which
(without regard to paragraph (2)(A)(iv)) the distribution would
have been includible in gross income and ending with the
taxable year in which the modification described in
subparagraph (A) occurs.
(5) Employee
For purposes of this subsection, the term ''employee'' includes
any participant, and in the case of an individual retirement
plan, the individual for whose benefit such plan was established.
(6) Special rules for simple retirement accounts
In the case of any amount received from a simple retirement
account (within the meaning of section 408(p)) during the 2-year
period beginning on the date such individual first participated
in any qualified salary reduction arrangement maintained by the
individual's employer under section 408(p)(2), paragraph (1)
shall be applied by substituting ''25 percent'' for ''10
percent''.
(7) Qualified higher education expenses
For purposes of paragraph (2)(E) -
(A) In general
The term ''qualified higher education expenses'' means
qualified higher education expenses (as defined in section
529(e)(3)) for education furnished to -
(i) the taxpayer,
(ii) the taxpayer's spouse, or
(iii) any child (as defined in section 152(f)(1)) or
grandchild of the taxpayer or the taxpayer's spouse,
at an eligible educational institution (as defined in section
529(e)(5)).
(B) Coordination with other benefits
The amount of qualified higher education expenses for any
taxable year shall be reduced as provided in section 25A(g)(2).
(8) Qualified first-time homebuyer distributions
For purposes of paragraph (2)(F) -
(A) In general
The term ''qualified first-time homebuyer distribution''
means any payment or distribution received by an individual to
the extent such payment or distribution is used by the
individual before the close of the 120th day after the day on
which such payment or distribution is received to pay qualified
acquisition costs with respect to a principal residence of a
first-time homebuyer who is such individual, the spouse of such
individual, or any child, grandchild, or ancestor of such
individual or the individual's spouse.
(B) Lifetime dollar limitation
The aggregate amount of payments or distributions received by
an individual which may be treated as qualified first-time
homebuyer distributions for any taxable year shall not exceed
the excess (if any) of -
(i) $10,000, over
(ii) the aggregate amounts treated as qualified first-time
homebuyer distributions with respect to such individual for
all prior taxable years.
(C) Qualified acquisition costs
For purposes of this paragraph, the term ''qualified
acquisition costs'' means the costs of acquiring, constructing,
or reconstructing a residence. Such term includes any usual or
reasonable settlement, financing, or other closing costs.
(D) First-time homebuyer; other definitions
For purposes of this paragraph -
(i) First-time homebuyer
The term ''first-time homebuyer'' means any individual if -
(I) such individual (and if married, such individual's
spouse) had no present ownership interest in a principal
residence during the 2-year period ending on the date of
acquisition of the principal residence to which this
paragraph applies, and
(II) subsection (h) or (k) of section 1034 (FOOTNOTE 4)
(as in effect on the day before the date of the enactment
of this paragraph) did not suspend the running of any
period of time specified in section 1034 (FOOTNOTE 4) (as
so in effect) with respect to such individual on the day
before the date the distribution is applied pursuant to
subparagraph (A).
(FOOTNOTE 4) See References in Text note below.
(ii) Principal residence
The term ''principal residence'' has the same meaning as
when used in section 121.
(iii) Date of acquisition
The term ''date of acquisition'' means the date -
(I) on which a binding contract to acquire the principal
residence to which subparagraph (A) applies is entered
into, or
(II) on which construction or reconstruction of such a
principal residence is commenced.
(E) Special rule where delay in acquisition
If any distribution from any individual retirement plan fails
to meet the requirements of subparagraph (A) solely by reason
of a delay or cancellation of the purchase or construction of
the residence, the amount of the distribution may be
contributed to an individual retirement plan as provided in
section 408(d)(3)(A)(i) (determined by substituting ''120th
day'' for ''60th day'' in such section), except that -
(i) section 408(d)(3)(B) shall not be applied to such
contribution, and
(ii) such amount shall not be taken into account in
determining whether section 408(d)(3)(B) applies to any other
amount.
(9) Special rule for rollovers to section 457 plans
For purposes of this subsection, a distribution from an
eligible deferred compensation plan (as defined in section
457(b)) of an eligible employer described in section 457(e)(1)(A)
shall be treated as a distribution from a qualified retirement
plan described in 4974(c)(1) to the extent that such distribution
is attributable to an amount transferred to an eligible deferred
compensation plan from a qualified retirement plan (as defined in
section 4974(c)).
(10) Distributions to qualified public safety employees in
governmental plans.--
(A) In general.--In the case of a distribution to
a qualified public safety employee from a governmental
plan (within the meaning of section 414(d)) which is a
defined benefit plan, paragraph (2)(A)(v) shall be
applied by substituting `age 50' for `age 55'.
(B) Qualified public safety employee.--For
purposes of this paragraph, the term `qualified public
safety employee' means any employee of a State or
political subdivision of a State who provides police
protection, firefighting services, or emergency medical
services for any area within the jurisdiction of such
State or political subdivision.
(u) Treatment of annuity contracts not held by natural persons
(1) In general
If any annuity contract is held by a person who is not a
natural person -
(A) such contract shall not be treated as an annuity contract
for purposes of this subtitle (other than subchapter L), and
(B) the income on the contract for any taxable year of the
policyholder shall be treated as ordinary income received or
accrued by the owner during such taxable year.
For purposes of this paragraph, holding by a trust or other
entity as an agent for a natural person shall not be taken into
account.
(2) Income on the contract
(A) In general
For purposes of paragraph (1), the term ''income on the
contract'' means, with respect to any taxable year of the
policyholder, the excess of -
(i) the sum of the net surrender value of the contract as
of the close of the taxable year plus all distributions under
the contract received during the taxable year or any prior
taxable year, reduced by
(ii) the sum of the amount of net premiums under the
contract for the taxable year and prior taxable years and
amounts includible in gross income for prior taxable years
with respect to such contract under this subsection.
Where necessary to prevent the avoidance of this subsection,
the Secretary may substitute ''fair market value of the
contract'' for ''net surrender value of the contract'' each
place it appears in the preceding sentence.
(B) Net premiums
For purposes of this paragraph, the term ''net premiums''
means the amount of premiums paid under the contract reduced by
any policyholder dividends.
(3) Exceptions
This subsection shall not apply to any annuity contract which -
(A) is acquired by the estate of a decedent by reason of the
death of the decedent,
(B) is held under a plan described in section 401(a) or
403(a), under a program described in section 403(b), or under
an individual retirement plan,
(C) is a qualified funding asset (as defined in section
130(d), but without regard to whether there is a qualified
assignment),
(D) is purchased by an employer upon the termination of a
plan described in section 401(a) or 403(a) and is held by the
employer until all amounts under such contract are distributed
to the employee for whom such contract was purchased or the
employee's beneficiary, or
(E) is an immediate annuity.
(4) Immediate annuity
For purposes of this subsection, the term ''immediate annuity''
means an annuity -
(A) which is purchased with a single premium or annuity
consideration,
(B) the annuity starting date (as defined in subsection
(c)(4)) of which commences no later than 1 year from the date
of the purchase of the annuity, and
(C) which provides for a series of substantially equal
periodic payments (to be made not less frequently than
annually) during the annuity period.
(v) 10-percent additional tax for taxable distributions from
modified endowment contracts
(1) Imposition of additional tax
If any taxpayer receives any amount under a modified endowment
contract (as defined in section 7702A), the taxpayer's tax under
this chapter for the taxable year in which such amount is
received shall be increased by an amount equal to 10 percent of
the portion of such amount which is includible in gross income.
(2) Subsection not to apply to certain distributions
Paragraph (1) shall not apply to any distribution -
(A) made on or after the date on which the taxpayer attains
age 59 1/2,
(B) which is attributable to the taxpayer's becoming disabled
(within the meaning of subsection (m)(7)), or
(C) which is part of a series of substantially equal periodic
payments (not less frequently than annually) made for the life
(or life expectancy) of the taxpayer or the joint lives (or
joint life expectancies) of such taxpayer and his beneficiary.
(w) Application of Basis Rules to Nonresident Aliens.--
(1) In general.--Notwithstanding any other provision of
this section, for purposes of determining the portion of any
distribution which is includible in gross income of a
distributee who is a citizen or resident of the United States,
the investment in the contract shall not include any applicable
nontaxable contributions or applicable nontaxable earnings.
(2) Applicable nontaxable contribution.--For purposes of
this subsection, the term `applicable nontaxable contribution'
means any employer or employee contribution--
(A) which was made with respect to compensation--
(i) for labor or personal services performed
by an employee who, at the time the labor or
services were performed, was a nonresident alien
for purposes of the laws of the United States in
effect at such time, and
(ii) which is treated as from sources
without the United States, and
(B) which was not subject to income tax (and would
have been subject to income tax if paid as cash
compensation when the services were rendered) under the
laws of the United States or any foreign country.
(3) Applicable nontaxable earnings.--For purposes of this
subsection, the term `applicable nontaxable earnings' means
earnings--
(A) which are paid or accrued with respect to any
employer or employee contribution which was made with
respect to compensation for labor or personal services
performed by an employee,
(B) with respect to which the employee was at the
time the earnings were paid or accrued a nonresident
alien for purposes of the laws of the United States, and
(C) which were not subject to income tax under the
laws of the United States or any foreign country.
(4) Regulations.--The Secretary shall prescribe such
regulations as may be necessary to carry out the provisions of
this subsection, including regulations treating contributions
and earnings as not subject to tax under the laws of any foreign
country where appropriate to carry out the purposes of this
subsection.
(x) Cross reference
For limitation on adjustments to basis of annuity contracts
sold, see section 1021.
Sources
(Aug. 16, 1954, ch. 736, 68A Stat. 20; Pub. L. 87-792, Sec. 4(a),
(b), Oct. 10, 1962, 76 Stat. 821; Pub. L. 87-834, Sec. 11(b), Oct.
16, 1962, 76 Stat. 1005; Pub. L. 88-272, title II, Sec. 232(b),
Feb. 26, 1964, 78 Stat. 110; Pub. L. 89-44, title VIII, Sec.
809(d)(2), June 21, 1965, 79 Stat. 167; Pub. L. 89-97, title I,
Sec. 106(d)(2), July 30, 1965, 79 Stat. 337; Pub. L. 89-365, Sec.
1(b), Mar. 8, 1966, 80 Stat. 32; Pub. L. 91-172, title V, Sec.
515(b), Dec. 30, 1969, 83 Stat. 644; Pub. L. 93-406, title II, Sec.
2001(e)(5), (g)(1), (2)(A), (h)(2), (3), 2002(g)(10), 2005(c)(3),
2007(b)(2), Sept. 2, 1974, 88 Stat. 955, 957, 970, 991, 994; Pub.
L. 94-455, title XIX, Sec. 1901(a)(12), (13), 1906(b)(13)(A),
1951(b)(1)(A), Oct. 4, 1976, 90 Stat. 1765, 1834, 1836; Pub. L.
97-34, title III, Sec. 311(b)(1), 312(d), (e)(1), Aug. 13, 1981, 95
Stat. 278, 284; Pub. L. 97-248, title II, Sec. 236(a), (b), 237(d),
265(a), (b)(1), Sept. 3, 1982, 96 Stat. 509-511, 544-546; Pub. L.
97-448, title I, Sec. 103(c)(3)(B)(i), (6), Jan. 12, 1983, 96 Stat.
2376; Pub. L. 98-76, title II, Sec. 224(a), Aug. 12, 1983, 97 Stat.
421; Pub. L. 98-369, div. A, title II, Sec. 211(b)(1), 222(a),
(b), title IV, Sec. 421(b)(1), 491(d)(3), (4), title V, Sec.
521(d), 523(a), (b), title VII, Sec. 713(b)(1)-(c)(1)(B), (d)(1),
July 18, 1984, 98 Stat. 754, 774, 794, 849, 868, 871, 872, 956,
957; Pub. L. 98-397, title II, Sec. 204(c)(2), Aug. 23, 1984, 98
Stat. 1448; Pub. L. 99-514, title XI, Sec. 1101(b)(2)(B), (C),
1122(c), 1123(a), (b), (d)(1), 1134(a)-(d), 1135(a), title XVIII,
Sec. 1826(a), (b)(1)-(3), (c), (d), 1852(a)(2), (c)(1)-(4),
1854(b)(1), 1898(c)(1)(B), Oct. 22, 1986, 100 Stat. 2413, 2414,
2467, 2472, 2474, 2475, 2483, 2484, 2848-2850, 2864, 2867, 2878,
2951; Pub. L. 100-647, title I, Sec. 1011A(b)(1)(A), (B), (2), (9),
(c)(1)-(8), (h), (i), 1018(k), (t)(1)(A), (B), (u)(8), title V,
Sec. 5012(a), (b)(1), (d), Nov. 10, 1988, 102 Stat. 3472,
3474-3476, 3482, 3583, 3587, 3590, 3661, 3662, 3664; Pub. L.
101-239, title VII, Sec. 7811(m)(4), 7815(a)(3), (5), Dec. 19,
1989, 103 Stat. 2412, 2414; Pub. L. 101-508, title XI, Sec.
11802(a), Nov. 5, 1990, 104 Stat. 1388-529; Pub. L. 102-318, title
V, Sec. 521(b)(3), July 3, 1992, 106 Stat. 310; Pub. L. 104-188,
title I, Sec. 1403(a), 1421(b)(4)(A), 1463(a), 1704(l)(1), (t)(2),
(77), Aug. 20, 1996, 110 Stat. 1790, 1796, 1824, 1882, 1887, 1891;
Pub. L. 104-191, title III, Sec. 361(a)-(c), Aug. 21, 1996, 110
Stat. 2071, 2072; Pub. L. 105-34, title II, Sec. 203(a), (b), title
III, Sec. 303(a), (b), title X, Sec. 1075(a), (b), Aug. 5, 1997,
111 Stat. 809, 829, 949; Pub. L. 105-206, title III, Sec. 3436(a),
title VI, Sec. 6004(d)(3)(B), 6005(c)(1), 6023(3), (4), July 22,
1998, 112 Stat. 761, 794, 800, 824; Pub. L. 107-16, title IV, Sec.
402(a)(4)(A), (B), title VI, Sec. 632(a)(3)(A), 641(a)(2)(C),
(e)(1), June 7, 2001, 115 Stat. 60, 61, 113, 120; Pub. L. 107-22,
Sec. 1(b)(1)(A), (3)(A), July 26, 2001, 115 Stat. 196, 197; Pub. L.
107-90, title II, Sec. 204(e)(2), Dec. 21, 2001, 115 Stat. 893.)
Amendment of Section
AMENDMENT OF SECTION
For termination of amendment by section 901 of Pub. L. 107-16,
see Effective and Termination Dates of 2001 Amendment note below.
References in Text
REFERENCES IN TEXT
The enactment of the Economic Growth and Tax Relief
Reconciliation Act of 2001, referred to in subsec. (f), means the
enactment of Pub. L. 107-16, which was approved June 7, 2001.
The date of the enactment of the Small Business Job Protection
Act of 1996, referred to in subsec. (n), is the date of enactment
of Pub. L. 104-188, which was approved Aug. 20, 1996.
The Railroad Retirement Act of 1974, referred to in subsec.
(r)(1), (2)(C)(i), (ii), is act Aug. 29, 1935, ch. 812, as amended
generally by Pub. L. 93-445, title I, Sec. 101, Oct. 16, 1974, 88
Stat. 1305, which is classified generally to subchapter IV (Sec.
231 et seq.) of chapter 9 of Title 45, Railroads. Sections 2(b),
3(h), and 4(e) and (h) of the Act are classified to sections
231a(b), 231b(h), and 231c(e) and (h), respectively, of Title 45.
For further details and complete classification of this Act to the
Code, see Codification note set out preceding section 231 of Title
45, section 231t of Title 45, and Tables.
Section 1034 (as in effect on the day before the date of the
enactment of this paragraph), referred to in subsec.
(t)(8)(D)(i)(II), means section 1034 of this title as in effect on
the day before Aug. 5, 1997. Section 1034 was repealed by Pub. L.
105-34, title III, Sec. 312(b), Aug. 5, 1997, 111 Stat. 839.
Miscellaneous
AMENDMENTS
2006 - Pension Protection Act of 2006 (P.L. 109-280)
SEC. 844. TREATMENT OF ANNUITY AND LIFE INSURANCE CONTRACTS WITH A LONG-
TERM CARE INSURANCE FEATURE.
(a) Exclusion From Gross Income.--Subsection (e) of section 72 of
the Internal Revenue Code of 1986 (relating to amounts not received as
annuities) is amended by redesignating paragraph (11) as paragraph (12)
and by inserting after paragraph (10) the following new paragraph:
``(11) Special rules for certain combination contracts
providing long-term care insurance.--Notwithstanding paragraphs
(2), (5)(C), and (10), in the case of any charge against the
cash value of an annuity contract or the cash surrender value of
a life insurance contract made as payment for coverage under a
qualified long-term care insurance contract which is part of or
a rider on such annuity or life insurance contract--
``(A) the investment in the contract shall be
reduced (but not below zero) by such charge, and
``(B) such charge shall not be includible in gross
income.''.
2006 - Pension Protection Act of 2006 (P.L. 109-280)
SEC. 828. WAIVER OF 10 PERCENT EARLY WITHDRAWAL PENALTY TAX ON CERTAIN
DISTRIBUTIONS OF PENSION PLANS FOR PUBLIC SAFETY EMPLOYEES.
(a) In General.--Section 72(t) of the Internal Revenue Code of
1986 <<NOTE: 26 USC 72.>> (relating to subsection not to apply to
certain distributions) is amended by adding at the end the following new
paragraph:
``(10) Distributions to qualified public safety employees in
governmental plans.--
``(A) In general.--In the case of a distribution to
a qualified public safety employee from a governmental
plan (within the meaning of section 414(d)) which is a
defined benefit plan, paragraph (2)(A)(v) shall be
applied by substituting `age 50' for `age 55'.
``(B) Qualified public safety employee.--For
purposes of this paragraph, the term `qualified public
safety employee' means any employee of a State or
political subdivision of a State who provides police
protection, firefighting services, or emergency medical
services for any area within the jurisdiction of such
State or political subdivision.''.
2006 - Pension Protection Act of 2006 (P.L. 109-280)
SEC. 827. PENALTY-FREE WITHDRAWALS FROM RETIREMENT PLANS FOR INDIVIDUALS
CALLED TO ACTIVE DUTY FOR AT LEAST 179 DAYS.
(a) In General.--Paragraph (2) of section 72(t) of the Internal
Revenue Code of 1986 (relating to 10-percent additional tax on early
distributions from qualified retirement plans) is amended by adding at
the end the following new subparagraph:
``(G) Distributions from retirement plans to
individuals called to active duty.--
``(i) In general.--Any qualified reservist
distribution.
``(ii) Amount distributed may be repaid.--Any
individual who receives a qualified reservist
distribution may, at any time during the 2-year
period beginning on the day after the end of the
active duty period, make one or more contributions
to an individual retirement plan of such
individual in an aggregate amount not to exceed
the amount of such distribution. The dollar
limitations otherwise applicable to contributions
to individual retirement plans shall not apply to
any contribution made pursuant to the preceding
sentence. No deduction shall be allowed for any
contribution pursuant to this clause.
``(iii) Qualified reservist distribution.--For
purposes of this subparagraph, the term `qualified
reservist distribution' means any distribution to
an individual if--
``(I) such distribution is from an
individual retirement plan, or from
amounts attributable to employer
contributions made pursuant to elective
deferrals described in subparagraph (A)
or (C) of section 402(g)(3) or section
501(c)(18)(D)(iii),
``(II) such individual was (by
reason of being a member of a reserve
component (as defined in section 101 of
title 37, United States Code)) ordered
or called to active duty for a period in
excess of 179 days or for an indefinite
period, and
``(III) such distribution is made
during the period beginning on the date
of such order or call and ending at the
close of the active duty period.
``(iv) Application of subparagraph.--This
subparagraph applies to individuals ordered or
called to active duty after September 11, 2001,
and before December 31, 2007. In no event shall
the 2-year period referred to in clause (ii) end
before the date which is 2 years after the date of
the enactment of this subparagraph.''.
2005 - P.L. 109-73
SEC. 101. TAX-FAVORED WITHDRAWALS FROM RETIREMENT PLANS FOR RELIEF
RELATING TO HURRICANE KATRINA.
(a) In General.--Section 72(t) of the Internal Revenue Code of 1986
shall not apply to any qualified Hurricane Katrina distribution.
(b) Aggregate Dollar Limitation.--
(1) In general.--For purposes of this section, the aggregate
amount of distributions received by an individual which may be
treated as qualified Hurricane Katrina distributions for any
taxable year shall not exceed the excess (if any) of--
(A) $100,000, over
(B) the aggregate amounts treated as qualified
Hurricane Katrina distributions received by such
individual for all prior taxable years.
(2) Treatment of plan distributions.--If a distribution to
an individual would (without regard to paragraph (1)) be a
qualified Hurricane Katrina distribution, a plan shall not be
treated as violating any requirement of the Internal Revenue
Code of 1986 merely because the plan treats such distribution as
a qualified Hurricane Katrina distribution, unless the aggregate
amount of such distributions from all plans maintained by the
employer (and any member of any controlled group which includes
the employer) to such individual exceeds $100,000.
(3) Controlled group.--For purposes of paragraph (2), the
term ``controlled group'' means any group treated as a single
employer under subsection (b), (c), (m), or (o) of section 414
of such Code.
(c) Amount Distributed May Be Repaid.--
(1) In general.--Any individual who receives a qualified
Hurricane Katrina distribution may, at any time during the 3-
year period beginning on the day after the date on which such
distribution was received, make one or more contributions in an
aggregate amount not to exceed the amount of such distribution
to an eligible retirement plan of which such individual is a
beneficiary and to which a rollover contribution of such
distribution could be made under section 402(c),
403(a)(4), 403(b)(8), 408(d)(3), or 457(e)(16) of such Code, as
the case may be.
(2) Treatment of repayments of distributions from eligible
retirement plans other than iras.--For purposes of such Code, if
a contribution is made pursuant to paragraph (1) with respect to
a qualified Hurricane Katrina distribution from an eligible
retirement plan other than an individual retirement plan, then
the taxpayer shall, to the extent of the amount of the
contribution, be treated as having received the qualified
Hurricane Katrina distribution in an eligible rollover
distribution (as defined in section 402(c)(4) of such Code) and
as having transferred the amount to the eligible retirement plan
in a direct trustee to trustee transfer within 60 days of the
distribution.
(3) Treatment of repayments for distributions from iras.--
For purposes of such Code, if a contribution is made pursuant to
paragraph (1) with respect to a qualified Hurricane Katrina
distribution from an individual retirement plan (as defined by
section 7701(a)(37) of such Code), then, to the extent of the
amount of the contribution, the qualified Hurricane Katrina
distribution shall be treated as a distribution described in
section 408(d)(3) of such Code and as having been transferred to
the eligible retirement plan in a direct trustee to trustee
transfer within 60 days of the distribution.
(d) Definitions.--For purposes of this section--
(1) Qualified hurricane katrina distribution.--Except as
provided in subsection (b), the term ``qualified Hurricane
Katrina distribution'' means any distribution from an eligible
retirement plan made on or after August 25, 2005, and before
January 1, 2007, to an individual whose principal place of abode
on August 28, 2005, is located in the Hurricane Katrina disaster
area and who has sustained an economic loss by reason of
Hurricane Katrina.
(2) Eligible retirement plan.--The term ``eligible
retirement plan'' shall have the meaning given such term by
section 402(c)(8)(B) of such Code.
(e) Income Inclusion Spread Over 3 Year Period for Qualified
Hurricane Katrina Distributions.--
(1) In general.--In the case of any qualified Hurricane
Katrina distribution, unless the taxpayer elects not to have
this subsection apply for any taxable year, any amount required
to be included in gross income for such taxable year shall be so
included ratably over the 3-taxable year period beginning with
such taxable year.
(2) Special rule.--For <<NOTE: Applicability.>> purposes of
paragraph (1), rules similar to the rules of subparagraph (E) of
section 408A(d)(3) of such Code shall apply.
(f) Special Rules.--
(1) Exemption of distributions from trustee to trustee
transfer and withholding rules.--For purposes of sections
401(a)(31), 402(f), and 3405 of such Code, qualified Hurricane
Katrina distributions shall not be treated as eligible rollover
distributions.
(2) Qualified hurricane katrina distributions treated as
meeting plan distribution requirements.--For purposes of such
Code, a qualified Hurricane Katrina distribution shall be
treated as meeting the requirements of sections
401(k)(2)(B)(i), 403(b)(7)(A)(ii), 403(b)(11), and 457(d)(1)(A)
of such Code.
SEC. 102. RECONTRIBUTIONS OF WITHDRAWALS FOR HOME PURCHASES CANCELLED
DUE TO HURRICANE KATRINA.
(a) Recontributions.--
(1) In general.--Any individual who received a qualified
distribution may, during the period beginning on August 25,
2005, and ending on February 28, 2006, make one or more
contributions in an aggregate amount not to exceed the amount of
such qualified distribution to an eligible retirement plan (as
defined in section 402(c)(8)(B) of the Internal Revenue Code of
1986) of which such individual is a beneficiary and to which a
rollover contribution of such distribution could be made under
section 402(c), 403(a)(4), 403(b)(8), or 408(d)(3) of such Code,
as the case may be.
(2) Treatment of repayments.--
Rules <<NOTE: Applicability.>> similar to the rules of
paragraphs (2) and (3) of section 101(c) of this Act shall apply
for purposes of this section.
(b) Qualified Distribution Defined.--For purposes of this section,
the term ``qualified distribution'' means any distribution--
(1) described in section 401(k)(2)(B)(i)(IV),
403(b)(7)(A)(ii) (but only to the extent such distribution
relates to financial hardship), 403(b)(11)(B), or 72(t)(2)(F) of
such Code,
(2) received after February 28, 2005, and before August 29,
2005, and
(3) which was to be used to purchase or construct a
principal residence in the Hurricane Katrina disaster area, but
which was not so purchased or constructed on account of
Hurricane Katrina.
SEC. 103. LOANS FROM QUALIFIED PLANS FOR RELIEF RELATING TO HURRICANE
KATRINA.
(a) Increase in <<NOTE: Applicability.>> Limit on Loans not Treated
as Distributions.--In the case of any loan from a qualified employer
plan (as defined under section 72(p)(4) of the Internal Revenue Code of
1986) to a qualified individual made after the date of enactment of this
Act and before January 1, 2007--
(1) clause (i) of section 72(p)(2)(A) of such Code shall be
applied by substituting ``$100,000'' for ``$50,000'', and
(2) clause (ii) of such section shall be applied by
substituting ``the present value of the nonforfeitable accrued
benefit of the employee under the plan'' for ``one-half of the
present value of the nonforfeitable accrued benefit of the
employee under the plan''.
(b) Delay of Repayment.--In the case of a qualified individual with
an outstanding loan on or after August 25, 2005, from a qualified
employer plan (as defined in section 72(p)(4) of such Code)--
(1) if the due date pursuant to subparagraph (B) or (C) of
section 72(p)(2) of such Code for any repayment with respect to
such loan occurs during the period beginning on August 25, 2005,
and ending on December 31, 2006, such due date shall be delayed
for 1 year,
(2) any subsequent repayments with respect to any such loan
shall be appropriately adjusted to reflect the delay in the due
date under paragraph (1) and any interest accruing during such
delay, and
(3) in determining the 5-year period and the term of a loan
under subparagraph (B) or (C) of section 72(p)(2) of such Code,
the period described in paragraph (1) shall be disregarded.
(c) Qualified Individual.--For purposes of this section, the term
``qualified individual'' means an individual whose principal place of
abode on August 28, 2005, is located in the Hurricane Katrina disaster
area and who has sustained an economic loss by reason of Hurricane
Katrina.
SEC. 104. PROVISIONS RELATING TO PLAN AMENDMENTS.
(a) In General.--If this section applies to any amendment to any
plan or annuity contract, such plan or contract shall be treated as
being operated in accordance with the terms of the plan during the
period described in subsection (b)(2)(A).
(b) Amendments to Which Section Applies.--
(1) In general.--This section shall apply to any amendment
to any plan or annuity contract which is made--
(A) pursuant to any amendment made by this title, or
pursuant to any regulation issued by the Secretary of
the Treasury or the Secretary of Labor under this title,
and
(B) <<NOTE: Effective date.>> on or before the last
day of the first plan year beginning on or after January
1, 2007, or such later date as the Secretary of the
Treasury may prescribe.
In the case of a governmental plan (as defined in section 414(d)
of the Internal Revenue Code of 1986), subparagraph (B) shall be
applied by substituting the date which is 2 years after the date
otherwise applied under subparagraph (B).
(2) Conditions.--This section shall not apply to any
amendment unless--
(A) during the period--
(i) beginning on the date the legislative or
regulatory amendment described in paragraph (1)(A)
takes effect (or in the case of a plan or contract
amendment not required by such legislative or
regulatory amendment, the effective date specified
by the plan), and
(ii) ending on the date described in paragraph
(1)(B) (or, if earlier, the date the plan or
contract amendment is adopted),
the plan or contract is operated as if such plan or
contract amendment were in effect; and
(B) such plan or contract amendment applies
retroactively for such period.
2004 - Pub. L. 108-357, Sec. 906(a). Section 72 (relating to annuities
and certain proceeds of endowment and life insurance contracts)
is amended by redesignating subsection (w) as subsection (x) and by
inserting after subsection (v) the following new subsection:
"(w) Application of Basis Rules to Nonresident Aliens...".
Effective Date.--The <<NOTE: 26 USC 72 note.>> amendments made
by this section shall apply to distributions on or after the date
of the enactment of this Act.
2004 - Subsec. (t)(2)(D)(i)(III) and subsec. (t)(7)(A)(iii) amended
by Pub. L. 108-311 Sec 207 altering references to other sections
of the code.
2001 - Subsec. (e)(9). Pub. L. 107-22, Sec. 1(b)(3)(A), which
directed amendment of par. (9) by substituting ''Coverdell
educational savings'' for ''educational individual retirement'' in
heading, was executed by making the substitution for ''educational
individual retirement'', to reflect the probable intent of
Congress.
Pub. L. 107-22, Sec. 1(b)(1)(A), substituted ''a Coverdell
educational savings'' for ''an educational individual retirement''.
Pub. L. 107-16, Sec. 402(a)(4)(A), (B), 901, temporarily
substituted ''qualified tuition'' for ''qualified State tuition''
in heading and text. See Effective and Termination Dates of 2001
Amendment note below.
Subsec. (f). Pub. L. 107-16, Sec. 632(a)(3)(A), 901, temporarily
substituted ''section 403(b)(2)(D)(iii), as in effect before the
enactment of the Economic Growth and Tax Relief Reconciliation Act
of 2001'' for ''section 403(b)(2)(D)(iii))'' in concluding
provisions. See Effective and Termination Dates of 2001 Amendment
note below.
Subsec. (o)(4). Pub. L. 107-16, Sec. 641(e)(1), 901, temporarily
substituted ''403(b)(8), 408(d)(3), and 457(e)(16)'' for ''and
408(d)(3)''. See Effective and Termination Dates of 2001 Amendment
note below.
Subsec. (r)(2)(B)(i). Pub. L. 107-90 substituted ''3211(b)'' for
''3211(a)(2)''.
Subsec. (t)(9). Pub. L. 107-16, Sec. 641(a)(2)(C), 901,
temporarily added par. (9). See Effective and Termination Dates of
2001 Amendments note below.
1998 - Subsec. (e)(9). Pub. L. 105-206, Sec. 6004(d)(3)(B), added
par. (9).
Subsec. (n). Pub. L. 105-206, Sec. 6023(3), inserted ''(as in
effect on the day before the date of the enactment of the Small
Business Job Protection Act of 1996)'' after ''section
101(b)(2)(D)''.
Subsec. (t)(2)(A)(iv). Pub. L. 105-206, Sec. 3436(a), which
directed amendment of cl. (iv) by striking out ''or'' at end, could
not be executed because the word ''or'' did not appear at end.
Subsec. (t)(2)(A)(vii). Pub. L. 105-206, Sec. 3436(a), added cl.
(vii).
Subsec. (t)(3)(A). Pub. L. 105-206, Sec. 6023(4), substituted
''(A)(v)'' for ''(A)(v),''.
Subsec. (t)(8)(E). Pub. L. 105-206, Sec. 6005(c)(1), in
introductory provisions, substituted ''120th day'' for ''120 days''
and ''60th day'' for ''60 days''.
1997 - Subsec. (d)(1)(B)(iii). Pub. L. 105-34, Sec. 1075(b),
inserted ''If the annuity is payable over the life of a single
individual, the number of anticipated payments shall be determined
as follows:'' before table and struck out ''primary'' after ''If
the age of the'' in table.
Subsec. (d)(1)(B)(iv). Pub. L. 105-34, Sec. 1075(a), added cl.
(iv).
Subsec. (t)(2)(E). Pub. L. 105-34, Sec. 203(a), added subpar.
(E).
Subsec. (t)(2)(F). Pub. L. 105-34, Sec. 303(a), added subpar.
(F).
Subsec. (t)(7). Pub. L. 105-34, Sec. 203(b), added par. (7).
Subsec. (t)(8). Pub. L. 105-34, Sec. 303(b), added par. (8).
1996 - Subsec. (b)(4)(A). Pub. L. 104-188, Sec. 1704(l)(1),
inserted ''(determined without regard to subsection (c)(2))'' after
''contract''.
Subsec. (d). Pub. L. 104-188, Sec. 1403(a), amended subsec. (d)
generally. Prior to amendment, subsec. (d) read as follows:
''Treatment of Employee Contributions Under Defined Contribution
Plans as Separate Contracts. - For purposes of this section,
employee contributions (and any income allocable thereto) under a
defined contribution plan may be treated as a separate contract.''
Subsec. (f). Pub. L. 104-188, Sec. 1463(a), in closing
provisions, inserted before period at end '', or to the extent such
credits are attributable to services performed as a foreign
missionary (within the meaning of section 403(b)(2)(D)(iii))''.
Subsec. (m)(2)(A) to (C). Pub. L. 104-188, Sec. 1704(t)(2),
inserted ''and'' at end of subpar. (A), redesignated subpar. (C) as
(B), and struck out former subpar. (B) which read as follows: ''the
consideration for the contract contributed by the employee for
purposes of subsection (d)(1) (relating to employee's contributions
recoverable in 3 years) and subsection (e)(7) (relating to plans
where substantially all contributions are employee contributions),
and''.
Subsec. (p)(4)(A)(ii). Pub. L. 104-188, Sec. 1704(t)(77), amended
cl. (ii) generally. Prior to amendment, cl. (ii) read as follows:
''Special rules. - The term 'qualified employer plan' -
''(I) shall include any plan which was (or was determined to
be) a qualified employer plan or a government plan, but
''(II) shall not include a plan described in subsection
(e)(7).''
Subsec. (t)(2)(B). Pub. L. 104-191, Sec. 361(c), substituted '',
(C), or (D)'' for ''or (C)''.
Subsec. (t)(2)(D). Pub. L. 104-191, Sec. 361(b), added subpar.
(D).
Subsec. (t)(3)(A). Pub. L. 104-191, Sec. 361(a), struck out
''(B),'' after ''Subparagraphs (A)(v),''.
Subsec. (t)(6). Pub. L. 104-188, Sec. 1421(b)(4)(A), added par.
(6).
1992 - Subsec. (o)(4). Pub. L. 102-318 substituted ''402(c)'' for
''402(a)(5), 402(a)(7)''.
1990 - Subsec. (t)(2)(C), (D). Pub. L. 101-508, Sec. 11802(a)(1),
(2), redesignated subpar. (D) as (C) and struck out former subpar.
(C) ''Exceptions for distributions from employee stock ownership
plans'' which read as follows: ''Any distribution made before
January 1, 1990, to an employee from an employee stock ownership
plan (as defined in section 4975(e)(7)) or a tax credit employee
stock ownership plan (as defined in section 409) if -
''(i) such distribution is attributable to assets which have
been invested in employer securities (within the meaning of
section 409(l)) at all times during the 5-plan-year period
preceding the plan year in which the distribution is made, and
''(ii) at all times during such period the requirements of
sections 401(a)(28) and 409 (as in effect at such times) are met
with respect to such employer securities.''
Subsec. (t)(3)(A). Pub. L. 101-508, Sec. 11802(a)(3), substituted
''and (C)'' for ''(C), and (D)''.
1989 - Subsec. (e)(11)(A). Pub. L. 101-239, Sec. 7815(a)(3), (5),
substituted ''calendar year'' for ''12-month period'' in cls. (i)
and (ii), and inserted at end ''The preceding sentence shall not
apply to any contract described in paragraph (5)(D).''
Subsec. (q)(2)(B). Pub. L. 101-239, Sec. 7811(m)(4), inserted an
additional closing parenthesis after ''subsection (s)(6)(B))''.
1988 - Subsec. (d). Pub. L. 100-647, Sec. 1011A(b)(2)(A), added
subsec. (d).
Subsec. (e)(4)(A). Pub. L. 100-647, Sec. 5012(d)(1), inserted at
end ''The preceding sentence shall not apply for purposes of
determining investment in the contract, except that the investment
in the contract shall be increased by any amount included in gross
income by reason of the amount treated as received under the
preceding sentence.''
Subsec. (e)(5)(C). Pub. L. 100-647, Sec. 5012(a)(2), substituted
''Except as provided in paragraph (10) and except to the extent''
for ''Except to the extent''.
Subsec. (e)(5)(D). Pub. L. 100-647, Sec. 1011A(b)(9)(B),
substituted ''paragraph (8)'' for ''paragraphs (7) and (8)''.
Subsec. (e)(7). Pub. L. 100-647, Sec. 1011A(b)(9)(A), struck out
par. (7) which related to special rules for plans where
substantially all contributions are employee contributions.
Subsec. (e)(8)(A). Pub. L. 100-647, Sec. 1011A(b)(9)(C), struck
out ''(other than paragraph (7))'' after ''this subsection''.
Subsec. (e)(9). Pub. L. 100-647, Sec. 1011A(b)(2)(B), struck out
par. (9) which related to treatment of employee contributions as
separate contract.
Subsec. (e)(10). Pub. L. 100-647, Sec. 5012(a)(1), added par.
(10).
Subsec. (e)(11). Pub. L. 100-647, Sec. 5012(d)(2), added par.
(11).
Subsec. (f). Pub. L. 100-647, Sec. 1011A(b)(1)(A), struck out
''for purposes of subsections (d)(1) and (e)(7), the consideration
for the contract contributed by the employee,'' after ''contract,''
in introductory provisions.
Subsec. (n). Pub. L. 100-647, Sec. 1011A(b)(1)(B), substituted
''Subsection (b)'' for ''Subsections (b) and (d)''.
Subsec. (o)(2). Pub. L. 100-647, Sec. 1011A(c)(8), struck out
par. (2) which related to additional tax if amount received before
age 59 1/2.
Subsec. (p)(3)(A). Pub. L. 100-647, Sec. 1011A(h)(1), inserted
''to which paragraph (1) does not apply by reason of paragraph (2)
during the period'' after ''loan''.
Subsec. (p)(3)(B). Pub. L. 100-647, Sec. 1011A(h)(2), substituted
''Period'' for ''Loans'' in heading and amended text generally.
Prior to amendment, text read as follows: ''For purposes of
subparagraph (A), a loan is described in this subparagraph -
''(i) if paragraph (1) does not apply to such loan by reason of
paragraph (2), and
''(ii) if -
''(I) such loan is made to a key employee (as defined in
section 416(i)), or
''(II) such loan is secured by amounts attributable to
elective 401(k) or 403(b) deferrals (as defined in section
402(g)(3)).''
Subsec. (q)(2)(B). Pub. L. 100-647, Sec. 1018(t)(1)(B),
substituted ''subsection (s)(6)(B))'' for ''subsection
(s)(6)(B)))''.
Subsec. (q)(2)(D). Pub. L. 100-647, Sec. 1011A(c)(7), inserted
''designated'' before ''beneficiary''.
Pub. L. 100-647, Sec. 1011A(c)(4), 1018(u)(8), amended subpar.
(D) identically, substituting a comma for period at end.
Subsec. (q)(2)(E). Pub. L. 100-647, Sec. 1011A(b)(9)(D), struck
out ''(determined without regard to subsection (e)(7))'' after
''subsection (e)(5)(D)''.
Subsec. (q)(2)(G). Pub. L. 100-647, Sec. 1011A(c)(4), substituted
a comma for period at end.
Subsec. (q)(2)(H). Pub. L. 100-647, Sec. 1011A(c)(6), added
subpar. (H).
Subsec. (q)(3)(B). Pub. L. 100-647, Sec. 1011A(c)(5), substituted
''taxpayer'' for ''employee'' in cls. (i) and (ii).
Subsec. (s)(5). Pub. L. 100-647, Sec. 1018(k)(2), substituted
''certain annuity contracts'' for ''annuity contracts which are
part of qualified plans'' in heading.
Subsec. (s)(5)(D). Pub. L. 100-647, Sec. 1018(k)(1), added
subpar. (D).
Subsec. (s)(7). Pub. L. 100-647, Sec. 1018(t)(1)(A), substituted
''primary annuitant'' for ''primary annuity''.
Subsec. (t)(2)(A)(iv). Pub. L. 100-647, Sec. 1011A(c)(7),
inserted ''designated'' before ''beneficiary''.
Subsec. (t)(2)(A)(v). Pub. L. 100-647, Sec. 1011A(c)(1), struck
out ''on account of early retirement under the plan'' after
''separation from service''.
Subsec. (t)(2)(C). Pub. L. 100-647, Sec. 1011A(c)(2), substituted
''Exceptions for distributions from employee stock ownership
plans'' for ''Certain plans'' in heading and amended text
generally. Prior to amendment, text read as follows:
''(i) In general. - Except as provided in clause (ii), any
distribution made before January 1, 1990, to an employee from an
employee stock ownership plan defined in section 4975(e)(7) to the
extent that, on average, a majority of assets in the plan have been
invested in employer securities (as defined in section 409(l)) for
the 5-plan-year period preceding the plan year in which the
distribution is made.
''(ii) Benefits distributed must be invested in employer
securities for 5 years. - Clause (i) shall not apply to any
distribution which is attributable to assets which have not been
invested in employer securities at all times during the period
referred to in clause (i).''
Subsec. (t)(3)(A). Pub. L. 100-647, Sec. 1011A(c)(3), substituted
''(C), and (D)'' for ''and (C)''.
Subsec. (u)(1)(A). Pub. L. 100-647, Sec. 1011A(i)(1), inserted
''(other than subchapter L)'' after ''subtitle''.
Subsec. (u)(3)(D). Pub. L. 100-647, Sec. 1011A(i)(3), substituted
''is purchased'' for ''which is purchased'' and ''is held'' for
''which is held''.
Pub. L. 100-647, Sec. 1011A(i)(2), substituted ''until all
amounts under such contract are distributed to the employee for
whom such contract was purchased or the employee's beneficiary''
for ''until such time as the employee separates from service''.
Subsec. (u)(3)(E). Pub. L. 100-647, Sec. 1011A(i)(3), substituted
''is'' for ''which is''.
Subsec. (u)(4)(C). Pub. L. 100-647, Sec. 1011A(i)(4), added
subpar. (C).
Subsecs. (v), (w). Pub. L. 100-647, Sec. 5012(b)(1), added
subsec. (v) and redesignated former subsec. (v) as (w).
1986 - Subsec. (b). Pub. L. 99-514, Sec. 1122(c)(2), amended
subsec. (b) generally. Prior to amendment, subsec. (b) read as
follows: ''Gross income does not include that part of any amount
received as an annuity under an annuity, endowment, or life
insurance contract which bears the same ratio to such amount as the
investment in the contract (as of the annuity starting date) bears
to the expected return under the contract (as of such date). This
subsection shall not apply to any amount to which subsection (d)(1)
(relating to certain employee annuities) applies.''
Subsec. (d). Pub. L. 99-514, Sec. 1122(c)(1), struck out subsec.
(d) which related to employee's annuities where the employee's
contributions were recoverable in 3 years.
Subsec. (e)(4)(C). Pub. L. 99-514, Sec. 1826(b)(3), added subpar.
(C).
Subsec. (e)(5)(D). Pub. L. 99-514, Sec. 1122(c)(3)(B),
substituted ''paragraphs (7) and (8)'' for ''paragraph (7)'' in
introductory provisions.
Pub. L. 99-514, Sec. 1854(b)(1), inserted closing provisions
which read as follows: ''Any dividend described in section 404(k)
which is received by a participant or beneficiary shall, for
purposes of this subparagraph, be treated as paid under a separate
contract to which clause (ii)(I) applies.''
Subsec. (e)(7)(B). Pub. L. 99-514, Sec. 1852(c)(1), in
introductory provisions substituted ''any plan or contract'' for
''any trust or contract'', in cl. (ii) substituted ''85 percent or
more of'' for ''85 percent of'', and inserted closing provision:
''For purposes of clause (ii), deductible employee contributions
(as defined in subsection (o)(5)(A)) shall not be taken into
account.''
Subsec. (e)(8), (9). Pub. L. 99-514, Sec. 1122(c)(3)(A), added
pars. (8) and (9).
Subsec. (f). Pub. L. 99-514, Sec. 1852(c)(3), in introductory
provisions, substituted ''subsections (d)(1) and (e)(7)'' for
''subsection (d)(1)'' and ''subsection (e)(6)'' for ''subsection
(e)(1)(B)''.
Subsec. (m)(2)(B). Pub. L. 99-514, Sec. 1852(c)(4)(A), inserted
''and subsection (e)(7) (relating to plans where substantially all
contributions are employee contributions)''.
Subsec. (m)(2)(C). Pub. L. 99-514, Sec. 1852(c)(4)(B),
substituted ''subsection (e)(6)'' for ''subsection (e)(1)(B)''.
Subsec. (m)(5). Pub. L. 99-514, Sec. 1852(a)(2)(C), which
directed that par. (5) be amended by substituting ''5-percent
owners'' for ''owner-employees'' in heading, was executed by
substituting ''5-percent owners'' for ''key employees'', to reflect
the probable intent of Congress and intervening amendment by
section 713(c)(1)(B) of Pub. L. 98-369.
Subsec. (m)(5)(A). Pub. L. 99-514, Sec. 1123(d)(1), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: ''This subparagraph shall apply -
''(i) to amounts which -
''(I) are received from a qualified trust described in
section 401(a) or under a plan described in section 403(a), and
''(II) are received by a 5-percent owner before such owner
attains the age of 59 1/2 years, for any reason other than such
owner becoming disabled (within the meaning of paragraph (7) of
this section), and
''(ii) to amounts which are received from a qualified trust
described in section 401(a) or under a plan described in section
403(a) at any time by a 5-percent owner, or by the successor of
such owner, but only to the extent that such amounts are
determined (under regulations prescribed by the Secretary) to
exceed the benefits provided for such individual under the plan
formula.
Clause (i) shall not apply to any amount received by an individual
in his capacity as a policyholder of an annuity, endowment, or life
insurance contract which is in the nature of a dividend or similar
distribution and clause (i) shall not apply to amounts attributable
to benefits accrued before January 1, 1985.''
Pub. L. 99-514, Sec. 1852(a)(2)(A), amended subpar. (A)
generally. Prior to amendment, subpar. (A) read as follows: ''This
paragraph shall apply -
''(i) to amounts (other than any amount received by an
individual in his capacity as a policyholder of an annuity,
endowment, or life insurance contract which is in the nature of a
dividend or similar distribution) which are received from a
qualified trust described in section 401(a) or under a plan
described in section 403(a) and which are received by an
individual, who is, or has been, a 5-percent owner, before such
individual attains the age of 59 1/2 years, for any reason other
than the individual's becoming disabled (within the meaning of
paragraph (7) of this subsection), but only to the extent that
such amounts are attributable to contributions paid on behalf of
such individual (other than contributions made by him as a
5-percent owner) while he was a 5-percent owner, and
''(ii) to amounts which are received from a qualified trust
described in section 401(a) or under a plan described in section
403(a) at any time by an individual who is, or has been, a
5-percent owner or by the successor of such individual, but only
to the extent that such amounts are determined, under regulations
prescribed by the Secretary, to exceed the benefits provided for
such individual under the plan formula.''
Subsec. (m)(5)(C). Pub. L. 99-514, Sec. 1852(a)(2)(B), amended
subpar. (C) generally. Prior to amendment, subpar. (C) read as
follows: ''For purposes of this paragraph, the term '5 percent
owner' have the same meanings as when used in section 416.''
Subsec. (m)(10). Pub. L. 99-514, Sec. 1898(c)(1)(B), inserted
''who is the spouse or former spouse of the participant''.
Subsec. (o)(5). Pub. L. 99-514, Sec. 1101(b)(2)(C), inserted
''and made for a taxable year beginning before January 1, 1987,''
in subpar. (A), substituted ''subsection (p)(3)(A)(i)'' for
''section 219(e)(3)'' in subpar. (C), and substituted ''subsection
(p)(3)(B)'' for ''section 219(e)(4)'' in subpar. (D).
Subsec. (p)(2)(A)(i). Pub. L. 99-514, Sec. 1134(a), amended cl.
(i) generally. Prior to amendment, cl. (i) read as follows:
''$50,000, or''.
Subsec. (p)(2)(B)(ii). Pub. L. 99-514, Sec. 1134(d), amended cl.
(ii) generally. Prior to amendment, cl. (ii) read as follows:
''Clause (i) shall not apply to any loan used to acquire,
construct, reconstruct, or substantially rehabilitate any dwelling
unit which within a reasonable time is to be used (determined at
the time the loan is made) as a principal residence of the
participant or a member of the family (within the meaning of
section 267(c)(4)) of the participant.''
Subsec. (p)(2)(C), (D). Pub. L. 99-514, Sec. 1134(b), added
subpar. (C) and redesignated former subpar. (C) as (D).
Subsec. (p)(3). Pub. L. 99-514, Sec. 1134(c), added par. (3) and
redesignated former par. (3) as (4).
Pub. L. 99-514, Sec. 1101(b)(2)(B), amended par. (3) generally.
Prior to amendment, par. (3) read as follows: ''For purposes of
this subsection, the term 'qualified employer plan' means any plan
which was (or was determined to be) a qualified employer plan (as
defined in section 219(e)(3) other than a plan described in
subsection (e)(7)). For purposes of this subsection, such term
includes any government plan (as defined in section 219(e)(4)).''
Subsec. (p)(4), (5). Pub. L. 99-514, Sec. 1134(c), redesignated
former pars. (3) and (4) as (4) and 5, respectively.
Subsec. (q). Pub. L. 99-514, Sec. 1123(b)(1)(B), substituted
''10-percent'' for ''5-percent'' in heading.
Subsec. (q)(1). Pub. L. 99-514, Sec. 1123(b)(1)(A), substituted
''10 percent'' for ''5 percent''.
Subsec. (q)(2). Pub. L. 99-514, Sec. 1123(b)(3), substituted
''Paragraph (1)'' for ''This subsection'' in introductory
provisions.
Subsec. (q)(2)(B). Pub. L. 99-514, Sec. 1826(c), amended subpar.
(B) generally. Prior to amendment, subpar. (B) read as follows:
''made to a beneficiary (or to the estate of an annuitant) on or
after the death of an annuitant,''.
Subsec. (q)(2)(D). Pub. L. 99-514, Sec. 1123(b)(2), amended
subpar. (D) generally. Prior to amendment, subpar. (D) read as
follows: ''which is one of a series of substantially equal periodic
payments made for the life of a taxpayer or over a period extending
for at least 60 months after the annuity starting date,''.
Subsec. (q)(2)(E). Pub. L. 99-514, Sec. 1852(c)(2), inserted
''(determined without regard to subsection (e)(7))''.
Subsec. (q)(2)(G). Pub. L. 99-514, Sec. 1826(d), added subpar.
(G).
Subsec. (q)(2)(I), (J). Pub. L. 99-514, Sec. 1123(b)(4), which
added subpars. (I) and (J) directed the amendment of subpar. (G) by
striking out ''or'' at the end thereof, and of subpar. (H) by
striking out the period at the end thereof, could not be executed
to subpars. (G) and (H) because subpar. (G) does not contain
''or'', and no subpar. (H) was enacted.
Subsec. (q)(3). Pub. L. 99-514, Sec. 1123(b)(3), added par. (3).
Subsec. (s)(1). Pub. L. 99-514, Sec. 1826(b)(2), substituted
''any holder of such contract'' for ''the holder of such contract''
in subpars. (A) and (B).
Subsec. (s)(5). Pub. L. 99-514, Sec. 1826(a), added par. (5).
Subsec. (s)(6), (7). Pub. L. 99-514, Sec. 1826(b)(1), added pars.
(6) and (7).
Subsec. (t). Pub. L. 99-514, Sec. 1123(a), added subsec. (t) and
redesignated former subsec. (t) as (u).
Subsecs. (u), (v). Pub. L. 99-514, Sec. 1135(a), added subsec.
(u) and redesignated former subsec. (u) as (v).
1984 - Subsec. (e)(5)(D). Pub. L. 98-369, Sec. 523(b)(1),
substituted ''Except as provided in paragraph (7), this'' for
''This''.
Subsec. (e)(5)(D)(ii)(IV). Pub. L. 98-369, Sec. 211(b)(1), which
directed substitution of ''section 818(a)(3)'' for ''805(d)(3)'' in
subpar. (D)(i)(IV), was executed to subpar. (D)(ii)(IV) to reflect
the probable intent of Congress.
Subsec. (e)(7). Pub. L. 98-369, Sec. 523(a), added par. (7).
Subsec. (k). Pub. L. 98-369, Sec. 421(b)(1), repealed subsec. (k)
relating to payments in discharge of alimony.
Subsec. (m)(5). Pub. L. 98-369, Sec. 713(c)(1)(B), substituted
''key employees'' for ''owner-employees'' in heading.
Subsec. (m)(5)(A). Pub. L. 98-369, Sec. 521(d)(1), (2),
substituted ''5-percent owner'' for ''key employee'' wherever
appearing and struck out ''in a top-heavy plan'' at end of cl. (i).
Pub. L. 98-369, Sec. 713(c)(1)(A), substituted ''as a key
employee'' for ''as an owner-employee'' in cl. (i).
Subsec. (m)(5)(C). Pub. L. 98-369, Sec. 521(d)(3), substituted
''the term '5 percent owner' '' for ''the terms 'key employee' and
'top-heavy plan' ''.
Subsec. (m)(9). Pub. L. 98-369, Sec. 713(d)(1), repealed par. (9)
relating to return of excess contributions before due date of
return.
Subsec. (m)(10). Pub. L. 98-397 added par. (10).
Subsec. (o)(1). Pub. L. 98-369, Sec. 491(d)(3), substituted ''402
and 403'' for ''402, 403, and 405''.
Subsec. (o)(3)(A). Pub. L. 98-369, Sec. 713(b)(1)(A), inserted
''(other than the exception contained in paragraph (2) thereof)''.
Subsec. (o)(4). Pub. L. 98-369, Sec. 491(d)(4), substituted ''and
408(d)(3)'' for ''408(d)(3), and 409(b)(3)(C)''.
Subsec. (p)(2)(A). Pub. L. 98-369, Sec. 713(b)(1)(B), inserted at
end ''For purposes of clause (ii), the present value of the
nonforfeitable accrued benefit shall be determined without regard
to any accumulated deductible employee contributions (