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February 19, 2009

Deemed IRA

Your Guide

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Definition

Account established under a qualified plan,  403(a), 403(b) or governmental 457(b) plans to receive Roth IRA or Traditional IRA contributions .

Contributions to a deemed IRA are voluntary, and are subject to the same tax reporting rules that apply to regular IRAs.

  • Simplified employee pension (SEP) IRAs and SIMPLE IRAs may not be used as deemed IRAs.
  • If the account or annuity meets the requirements applicable to traditional IRAs the account or annuity is deemed to be a traditional IRA, and if the account or annuity meets the requirements applicable to Roth IRAs the account or annuity is deemed to be a Roth IRA.
  • The required minimum distribution (RMD) rules must be met separately with respect to the qualified employer plan and the deemed IRA.
  • The determination of whether a qualified employer plan satisfies the RMD rules is made without regard to whether a participant satisfies the RMD requirements with respect to the deemed IRA that is established under such plan.

Referring Cite

IRC. §408(q); ERISA §4(c) , Revenue Procedure 2003-13, TD 9142,

Additional Helpful Information

  • IRA distribution rules apply to deemed IRAs
  • The employer’s plan document must include deemed IRA provisions in order to offer deemed IRAs to employees
  • Non-discrimination rules do not apply to deemed IRAs
  • The qualified plan and the deemed IRA are treated as separate entities under the Code and they are subject to the separate rules applicable to qualified plans and IRAs, respectively.
  • The reporting and withholding rules on plan and IRA distributions apply separately depending on whether the distributions are made from the deemed IRA or the qualified employer plan. Thus, for example, the reporting rules for RMDs apply separately for the two portions of the plan.
  • A total distribution of amounts held in the qualified plan portion and the deemed IRA portion is reported on two Forms 1099-R, one for the distribution from the deemed IRA portion and one for the rest of the distribution.
  • The 20% withholding rules of section 3405(c) do not apply to a distribution from the deemed IRA portion but would apply to a distribution from the qualified employer plan portion, and section 72(t) applies separately to the two portions.

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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