26 U.S.C. § 408 — Individual retirement accounts

(a) Individual retirement account
This subsection defines "individual retirement account." It's a trust set up in the United States that only benefits one person (or that person's beneficiaries). The trust's written rules must meet six requirements. (1) Contributions must be cash, except for rollover contributions. The trust can't accept more than the yearly limit set in section 219(b)(1)(A) for that person. (2) The trustee must be a bank, as defined in subsection (n), or another person the Secretary^* approves as capable of running the trust properly. (3) The trust can't put any money into life insurance contracts. (4) The person's share of the account can never be taken away — it's fully theirs. (5) The trust's assets can't be mixed with other property, except inside a common trust fund^* or common investment fund. (6) Rules like the required-distribution rules in section 401(a)(9), and the incidental-death-benefit rules in section 401(a), apply when the account pays out the person's full interest.

(b) Individual retirement annuity
This subsection defines "individual retirement annuity." It's an annuity or endowment contract^* sold by an insurance company that meets four requirements. (1) The owner can't transfer the contract to someone else. (2) Under the contract: (A) premiums aren't fixed in advance; (B) the yearly premium for one person can't exceed the section 219(b)(1)(A) dollar limit; and (C) any refunded premium must go toward future premiums or added benefits before the end of the next calendar year. (3) The same required-distribution and death-benefit rules from section 401(a)(9) and 401(a) apply here too. (4) The owner's interest is fully nonforfeitable. A contract stops counting as an IRA annuity for any year it's disqualified under subsection (e), and for every year after. A contract doesn't count as an "endowment contract" if: it matures after the owner reaches the applicable age under section 401(a)(9)(C)(v); it isn't solely for that person's (or their beneficiaries') benefit; or the yearly premiums on all such contracts for that person go over the section 219(b)(1)(A) limit.

(c) Accounts established by employers and certain associations of employees
An employer, or an association of employees, can set up a trust for its employees' or members' exclusive benefit, and that trust counts as an individual retirement account described in subsection (a) — but only if its written rules meet three requirements. (1) The trust must satisfy requirements (1) through (6) from subsection (a). (2) Each employee's or member's interest (and their spouse's interest) must be tracked separately. (3) Any Roth IRA^* interest belonging to an employee, member, or spouse must also be tracked separately. Even though interests are tracked separately, the trust's assets can be pooled into one common fund.

(d) Tax treatment of distributions
(1) In general. Money paid or distributed from an IRA normally counts as income for the person who receives it, following the rules in section 72 — unless this subsection says otherwise. (2) Special rules for applying section 72. When figuring the taxable amount under section 72: (A) all of a person's IRAs are treated as a single contract; (B) all payments from IRAs in one year count as a single distribution; and (C) the account's value, income, and investment are measured as of the end of the calendar year the tax year starts in — plus any amount already distributed that year. (3) Rollover contribution. A payment counts as a "rollover contribution" if it meets requirements (A) and (B). (A) Generally, a payment from an IRA doesn't count as income if the whole amount — money or property — is put into another IRA (not an endowment contract) within 60 days, or into another eligible retirement plan within 60 days (capped at the taxable portion of the payment). "Eligible retirement plan" here means the types listed in section 402(c)(8)(B), clauses (iii) through (vi). (B) Limitation. This rollover treatment doesn't apply if the person already used it once for an IRA distribution within the past year. (C) No rollover for inherited accounts. An inherited IRA can't use rollover treatment, and it doesn't count as an IRA when deciding whether some other payment is a rollover. An IRA counts as "inherited" if the current beneficiary got it because the original owner died, and the current beneficiary wasn't that owner's surviving spouse. (D) Partial rollovers are allowed: if only part of a distribution is timely rolled into an eligible plan, that part still gets rollover treatment. (E) Rollover treatment doesn't apply to amounts that must be distributed under the required-minimum-distribution rules in subsection (a)(6) or (b)(3). (F) Rules like the frozen-deposit rules in section 402(c)(7) apply here. (G) A payment from a SIMPLE retirement account under section 72(t)(6)(A) can only roll over into another SIMPLE account. (H) Special ordering rule: when a distribution is partly rolled into certain employer plans under section 402(c)(8)(B)(iii)-(vi), section 72 is applied separately to that piece — treating the rolled-over amount as coming from the account's income first, and adjusting later distributions accordingly. (I) The Secretary can waive the 60-day rollover deadline in cases (A) and (D) when strict enforcement would be unfair — including for casualty, disaster, or other events beyond the person's control. (4) Contributions returned before the tax return's due date. A contribution isn't taxed as a distribution if: (A) it's returned by the tax filing deadline (including extensions); (B) no deduction was claimed for it under section 219; and (C) the returned amount includes any income the contribution earned. That earned income^* is treated as received in the year the contribution was originally made. (5) Excess contributions distributed after the due date. If a person's total non-rollover IRA contributions for a year don't exceed the section 219(b)(1)(A) limit, the part of a contribution that exceeds what's deductible under section 219 isn't taxed as a distribution when it's paid back out — as long as: (i) it's paid out after the deadline in paragraph (4), and (ii) no deduction was ever taken for that excess. If the employer also contributed to a simplified employee pension for the person, this dollar limit goes up by the smaller of the employer's contribution or the section 415(c)(1)(A) limit. A special exception raises the limit further for excess rollover contributions caused by relying on wrong official information. (6) Transfer incident to divorce. Transferring an IRA interest to a spouse or ex-spouse under a divorce or separation agreement described in section 121(d)(3)(C)(i) isn't a taxable transfer. After the transfer, the IRA belongs to the receiving spouse, not the original owner. (7) Special rules for SEPs and SIMPLEs. (A) A contribution can't be moved out of a salary-reduction SEP arrangement (or rolled over) until it's been determined whether that arrangement met its deferral-test requirements. (B) Certain amounts excluded from income under sections 402(h) or 402(k) count as if they were deducted under section 219, for purposes of paragraphs (4) and (5) and the excise tax in section 4973. (8) Distributions for charitable purposes. (A) Up to $100,000 of "qualified charitable distributions" made by a taxpayer^* in a year isn't counted as income. That $100,000 exclusion shrinks — never below zero — by the amount of section 219 deductions the person has claimed for all years starting at age 70½, minus any earlier-year reductions already applied under this same rule. (B) A "qualified charitable distribution" is a payment made directly by the IRA trustee to a qualifying charity under section 170(b)(1)(A) — excluding certain private foundations and donor-advised-fund-like entities — made on or after the person turns 70½. It only counts as qualified up to the amount that would otherwise be taxable income. (C) The distribution only qualifies if the whole amount would have been deductible as a charitable gift under section 170, ignoring section 170's percentage limits and this same rule. (D) For figuring how much of a distribution is "qualified," the whole amount is treated as taxable — as if every IRA the person owns were distributed and treated as one contract — with later distributions adjusted accordingly. (E) Because these distributions aren't taxed, they can't also be claimed as a charitable deduction under section 170. (F) A taxpayer may make a one-time election to send a qualified distribution to a "split-interest entity" instead of directly to a charity — a charitable remainder annuity trust, charitable remainder unitrust, or charitable gift annuity — capped at $50,000 total, only if no such election was made in an earlier year, the entity is funded solely with these distributions, the underlying charitable deduction requirements are met, only the IRA owner or spouse (or both) hold any income interest, and that income interest can't be assigned to anyone else. Distributions from the trust are taxed as ordinary income to the person who receives them; amounts used for a gift annuity don't count as "investment in the contract" under section 72(c). (G) Starting with tax years after 2023, the $100,000 and $50,000 dollar limits rise each year with a cost-of-living adjustment tied to section 1(f)(3), rounded to the nearest $1,000. (9) Distributions for health savings account funding. (A) An eligible individual (as defined in section 223(c)) can elect, once, to exclude from income a "qualified HSA funding distribution." (B) That's an IRA distribution paid directly, trustee-to-trustee, into the person's health savings account. (C) The excluded amount can't exceed the person's HSA contribution limit under section 223(b) for their coverage type, reduced by any earlier such transfer. (D) Ordinarily a person gets only one such transfer in their lifetime, and the election can't be undone — except someone who moves from self-only to family HDHP coverage during the year can make a second transfer up to the higher family limit. (E) If the person loses eligible-individual status at any point during the 12-month "testing period" that starts the month of the transfer, the whole transferred amount becomes taxable income for that month, plus a 10% additional tax — unless the person lost eligibility because of death or disability (as defined in section 72(m)(7)). (F) For figuring the excluded amount, all the person's IRAs are again treated as one contract, with later distributions adjusted accordingly.

(e) Tax treatment of accounts and annuities
(1) An IRA is exempt from income tax, unless it stops being an IRA under paragraph (2) or (3) below — though it's still subject to the unrelated-business-income tax under section 511. (2) Loss of exemption for prohibited transactions. If the account owner or beneficiary engages in a transaction prohibited by section 4975, the account stops being an IRA as of the first day of that year. For this rule, the person the account benefits is treated as its creator; each employee's separate share within an employer-sponsored IRA counts as its own separate IRA; and each of a person's IRA plans is treated as a separate contract. When an account loses its IRA status this way, it's treated as if it distributed all its assets — at their fair market value — on that first day, triggering the tax rules in subsection (d)(1). (3) Effect of borrowing on an annuity contract. If the owner borrows money using an IRA annuity contract, the contract stops being an IRA annuity as of the start of that year, and the owner must include the contract's fair market value in income for that year. (4) Effect of pledging an account as security. If a person pledges all or part of their IRA as security for a loan, the pledged portion is treated as distributed to them. (5) Buying an endowment contract with IRA assets. If IRA money buys an endowment contract for the account owner: the part not spent on life insurance is treated as a rollover contribution under subsection (d)(3); the part spent on life, health, accident, or other insurance is treated as distributed to the owner (though subsection (f)'s rules — since repealed — don't apply to that part). (6) Commingling in common funds. A common trust fund or common investment fund made up of IRA assets stays tax-exempt even if it also includes assets from a tax-exempt trust described in section 401(a).

(f) Repealed. This subsection was repealed by Public Law 99-514 in 1986 and no longer has any effect.

(g) Community property laws
This section applies without regard to any state's community property laws.

(h) Custodial accounts
A custodial account counts as a trust for this section if its assets are held by a bank (as defined in subsection (n)) or by another person the Secretary finds capable of managing it properly — and if the account would otherwise qualify as an IRA under subsection (a) except for not technically being a trust. When this applies, the custodian is treated as the trustee.

(i) Reports
The trustee of an IRA, and the issuer of an IRA annuity or endowment contract, must report to the Secretary and to the account owner about contributions (and which year they belong to), any distributions totaling $10 or more in a calendar year, and anything else the Secretary requires. These reports: (1) must be filed when and how the Secretary prescribes, and (2) must reach the individual by January 31 of the following year, in whatever form the Secretary sets. For SIMPLE retirement accounts under subsection (p), only one report per year goes to the Secretary — but the trustee must also send the account owner, within 31 days after each calendar year, a statement of the account's balance and activity for that year.

(j) Increase in maximum limitations for simplified employee pensions
For a simplified employee pension (SEP), the contribution limits in subsections (a)(1) and (b)(2) are raised by the amount of the section 415(c)(1)(A) limit.

(k) Simplified employee pension defined
(1) A "simplified employee pension" (SEP) is an IRA or IRA annuity that meets requirements (2) through (5) below, and — if it's part of a "top-heavy" plan under section 416 — also meets section 416(c)(2). (2) Participation requirements. For a year, the employer must contribute to the SEP of every employee who: (A) is at least 21 years old; (B) worked for the employer in at least 3 of the last 5 years; and (C) earned at least $450 in compensation (as defined in section 414(q)(4)) that year. Certain employees described in section 410(b)(3)(A) or (C) — generally union and nonresident-alien employees — don't count here. Under a salary-reduction SEP described in paragraph (6), an employee eligible for employer contributions is treated as if the contribution was actually made. (3) No discrimination favoring highly paid employees. (A) The employer's SEP contributions can't favor any highly compensated employee (as defined in section 414(q)). (B) The same excluded employees from paragraph (2) don't count here either. (C) Contributions (other than under a paragraph (6) salary-reduction arrangement) must bear a uniform relationship to each employee's compensation, capped at the first $200,000, or they're considered discriminatory. (D) Section 401(l)(2)'s "permitted disparity" rules — which let contributions favor higher earners up to a point, to account for Social Security — apply here too. (4) Withdrawals must be allowed. A SEP must not condition employer contributions on the employee keeping the money in the plan, and the employer can't prohibit withdrawals. (5) Written allocation formula required. Employer contributions must follow a definite written formula spelling out who qualifies for a share and how each share is calculated. (6) Salary reduction SEPs (SARSEPs). (A) A SEP can let an employee choose between having the employer contribute to the SEP or pay the employee directly in cash, without failing the other requirements — but only if: (i) that election structure exists; (ii) at least 50% of eligible employees actually choose the contribution option; (iii) each highly compensated employee's "deferral percentage" for the year is no more than 1.25 times the average deferral percentage of everyone else eligible; and (iv) the elective-deferral limits in section 401(a)(30) are met. (B) This salary-reduction option isn't available at all if the employer had more than 25 eligible employees at any point in the prior year. (C) Excess contributions under this paragraph must be distributed under rules like section 401(k)(8), and are treated as excess contributions for the section 4979 excise tax. An employee's "excess contribution" is the amount their elective employer contributions go over the limit in (A)(iii). (D) "Deferral percentage" means the elective contributions made for an employee that year, divided by up to the first $200,000 of that employee's compensation. (E) This salary-reduction option doesn't apply to SEPs run by state or local governments or by tax-exempt organizations. (F) It also doesn't apply for any year where the SEP doesn't meet the Secretary's requirements for making sure excess contributions get distributed — including reporting rules, and rules blocking withdrawal of contributions until it's confirmed the deferral-percentage test was met. (G) "Highly compensated employee" has the meaning in section 414(q). (H) This salary-reduction option stopped being available for years starting after December 31, 1996 — except for employers whose SEP already allowed this election as of that date; those are grandfathered in. (7) Roth election. A plan designated as a Roth IRA isn't treated as a SEP unless the employee elects that treatment. (8) Definitions. (A) "Employee," "employer," and "owner-employee" mean what section 401(c) says they mean. (B) "Compensation" means what section 414(s) says, except as noted in paragraph (2)(C). (C) A "year" means the calendar year, unless the employer elects (under Secretary-set conditions) to use its own tax year instead. (9) Cost-of-living adjustment. The Secretary adjusts the $450 compensation threshold the same way as under section 415(d), rounding any increase down to the nearest $50; the $200,000 compensation cap is adjusted the same way and by the same amount as under section 401(a)(17)(B). (10) Cross reference. See section 4979 for the excise tax on excess SEP contributions.

(l) Simplified employer reports
(1) An employer that contributes to an employee's SEP must file simplified reports as required by regulations, on the schedule and in the manner the Secretary sets, and must give the employee the required information too. (2) Simple retirement accounts. (A) Employers running a SIMPLE arrangement under subsection (p) generally don't have to file these reports themselves. (B) Instead, the SIMPLE account's trustee or annuity issuer must give the employer, each year, a written description covering: (i) the employer's and trustee's/issuer's names and addresses; (ii) who's eligible to participate; (iii) what benefits the arrangement provides; (iv) how and when employees make elections; and (v) the procedures and effects of withdrawals, including rollovers. (C) The employer must tell each employee, right before their election window under subsection (p)(5)(C), about their chance to make that election — including a copy of the trustee's description from (B).

(m) Investment in collectibles treated as distributions
(1) If an IRA — or an individually-directed account inside a plan under section 401(a) — buys a "collectible," that purchase is treated as a distribution from the account, equal to what the account paid for it. (2) "Collectible" means: (A) art; (B) rugs or antiques; (C) metals or gems; (D) stamps or coins; (E) alcoholic beverages; or (F) other tangible personal property the Secretary names. (3) Exceptions: "collectible" does not include certain gold, silver, platinum, or state-issued coins listed in the U.S. Code, or gold/silver/platinum/palladium bullion that meets a commodity exchange's purity standard for regulated futures contracts — as long as a subsection (a) trustee physically holds the bullion.

(n) Bank
For subsection (a)(2), "bank" means: (1) a bank as defined in section 581; (2) an insured credit union under the Federal Credit Union Act; or (3) a state-chartered corporation^* supervised by that state's banking regulator.

(o) Nondeductible contributions
(1) A person may make "designated nondeductible contributions" to an IRA, subject to this subsection's rules. (2) Limits. (A) These contributions for a year can't exceed the "nondeductible limit" for that year. (B) The nondeductible limit equals the section 219 deduction the person could claim ignoring section 219(g)'s income-based phase-out, minus what they can actually deduct with that phase-out applied. A taxpayer can also elect to treat an otherwise-deductible contribution as nondeductible instead, which raises this limit by that amount. (C) A "designated nondeductible contribution" is any contribution marked, in the way the Secretary prescribes, as one for which no section 219 deduction is claimed — and that designation must be made on that year's tax return. (3) Timing. The same rules as section 219(f)(3) decide which tax year a nondeductible contribution belongs to. (4) Reporting requirement. Anyone who makes a designated nondeductible contribution, or receives any IRA distribution, in a year must report — on that year's and later years' tax returns — the information described below: (i) that year's designated nondeductible contributions; (ii) that year's IRA distributions; (iii) the running total of all past nondeductible contributions minus all past distributions that were tax-free; (iv) the combined balance of all the person's IRAs as of the end of that year; and (v) anything else the Secretary requires. See section 6693(b) for the penalty for falsely reporting nondeductible contributions that weren't actually made. (5) Special rule for excluded foster-care payments. If a person's excludable "difficulty of care" foster payments under section 131 exceed their taxable compensation for the year, they may elect to raise their nondeductible limit by the smaller of that excess or the excluded payment amount — compared against the deduction ceiling under section 219(b).

(p) Simple retirement accounts
(1) A "SIMPLE retirement account" is an IRA-type plan (as defined in section 7701(a)(37)) that meets requirements (3), (4), and (5) below, and that — apart from certain rollover contributions — only accepts contributions made under a "qualified salary reduction arrangement." (2) Qualified salary reduction arrangement. (A) This is a written plan where: (i) an eligible employee can choose to have the employer either contribute to their SIMPLE account or pay them directly in cash; (ii) the employee's elected amount must be expressed as a percentage of pay, capped at the "applicable dollar amount" for the year; (iii) the employer must match the employee's contribution dollar-for-dollar up to the "applicable percentage" of the employee's pay; (iv) instead, the employer may make nonelective contributions of a flat percentage (up to 10%) of pay for every eligible employee earning at least $5,000, capped at $5,000 per employee; and (v) no other kind of contribution is allowed. Compensation counted for the nonelective option is capped at the section 401(a)(17) limit. (B) An employer can instead satisfy the matching requirement by making a flat 2% nonelective contribution for every eligible employee earning at least $5,000 — but must notify employees of this choice ahead of the election period; larger employers making a related election under (E) use 3% instead of 2%. (C) Definitions: an "eligible employer" had no more than 100 employees earning at least $5,000 in the prior year, with a 2-year grace period if it later grows past that (unless the growth is from a merger or similar transaction). The "applicable percentage" is normally 3%, but an employer may elect a lower rate (never below 1%) with advance notice, as long as it doesn't drop the rate below 3% in more than 2 of the last 5 years; special transition and large-employer rules adjust this (with larger employers who elect the higher option under (E) using 4% instead of 3%). (D) The arrangement doesn't qualify if the employer maintained another qualified retirement plan covering the same employees during the period the SIMPLE has been in effect — with an exception when only certain excluded (e.g., union) employees are covered by that other plan. (E) The "applicable dollar amount" for the elective deferral cap is a smaller "adjusted dollar amount" (110% of the base 2024 figure, cost-of-living adjusted) for smaller eligible employers — those with 25 or fewer eligible employees, or others who elect this treatment — and $10,000 (also cost-of-living adjusted from a 2004 base) for everyone else; both amounts get periodic inflation increases, rounded down to the nearest $500. (F) Matching contributions can also be made for qualified student loan payments an employee makes, treating those payments as if they were elective salary-reduction contributions, up to the applicable dollar limit minus whatever the employee actually elected — subject to conditions ensuring only otherwise-eligible employees get this and that it's offered evenly. (G) The $5,000 nonelective-contribution compensation floor is adjusted for inflation starting after 2024, rounded to the nearest $100. (H) An employer that grows past 25 eligible employees gets a 2-year grace period before losing access to the smaller-employer dollar limit. (3) Vesting. Employees' rights to SIMPLE contributions must be fully nonforfeitable, following rules like subsection (k)(4). (4) Participation requirements. Every employee who earned at least $5,000 in any two prior years, and is expected to earn at least $5,000 this year, must be allowed to participate — though the employer can exclude the same categories of employees listed in section 410(b)(3). (5) Administrative requirements. The employer must make elective contributions within 30 days after the month they relate to, and matching or nonelective contributions by the deadline in section 404(m)(2)(B). Employees can opt out of the arrangement anytime during the year (though the plan can require waiting until the next year to opt back in), and each eligible employee gets a 60-day window before each year (and before first becoming eligible) to elect or change their contribution amount. (6) Definitions: "compensation" generally means W-2-reportable pay under section 6051(a)(3) and (8) (without the section 3401(a)(3) exclusion), or, for self-employed people, net self-employment earnings under section 1402(a); "employee" includes those defined in section 401(c)(1); and "year" means the calendar year. (7) Using one designated financial institution. A plan isn't disqualified just because the employer routes all contributions to one chosen trustee or issuer — as long as each participant is told in writing that their balance can be moved, without cost or penalty, to a different account or annuity under subsection (d)(3)(G). (8) Coordination with the general contribution cap. For SIMPLE accounts, the dollar limits in subsections (a)(1) and (b)(2)(B) are replaced with the sum of the elective deferral limit, the required matching or nonelective employer contribution, and any nonelective contribution under (p)(2)(A)(iv). (9) Matching contributions made on behalf of self-employed individuals (as defined in section 401(c)) aren't treated as "elective employer contributions" for other purposes of the tax code. (10) Special transition rules for company acquisitions, sales, or similar transactions let an employer keep meeting SIMPLE requirements temporarily — through the end of the second calendar year after the transaction — if conditions similar to section 410(b)(6)(C)(i)(II) are met and the arrangement would otherwise still qualify. (11) An employer can switch mid-year from a SIMPLE arrangement to a "safe harbor" 401(k) plan, but the combined elective contributions across both plans that year can't exceed a prorated combination of each plan's yearly dollar limit, based on how many days each plan was in effect. (12) Roth election. A plan designated as a Roth IRA isn't treated as a SIMPLE account unless the employee elects that treatment.

(q) Deemed IRAs under qualified employer plans
(1) If a qualified employer plan lets employees make voluntary contributions to a separate account or annuity within the plan, and that account or annuity meets the IRA (or Roth IRA, under section 408A) requirements, then it's treated as an IRA for tax purposes — not as part of the employer plan — and contributions to it count as IRA contributions, not employer-plan contributions. The trustee requirement in subsection (a)(5) doesn't apply here. (2) The employer plan itself doesn't lose its qualified status just because it offers this feature. (3) Definitions: a "qualified employer plan" has the meaning in section 72(p)(4)(A)(i), plus certain government/tax-exempt deferred compensation plans under section 457(b); a "voluntary employee contribution" is any contribution an employee makes under such a plan — other than a mandatory contribution under section 411(c)(2)(C) — that the employee designates as subject to this subsection.

(r) Cross references
(1) See section 4973 for the excise tax on excess IRA contributions. (2) See section 4974 for the excise tax on certain amounts that should have been distributed from an IRA but weren't.