38A. Deemed IRAs

Statement of Requirement: Code § 408(q); Reg. § 1.408(q)-1

(Note to reviewer: IRC § 408(q) and Reg. § 1.408(q)-1 provide that a defined contribution plan may allow employees to make voluntary employee contributions to a separate account or annuity established under the plan which, if that account or annuity meets the applicable requirements of § 408 or § 408A, will be treated as an individual retirement plan. In general, the defined contribution plan and the “deemed IRA” are treated as separate entities with each entity subject to the rules generally applicable to it.

To establish a deemed IRA (whether a traditional IRA or a Roth IRA), the plan must address every applicable point of the IRA LRMs. Thus, a plan with a deemed individual retirement annuity must satisfy the requirements of § 408(b). Similarly, a plan with a deemed individual retirement account must satisfy the requirements of § 408(a) except for the prohibition in § 408(a)(5) which is expressly excepted under § 408(q). Accordingly, the assets of a deemed IRA may be commingled for investment purposes with the other assets of the plan. However, the plan must restrict the commingling of deemed IRA assets with non-plan assets.

Deemed individual retirement accounts may be held in separate individual trusts, a single trust separate from a trust maintained by the defined contribution plan, or in a single trust that includes the defined contribution plan. If deemed IRAs are held in a single trust that includes the defined contribution plan, the plan must provide that the trustee must maintain a separate account for each deemed IRA.

Deemed individual retirement annuities may be held under a single annuity contract or under separate annuity contracts. Where a single annuity contract is used, separate accounting for the interest of each participant is required. Also, the contract must be separate from any annuity contract of the plan.)

Sample Plan Language:

69 | D e f i n e d C o n t r i b u t i o n P l a n L R M P a c k a g e 0 1 / 2 0 2 4

Beginning in 2024, required minimum distributions (as specified in section ___ of the plan) are not required to begin prior to the death of the owner of a deemed Roth IRA account.

(Note to reviewer: Insert the section of the plan that corresponds to the Sample Plan Language provided by LRM #49, section 1.2.)

Sample Adoption Agreement Language:

Check if these optional sections apply .

(____) Beginning in 2024, a deemed Roth IRA account will accept a trustee-to-trustee transfer from a long-term qualified tuition program to the extent provided in Code section 529(c)(3)(E).

(____) The deemed IRA owner may make a one-time election for a qualified charitable distribution up to $50,000 (as indexed) to a split-interest entity (defined in Code section 664(d)(1)) if the requirements of Code section 408(d)(8)(F) are met. (Note to reviewer: Section J of Notice 2024-2, 2024-1 I.R.B. 119, extends the deadline for plans to be amended to reflect the applicable provisions of the SECURE Act, section 104 of the Miners Act, sections 2202 and 2203 of the CARES Act, section 302 of the Relief and the SECURE 2.0 Act of 2022. Note that the deadline with respect to a deemed IRA described in Code § 408(q) is determined with respect to the deadline applicable to the plan under which the deemed IRA is established. See Q&A J-1 of Notice 2024- 2.)