Internal Revenue Service, Treasury § 1.408–11
determining whether section 401(a)(9) is (4) Similar items designated by the
satisfied? Commissioner in revenue rulings, no-
A–11. (a) General rule. Except as pro- tices, and other guidance published in
vided in paragraph (b) of this A–11, all the Internal Revenue Bulletin. See
amounts distributed from an IRA are § 601.601(d)(2)(ii)(b) of this chapter.
taken into account in determining
whether section 401(a)(9) is satisfied, [T.D. 8987, 67 FR 19024, Apr. 17, 2002, as
regardless of whether the amount is in- amended by T.D. 9130, 69 FR 33293, June 15,
cludible in income. 2004]
(b) Amounts not taken into account.
The following amounts are not taken § 1.408–11 Net income calculation for
returned or recharacterized IRA
into account in determining whether
contributions.
the required minimum amount with re-
spect to an IRA for a calendar year has (a) Net income calculation for returned
been distributed— IRA contributions—(1) General rule. For
(1) Contributions returned pursuant purposes of returned contributions
to section 408(d)(4), together with the under section 408(d)(4), the net income
income allocable to these contribu- attributable to a contribution made to
tions; an IRA is determined by allocating to
(2) Contributions returned pursuant the contribution a pro rata portion of
to section 408(d)(5); the earnings on the assets in the IRA
(3) Corrective distributions of excess during the period the IRA held the con-
simplified employee pension contribu- tribution. This attributable net income
tions under section 408(k)(6)(C), to-
is calculated by using the following
gether with the income allocable to
formula:
these distributions; and
(Adjusted Closing Balance − Adjusted Opening Balance)
Net Income = Contribution ×
Adjusted Opening Balance.
(2) Special rule. If an IRA is estab- (2) Adjusted closing balance. The term
lished with a contribution and no other adjusted closing balance means the fair
contributions, distributions or trans- market value of the IRA at the end of
fers are made to or from that IRA, then the computation period plus the
the subsequent distribution of the en- amount of any distributions or trans-
tire account balance of the IRA pursu- fers (including recharacterizations of
ant to section 408(d)(4) will satisfy the contributions pursuant to section
requirement of that Internal Revenue 408A(d)(6)) made from the IRA during
Code section that the return of a con- the computation period.
tribution be accompanied by the (3) Computation period. The term com-
amount of net income attributable to putation period means the period begin-
the contribution. ning immediately prior to the time
(b) Definitions. For purposes of this that the contribution being returned
section the following definitions apply: was made to the IRA and ending imme-
(1) Adjusted opening balance. The term diately prior to the removal of the con-
adjusted opening balance means the fair tribution. If more than one contribu-
market value of the IRA at the begin- tion was made as a regular contribu-
ning of the computation period plus tion and is being returned from the
the amount of any contributions or IRA, the computation period begins
transfers (including the contribution immediately prior to the time the first
that is distributed as a returned con- contribution being returned was con-
tribution pursuant to section 408(d)(4) tributed.
and recharacterizations of contribu- (4) Regular contribution. The term reg-
tions pursuant to section 408A(d)(6)) ular contribution means an IRA con-
dwashington3 on PRODPC61 with CFR
made to the IRA during the computa- tribution made by the IRA owner that
tion period. is neither a trustee-to-trustee transfer
573
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§ 1.408(q)–1 26 CFR Ch. I (4–1–08 Edition)
from another IRA nor a rollover from excess regular contribution be returned to
another IRA or retirement plan. her pursuant to section 408(d)(4). Pursuant to
(c) Additional rules. (1) When an IRA this request, on March 1, 2005, when the IRA
is worth $16,000, the IRA trustee distributes
asset is not normally valued on a daily to Taxpayer B the $600 plus attributable net
basis, the fair market value of the income. The excess regular contributions to
asset at the beginning of the computa- be returned are deemed to be the last two
tion period is deemed to be the most made in 2004: the $300 December 15 contribu-
recent, regularly determined, fair mar- tion and the $300 November 15 contribution.
ket value of the asset, determined as of On November 15 the IRA was worth $11,000
a date that coincides with or precedes immediately prior to the contribution. No
distributions or transfers have been made
the first day of the computation pe- from the IRA and no contributions or trans-
riod. In addition, solely for purposes of fers, other than the monthly contributions
this section, notwithstanding A–3 of (including $300 in January and February
§ 1.408A–5, recharacterized contribu- 2005), have been made.
tions are taken into account for the pe- (ii) As of the beginning of the computation
riod they are actually held in a par- period (November 15), the adjusted opening
ticular IRA. balance is $12,200 [$11,000 + $300 + $300 + $300
+ $300] and the adjusted closing balance is
(2) In the case of an IRA that has re- $16,000. Thus, the net income attributable to
ceived more than one regular contribu- the excess regular contributions is $187 [$600
tion for a particular taxable year, the × ($16,000 ¥ $12,200) ÷ $12,200]. Therefore, the
last regular contribution made to the total to be distributed as returned contribu-
IRA for the year is deemed to be the tions on March 1, 2005, to correct the excess
contribution that is distributed as a re- regular contribution is $787 [$600 + $187].
turned contribution under section [T.D. 9056, 68 FR 23588, May 5, 2003]
408(d)(4), up to the amount of the con-
tribution identified by the IRA owner § 1.408(q)–1 Deemed IRAs in qualified
as the amount distributed as a re- employer plans.
turned contribution. (a) In general. Under section 408(q), a
(3) In the case of an individual who qualified employer plan may permit
owns multiple IRAs, the net income employees to make voluntary em-
calculation is performed only on the ployee contributions to a separate ac-
IRA containing the contribution being count or annuity established under the
returned, and that IRA is the IRA that plan. If the requirements of section
must distribute the contribution. 408(q) and this section are met, such
(d) Examples. The following examples account or annuity is treated in the
illustrate the net income calculation same manner as an individual retire-
under section 408(d)(4) and this section: ment plan under section 408 or 408A
(and contributions to such an account
Example 1. (i) On May 1, 2004, when her IRA
is worth $4,800, Taxpayer A makes a $1,600 or annuity are treated as contributions
regular contribution to her IRA. Taxpayer A to an individual retirement plan and
requests that $400 of the May 1, 2004, con- not to the qualified employer plan).
tribution be returned to her pursuant to sec- The account or annuity is referred to
tion 408(d)(4). Pursuant to this request, on as a deemed IRA.
February 1, 2005, when the IRA is worth (b) Types of IRAs. If the account or
$7,600, the IRA trustee distributes to Tax- annuity meets the requirements appli-
payer A the $400 plus attributable net in- cable to traditional IRAs under section
come. During this time, no other contribu-
tions have been made to the IRA and no dis-
408, the account or annuity is deemed
tributions have been made. to be a traditional IRA, and if the ac-
(ii) The adjusted opening balance is $6,400 count or annuity meets the require-
[$4,800 + $1,600] and the adjusted closing bal- ments applicable to Roth IRAs under
ance is $7,600. Thus, the net income attrib- section 408A, the account or annuity is
utable to the $400 May 1, 2004, contribution is deemed to be a Roth IRA. Simplified
$75 [$400 × ($7,600¥$6,400) ÷ $6,400]. Therefore, employee pensions (SEPs) under sec-
the total to be distributed on February 1, tion 408(k) and SIMPLE IRAs under
2005, pursuant to § 408(d)(4) is $475.
Example 2. (i) Beginning in January 2004,
section 408(p) may not be used as
Taxpayer B contributes $300 on the 15th of deemed IRAs.
each month to an IRA for 2004, resulting in (c) Separate entities. Except as pro-
dwashington3 on PRODPC61 with CFR
an excess regular contribution of $600 for vided in paragraphs (d) and (g) of this
that year. Taxpayer B requests that the $600 section, the qualified employer plan
574
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