|
U.S. Code as of:
01/19/04
Section 403. Taxation of employee annuities
(a) Taxability of beneficiary under a qualified annuity plan
(1) Distributee taxable under section 72
If an annuity contract is purchased by an employer for an
employee under a plan which meets the requirements of section
404(a)(2) (whether or not the employer deducts the amounts paid
for the contract under such section), the amount actually
distributed to any distributee under the contract shall be
taxable to the distributee (in the year in which so distributed)
under section 72 (relating to annuities).
[(2) Repealed. Pub. L. 99-514, title XI, Sec. 1122(b)(1)(B), Oct.
22, 1986, 100 Stat. 2466]
(3) Self-employed individuals
For purposes of this subsection, the term "employee" includes
an individual who is an employee within the meaning of section
401(c)(1), and the employer of such individual is the person
treated as his employer under section 401(c)(4).
(4) Rollover amounts
(A) General rule
If -
(i) any portion of the balance to the credit of an employee
in an employee annuity described in paragraph (1) is paid to
him in an eligible rollover distribution (within the meaning
of section 402(c)(4)),
(ii) the employee transfers any portion of the property he
receives in such distribution to an eligible retirement plan,
and
(iii) in the case of a distribution of property other than
money, the amount so transferred consists of the property
distributed,
then such distribution (to the extent so transferred) shall not
be includible in gross income for the taxable year in which
paid.
(B) Certain rules made applicable
Rules similar to the rules of paragraphs (2) through (7) of
section 402(c) shall apply for purposes of subparagraph (A).
(5) Direct trustee-to-trustee transfer
Any amount transferred in a direct trustee-to-trustee transfer
in accordance with section 401(a)(31) shall not be includible in
gross income for the taxable year of such transfer.
(b) Taxability of beneficiary under annuity purchased by section
501(c)(3) organization or public school
(1) General rule
If -
(A) an annuity contract is purchased -
(i) for an employee by an employer described in section
501(c)(3) which is exempt from tax under section 501(a),
(ii) for an employee (other than an employee described in
clause (i)), who performs services for an educational
organization described in section 170(b)(1) (A)(ii), by an
employer which is a State, a political subdivision of a
State, or an agency or instrumentality of any one or more of
the foregoing, or
(iii) for the minister described in section 414(e)(5)(A) by
the minister or by an employer,
(B) such annuity contract is not subject to subsection (a),
(C) the employee's rights under the contract are
nonforfeitable, except for failure to pay future premiums,
(D) except in the case of a contract purchased by a church,
such contract is purchased under a plan which meets the
nondiscrimination requirements of paragraph (12), and
(E) in the case of a contract purchased under a salary
reduction agreement, the contract meets the requirements of
section 401(a)(30),
then contributions and other additions by such employer for such
annuity contract shall be excluded from the gross income of the
employee for the taxable year to the extent that the aggregate of
such contributions and additions (when expressed as an annual
addition (within the meaning of section 415(c)(2))) does not
exceed the applicable limit under section 415. The amount
actually distributed to any distributee under such contract shall
be taxable to the distributee (in the year in which so
distributed) under section 72 (relating to annuities). For
purposes of applying the rules of this subsection to
contributions and other additions by an employer for a taxable
year, amounts transferred to a contract described in this
paragraph by reason of a rollover contribution described in
paragraph (8) of this subsection or section 408(d)(3)(A)(ii)
shall not be considered contributed by such employer.
[(2) Repealed. Pub. L. 107-16, title VI, Sec. 632(a)(2)(B), June
7, 2001, 115 Stat. 113]
(3) Includible compensation
For purposes of this subsection, the term "includible
compensation" means, in the case of any employee, the amount of
compensation which is received from the employer described in
paragraph (1)(A), and which is includible in gross income
(computed without regard to section 911) for the most recent
period (ending not later than the close of the taxable year)
which under paragraph (4) may be counted as one year of service,
and which precedes the taxable year by no more than five years.
Such term does not include any amount contributed by the employer
for any annuity contract to which this subsection applies. Such
term includes -
(A) any elective deferral (as defined in section 402(g)(3)),
and
(B) any amount which is contributed or deferred by the
employer at the election of the employee and which is not
includible in the gross income of the employee by reason of
section 125, 132(f)(4), or 457.
(4) Years of service
In determining the number of years of service for purposes of
this subsection, there shall be included -
(A) one year for each full year during which the individual
was a full-time employee of the organization purchasing the
annuity for him, and
(B) a fraction of a year (determined in accordance with
regulations prescribed by the Secretary) for each full year
during which such individual was a part-time employee of such
organization and for each part of a year during which such
individual was a full-time or part-time employee of such
organization.
In no case shall the number of years of service be less than one.
(5) Application to more than one annuity contract
If for any taxable year of the employee this subsection applies
to 2 or more annuity contracts purchased by the employer, such
contracts shall be treated as one contract.
[(6) Repealed. Pub. L. 107-147, title IV, Sec. 411(p)(2), Mar. 9,
2002, 116 Stat. 50]
(7) Custodial accounts for regulated investment company stock
(A) Amounts paid treated as contributions
For purposes of this title, amounts paid by an employer
described in paragraph (1)(A) to a custodial account which
satisfies the requirements of section 401(f)(2) shall be
treated as amounts contributed by him for an annuity contract
for his employee if -
(i) the amounts are to be invested in regulated investment
company stock to be held in that custodial account, and
(ii) under the custodial account no such amounts may be
paid or made available to any distributee before the employee
dies, attains age 59 1/2 , has a severance from employment,
becomes disabled (within the meaning of section 72(m)(7)), or
in the case of contributions made pursuant to a salary
reduction agreement (within the meaning of section
3121(a)(1)(D)), encounters financial hardship.
(B) Account treated as plan
For purposes of this title, a custodial account which
satisfies the requirements of section 401(f)(2) shall be
treated as an organization described in section 401(a) solely
for purposes of subchapter F and subtitle F with respect to
amounts received by it (and income from investment thereof).
(C) Regulated investment company
For purposes of this paragraph, the term "regulated
investment company" means a domestic corporation which is a
regulated investment company within the meaning of section
851(a).
(8) Rollover amounts
(A) General rule
If -
(i) any portion of the balance to the credit of an employee
in an annuity contract described in paragraph (1) is paid to
him in an eligible rollover distribution (within the meaning
of section 402(c)(4)),
(ii) the employee transfers any portion of the property he
receives in such distribution to an eligible retirement plan
described in section 402(c)(8)(B), and
(iii) in the case of a distribution of property other than
money, the property so transferred consists of the property
distributed,
then such distribution (to the extent so transferred) shall not
be includible in gross income for the taxable year in which
paid.
(B) Certain rules made applicable
The rules of paragraphs (2) through (7) and (9) of section
402(c) and section 402(f) shall apply for purposes of
subparagraph (A), except that section 402(f) shall be applied
to the payor in lieu of the plan administrator.
(9) Retirement income accounts provided by churches, etc.
(A) Amounts paid treated as contributions
For purposes of this title -
(i) a retirement income account shall be treated as an
annuity contract described in this subsection, and
(ii) amounts paid by an employer described in paragraph
(1)(A) to a retirement income account shall be treated as
amounts contributed by the employer for an annuity contract
for the employee on whose behalf such account is maintained.
(B) Retirement income account
For purposes of this paragraph, the term "retirement income
account" means a defined contribution program established or
maintained by a church, a convention or association of
churches, including an organization described in section
414(e)(3)(A), to provide benefits under section 403(b) for an
employee described in paragraph (1) or his beneficiaries.
(10) Distribution requirements
Under regulations prescribed by the Secretary, this subsection
shall not apply to any annuity contract (or to any custodial
account described in paragraph (7) or retirement income account
described in paragraph (9)) unless requirements similar to the
requirements of sections 401(a)(9) and 401(a)(31) are met (and
requirements similar to the incidental death benefit requirements
of section 401(a) are met) with respect to such annuity contract
(or custodial account or retirement income account). Any amount
transferred in a direct trustee-to-trustee transfer in accordance
with section 401(a)(31) shall not be includible in gross income
for the taxable year of the transfer.
(11) Requirement that distributions not begin before age 59 1/2 ,
severance from employment, death, or disability
This subsection shall not apply to any annuity contract unless
under such contract distributions attributable to contributions
made pursuant to a salary reduction agreement (within the meaning
of section 402(g)(3)(C)) may be paid only -
(A) when the employee attains age 59 1/2 , has a severance
from employment, dies, or becomes disabled (within the meaning
of section 72(m)(7)), or
(B) in the case of hardship.
Such contract may not provide for the distribution of any income
attributable to such contributions in the case of hardship.
(12) Nondiscrimination requirements
(A) In general
For purposes of paragraph (1)(D), a plan meets the
nondiscrimination requirements of this paragraph if -
(i) with respect to contributions not made pursuant to a
salary reduction agreement, such plan meets the requirements
of paragraphs (4), (5), (17), and (26) of section 401(a),
section 401(m), and section 410(b) in the same manner as if
such plan were described in section 401(a), and
(ii) all employees of the organization may elect to have
the employer make contributions of more than $200 pursuant to
a salary reduction agreement if any employee of the
organization may elect to have the organization make
contributions for such contracts pursuant to such agreement.
For purposes of clause (i), a contribution shall be treated as
not made pursuant to a salary reduction agreement if under the
agreement it is made pursuant to a 1-time irrevocable election
made by the employee at the time of initial eligibility to
participate in the agreement or is made pursuant to a similar
arrangement involving a one-time irrevocable election specified
in regulations. For purposes of clause (ii), there may be
excluded any employee who is a participant in an eligible
deferred compensation plan (within the meaning of section 457)
or a qualified cash or deferred arrangement of the organization
or another annuity contract described in this subsection. Any
nonresident alien described in section 410(b)(3)(C) may also be
excluded. Subject to the conditions applicable under section
410(b)(4), there may be excluded for purposes of this
subparagraph employees who are students performing services
described in section 3121(b)(10) and employees who normally
work less than 20 hours per week.
(B) Church
For purposes of paragraph (1)(D), the term "church" has the
meaning given to such term by section 3121(w)(3)(A). Such term
shall include any qualified church-controlled organization (as
defined in section 3121(w)(3)(B)).
(C) State and local governmental plans
For purposes of paragraph (1)(D), the requirements of
subparagraph (A)(i) (other than those relating to section
401(a)(17)) shall not apply to a governmental plan (within the
meaning of section 414(d)) maintained by a State or local
government or political subdivision thereof (or agency or
instrumentality thereof).
(13) Trustee-to-trustee transfers to purchase permissive service
credit
No amount shall be includible in gross income by reason of a
direct trustee-to-trustee transfer to a defined benefit
governmental plan (as defined in section 414(d)) if such transfer
is -
(A) for the purchase of permissive service credit (as defined
in section 415(n)(3)(A)) under such plan, or
(B) a repayment to which section 415 does not apply by reason
of subsection (k)(3) thereof.
(c) Taxability of beneficiary under nonqualified annuities or under
annuities purchased by exempt organizations
Premiums paid by an employer for an annuity contract which is not
subject to subsection (a) shall be included in the gross income of
the employee in accordance with section 83 (relating to property
transferred in connection with performance of services), except
that the value of such contract shall be substituted for the fair
market value of the property for purposes of applying such section.
The preceding sentence shall not apply to that portion of the
premiums paid which is excluded from gross income under subsection
(b). In the case of any portion of any contract which is
attributable to premiums to which this subsection applies, the
amount actually paid or made available under such contract to any
beneficiary which is attributable to such premiums shall be taxable
to the beneficiary (in the year in which so paid or made available)
under section 72 (relating to annuities).
|
|