(1) Income inclusion
Except as otherwise provided in this chapter, gross income includes any amount received as an annuity (whether for a period certain or during one or more lives) under an annuity, endowment, or life insurance contract.
(2) Partial annuitization
If any amount is received as an annuity for a period of 10 years or more or during one or more lives under any portion of an annuity, endowment, or life insurance contract—
(A) such portion shall be treated as a separate contract for purposes of this section,
(B) for purposes of applying subsections (b), (c), and (e), the investment in the contract shall be allocated pro rata between each portion of the contract from which amounts are received as an annuity and the portion of the contract from which amounts are not received as an annuity, and
(C) a separate annuity starting date under subsection (c)(4) shall be determined with respect to each portion of the contract from which amounts are received as an annuity.
(1) In general
Gross income does not include that part of any amount received as an annuity under an annuity, endowment, or life insurance contract which bears the same ratio to such amount as the investment in the contract (as of the annuity starting date) bears to the expected return under the contract (as of such date).
(2) Exclusion limited to investment
The portion of any amount received as an annuity which is excluded from gross income under paragraph (1) shall not exceed the unrecovered investment in the contract immediately before the receipt of such amount.
(3) Deduction where annuity payments cease before entire investment recovered
(A) In general
If—
(i) after the annuity starting date, payments as an annuity under the contract cease by reason of the death of an annuitant, and
(ii) as of the date of such cessation, there is unrecovered investment in the contract,
(B) Payments to other persons
In the case of any contract which provides for payments meeting the requirements of subparagraphs (B) and (C) of subsection (c)(2), the deduction under subparagraph (A) shall be allowed to the person entitled to such payments for the taxable year in which such payments are received.
(C) Net operating loss deductions provided
For purposes of section 172, a deduction allowed under this paragraph shall be treated as if it were attributable to a trade or business of the taxpayer.
(4) Unrecovered investment
For purposes of this subsection, the unrecovered investment in the contract as of any date is—
(A) the investment in the contract (determined without regard to subsection (c)(2)) as of the annuity starting date, reduced by
(B) the aggregate amount received under the contract on or after such annuity starting date and before the date as of which the determination is being made, to the extent such amount was excludable from gross income under this subtitle.
(1) Investment in the contract
For purposes of subsection (b), the investment in the contract as of the annuity starting date is—
(A) the aggregate amount of premiums or other consideration paid for the contract, minus
(B) the aggregate amount received under the contract before such date, to the extent that such amount was excludable from gross income under this subtitle or prior income tax laws.
(2) Adjustment in investment where there is refund feature
If—
(A) the expected return under the contract depends in whole or in part on the life expectancy of one or more individuals;
(B) the contract provides for payments to be made to a beneficiary (or to the estate of an annuitant) on or after the death of the annuitant or annuitants; and
(C) such payments are in the nature of a refund of the consideration paid,
then the value (computed without discount for interest) of such payments on the annuity starting date shall be subtracted from the amount determined under paragraph (1). Such value shall be computed in accordance with actuarial tables prescribed by the Secretary. For purposes of this paragraph and of subsection (e)(2)(A), the term “refund of the consideration paid” includes amounts payable after the death of an annuitant by reason of a provision in the contract for a life annuity with minimum period of payments certain, but (if part of the consideration was contributed by an employer) does not include that part of any payment to a beneficiary (or to the estate of the annuitant) which is not attributable to the consideration paid by the employee for the contract as determined under paragraph (1)(A).
(3) Expected return
For purposes of subsection (b), the expected return under the contract shall be determined as follows:
(A) Life expectancy
If the expected return under the contract, for the period on and after the annuity starting date, depends in whole or in part on the life expectancy of one or more individuals, the expected return shall be computed with reference to actuarial tables prescribed by the Secretary.
(B) Installment payments
If subparagraph (A) does not apply, the expected return is the aggregate of the amounts receivable under the contract as an annuity.
(4) Annuity starting date
For purposes of this section, the annuity starting date in the case of any contract is the first day of the first period for which an amount is received as an annuity under the contract.
(1) Simplified method of taxing annuity payments
(A) In general
In the case of any amount received as an annuity under a qualified employer retirement plan—
(i) subsection (b) shall not apply, and
(ii) the investment in the contract shall be recovered as provided in this paragraph.
(B) Method of recovering investment in contract
(i) In general
(I) the investment in the contract (as of the annuity starting date), by
(II) the number of anticipated payments determined under the table contained in clause (iii) (or, in the case of a contract to which subsection (c)(3)(B) applies, the number of monthly annuity payments under such contract).
(ii) Certain rules made applicable
Rules similar to the rules of paragraphs (2) and (3) of subsection (b) shall apply for purposes of this paragraph.
(iii) Number of anticipated payments
If the annuity is payable over the life of a single individual, the number of anticipated payments shall be determined as follows:
(iv) Number of anticipated payments where more than one life
If the annuity is payable over the lives of more than 1 individual, the number of anticipated payments shall be determined as follows:
(C) Adjustment for refund feature not applicable
For purposes of this paragraph, investment in the contract shall be determined under subsection (c)(1) without regard to subsection (c)(2).
(D) Special rule where lump sum paid in connection with commencement of annuity payments
If, in connection with the commencement of annuity payments under any qualified employer retirement plan, the taxpayer receives a lump-sum payment—
(i) such payment shall be taxable under subsection (e) as if received before the annuity starting date, and
(ii) the investment in the contract for purposes of this paragraph shall be determined as if such payment had been so received.
(E) Exception
This paragraph shall not apply in any case where the primary annuitant has attained age 75 on the annuity starting date unless there are fewer than 5 years of guaranteed payments under the annuity.
(F) Adjustment where annuity payments not on monthly basis
In any case where the annuity payments are not made on a monthly basis, appropriate adjustments in the application of this paragraph shall be made to take into account the period on the basis of which such payments are made.
(G) Qualified employer retirement plan
For purposes of this paragraph, the term “qualified employer retirement plan” means any plan or contract described in paragraph (1), (2), or (3) of .
(2) Treatment of employee contributions under defined contribution plans
For purposes of this section, employee contributions (and any income allocable thereto) under a defined contribution plan may be treated as a separate contract.
(3) Treatment of contributions to a pension-linked emergency savings account
For purposes of this section, contributions to a pension-linked emergency savings account to which applies (and any income allocable thereto) may be treated as a separate contract.
(1) Application of subsection
(A) In general
This subsection shall apply to any amount which—
(i) is received under an annuity, endowment, or life insurance contract, and
(ii) is not received as an annuity,
(B) Dividends
For purposes of this section, any amount received which is in the nature of a dividend or similar distribution shall be treated as an amount not received as an annuity.
(2) General rule
Any amount to which this subsection applies—
(A) if received on or after the annuity starting date, shall be included in gross income, or
(B) if received before the annuity starting date—
if received before the annuity starting date—
(i) shall be included in gross income to the extent allocable to income on the contract, and
(ii) shall not be included in gross income to the extent allocable to the investment in the contract.
(3) Allocation of amounts to income and investment
For purposes of paragraph (2)(B)—
(A) Allocation to income
Any amount to which this subsection applies shall be treated as allocable to income on the contract to the extent that such amount does not exceed the excess (if any) of—
(i) the cash value of the contract (determined without regard to any surrender charge) immediately before the amount is received, over
(ii) the investment in the contract at such time.
(B) Allocation to investment
Any amount to which this subsection applies shall be treated as allocable to investment in the contract to the extent that such amount is not allocated to income under subparagraph (A).
(4) Special rules for application of paragraph (2)(B)
For purposes of paragraph (2)(B)—
(A) Loans treated as distributions
If, during any taxable year, an individual—
(i) receives (directly or indirectly) any amount as a loan under any contract to which this subsection applies, or
(ii) assigns or pledges (or agrees to assign or pledge) any portion of the value of any such contract,
(B) Treatment of policyholder dividends
Any amount described in paragraph (1)(B) shall not be included in gross income under paragraph (2)(B)(i) to the extent such amount is retained by the insurer as a premium or other consideration paid for the contract.
(C) Treatment of transfers without adequate consideration
(i) In general
(I) the cash surrender value of such contract at the time of transfer, over
(II) the investment in such contract at such time,
(ii) Exception for certain transfers between spouses or former spouses
Clause (i) shall not apply to any transfer to which (relating to transfers of property between spouses or incident to divorce) applies.
(iii) Adjustment to investment in contract of transferee
If under clause (i) an amount is included in the gross income of the transferor of an annuity contract, the investment in the contract of the transferee in such contract shall be increased by the amount so included.
(5) Retention of existing rules in certain cases
(A) In general
In any case to which this paragraph applies—
(i) paragraphs (2)(B) and (4)(A) shall not apply, and
(ii) if paragraph (2)(A) does not apply,
(B) Existing contracts
This paragraph shall apply to contracts entered into before
(C) Certain life insurance and endowment contracts
Except as provided in paragraph (10) and except to the extent prescribed by the Secretary by regulations, this paragraph shall apply to any amount not received as an annuity which is received under a life insurance or endowment contract.
(D) Contracts under qualified plans
Except as provided in paragraph (8), this paragraph shall apply to any amount received—
(i) from a trust described in which is exempt from tax under ,
(ii) from a contract—
from a contract—
(I) purchased by a trust described in clause (i),
(II) purchased as part of a plan described in ,
(III) described in , or
(IV) provided for employees of a life insurance company under a plan described in , or
(iii) from an individual retirement account or an individual retirement annuity.
(E) Full refunds, surrenders, redemptions, and maturities
This paragraph shall apply to—
(i) any amount received, whether in a single sum or otherwise, under a contract in full discharge of the obligation under the contract which is in the nature of a refund of the consideration paid for the contract, and
(ii) any amount received under a contract on its complete surrender, redemption, or maturity.
(6) Investment in the contract
For purposes of this subsection, the investment in the contract as of any date is—
(A) the aggregate amount of premiums or other consideration paid for the contract before such date, minus
(B) the aggregate amount received under the contract before such date, to the extent that such amount was excludable from gross income under this subtitle or prior income tax laws.
[(7) Repealed.
(8) Extension of paragraph (2)(b)
(A) In general
Notwithstanding any other provision of this subsection, in the case of any amount received before the annuity starting date from a trust or contract described in paragraph (5)(D), paragraph (2)(B) shall apply to such amounts.
(B) Allocation of amount received
For purposes of paragraph (2)(B), the amount allocated to the investment in the contract shall be the portion of the amount described in subparagraph (A) which bears the same ratio to such amount as the investment in the contract bears to the account balance. The determination under the preceding sentence shall be made as of the time of the distribution or at such other time as the Secretary may prescribe.
(C) Treatment of forfeitable rights
If an employee does not have a nonforfeitable right to any amount under any trust or contract to which subparagraph (A) applies, such amount shall not be treated as part of the account balance.
(D) Investment in the contract before 1987
In the case of a plan which on
(9) Extension of paragraph (2)(B) to qualified tuition programs and Coverdell education savings accounts
Notwithstanding any other provision of this subsection, paragraph (2)(B) shall apply to amounts received under a qualified tuition program (as defined in ) or under a Coverdell education savings account (as defined in ). The rule of paragraph (8)(B) shall apply for purposes of this paragraph.
(10) Treatment of modified endowment contracts
(A) In general
Notwithstanding paragraph (5)(C), in the case of any modified endowment contract (as defined in section 7702A)—
(i) paragraphs (2)(B) and (4)(A) shall apply, and
(ii) in applying paragraph (4)(A), “any person” shall be substituted for “an individual”.
(B) Treatment of certain burial contracts
Notwithstanding subparagraph (A), paragraph (4)(A) shall not apply to any assignment (or pledge) of a modified endowment contract if such assignment (or pledge) is solely to cover the payment of expenses referred to in and if the maximum death benefit under such contract does not exceed $25,000.
(11) Special rules for certain combination contracts providing long-term care insurance
Notwithstanding paragraphs (2), (5)(C), and (10), in the case of any charge against the cash value of an annuity contract or the cash surrender value of a life insurance contract made as payment for coverage under a qualified long-term care insurance contract which is part of or a rider on such annuity or life insurance contract—
(A) the investment in the contract shall be reduced (but not below zero) by such charge, and
(B) such charge shall not be includible in gross income.
(12) Anti-abuse rules
(A) In general
For purposes of determining the amount includible in gross income under this subsection—
(i) all modified endowment contracts issued by the same company to the same policyholder during any calendar year shall be treated as 1 modified endowment contract, and
(ii) all annuity contracts issued by the same company to the same policyholder during any calendar year shall be treated as 1 annuity contract.
(B) Regulatory authority
The Secretary may by regulations prescribe such additional rules as may be necessary or appropriate to prevent avoidance of the purposes of this subsection through serial purchases of contracts or otherwise.
(1) such amounts were includible in the gross income of the employee under this subtitle or prior income tax laws; or
(2) if such amounts had been paid directly to the employee at the time they were contributed, they would not have been includible in the gross income of the employee under the law applicable at the time of such contribution.
March 12, 1962
(1) for purposes of this section, only the actual value of such consideration, plus the amount of the premiums and other consideration paid by the transferee after the transfer, shall be taken into account in computing the aggregate amount of the premiums or other consideration paid for the contract;
(2) for purposes of subsection (c)(1)(B), there shall be taken into account only the aggregate amount received under the contract by the transferee before the annuity starting date, to the extent that such amount was excludable from gross income under this subtitle or prior income tax laws; and
(3) the annuity starting date is the first day of the first period for which the transferee received an amount under the contract as an annuity.
(1) a contract provides for payment of a lump sum in full discharge of an obligation under the contract, subject to an option to receive an annuity in lieu of such lump sum;
(2) the option is exercised within 60 days after the day on which such lump sum first became payable; and
(3) part or all of such lump sum would (but for this subsection) be includible in gross income by reason of subsection (e)(1),
Notwithstanding any other provision of this section, if any amount is held under an agreement to pay interest thereon, the interest payments shall be included in gross income.
For purposes of this section, the term “endowment contract” includes a face-amount certificate, as defined in of the Investment Company Act of 1940 (15 U.S.C., sec. 80a–2), issued after
[(1) Repealed.
(2) Computation of consideration paid by the employee
In computing—
(A) the aggregate amount of premiums or other consideration paid for the contract for purposes of subsection (c)(1)(A) (relating to the investment in the contract), and
(B) the aggregate premiums or other consideration paid for purposes of subsection (e)(6) (relating to certain amounts not received as an annuity),
any amount allowed as a deduction with respect to the contract under section 404 which was paid while the employee was an employee within the meaning of section 401(c)(1) shall be treated as consideration contributed by the employer, and there shall not be taken into account any portion of the premiums or other consideration for the contract paid while the employee was an owner-employee which is properly allocable (as determined under regulations prescribed by the Secretary) to the cost of life, accident, health, or other insurance.
(3) Life insurance contracts
(A) This paragraph shall apply to any life insurance contract—
This paragraph shall apply to any life insurance contract—
(i) purchased as a part of a plan described in , or
(ii) purchased by a trust described in which is exempt from tax under if the proceeds of such contract are payable directly or indirectly to a participant in such trust or to a beneficiary of such participant.
(B) Any contribution to a plan described in subparagraph (A)(i) or a trust described in subparagraph (A)(ii) which is allowed as a deduction under section 404, and any income of a trust described in subparagraph (A)(ii), which is determined in accordance with regulations prescribed by the Secretary to have been applied to purchase the life insurance protection under a contract described in subparagraph (A), is includible in the gross income of the participant for the taxable year when so applied.
(C) In the case of the death of an individual insured under a contract described in subparagraph (A), an amount equal to the cash surrender value of the contract immediately before the death of the insured shall be treated as a payment under such plan or a distribution by such trust, and the excess of the amount payable by reason of the death of the insured over such cash surrender value shall not be includible in gross income under this section and shall be treated as provided in section 101.
[(4) Repealed.
(5) Penalties applicable to certain amounts received by 5-percent owners
(A) This paragraph applies to amounts which are received from a qualified trust described in or under a plan described in at any time by an individual who is, or has been, a 5-percent owner, or by a successor of such an individual, but only to the extent such amounts are determined, under regulations prescribed by the Secretary, to exceed the benefits provided for such individual under the plan formula.
(B) If a person receives an amount to which this paragraph applies, his tax under this chapter for the taxable year in which such amount is received shall be increased by an amount equal to 10 percent of the portion of the amount so received which is includible in his gross income for such taxable year.
(C) For purposes of this paragraph, the term “5-percent owner” means any individual who, at any time during the 5 plan years preceding the plan year ending in the taxable year in which the amount is received, is a 5-percent owner (as defined in ).
(6) Owner-employee defined
For purposes of this subsection, the term “owner-employee” has the meaning assigned to it by and includes an individual for whose benefit an individual retirement account or annuity described in or (b) is maintained. For purposes of the preceding sentence, the term “owner-employee” shall include an employee within the meaning of .
(7) Meaning of disabled
For purposes of this section, an individual shall be considered to be disabled if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration. An individual shall not be considered to be disabled unless he furnishes proof of the existence thereof in such form and manner as the Secretary may require.
[(8) Repealed.
[(9) Repealed.
(10) Determination of investment in the contract in the case of qualified domestic relations orders
Under regulations prescribed by the Secretary, in the case of a distribution or payment made to an alternate payee who is the spouse or former spouse of the participant pursuant to a qualified domestic relations order (as defined in ), the investment in the contract as of the date prescribed in such regulations shall be allocated on a pro rata basis between the present value of such distribution or payment and the present value of all other benefits payable with respect to the participant to which such order relates.
Subsection (b) shall not apply in the case of amounts received after
(1) Treatment of contributions
For purposes of this section and sections 402 and 403, notwithstanding , any deductible employee contribution made to a qualified employer plan or government plan shall be treated as an amount contributed by the employer which is not includible in the gross income of the employee.
[(2) Repealed.
(3) Amounts constructively received
(A) In general
For purposes of this subsection, rules similar to the rules provided by subsection (p) (other than the exception contained in paragraph (2) thereof) shall apply.
(B) Purchase of life insurance
To the extent any amount of accumulated deductible employee contributions of an employee are applied to the purchase of life insurance contracts, such amount shall be treated as distributed to the employee in the year so applied.
(4) Special rule for treatment of rollover amounts
For purposes of sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3), and 457(e)(16), the Secretary shall prescribe regulations providing for such allocations of amounts attributable to accumulated deductible employee contributions, and for such other rules, as may be necessary to insure that such accumulated deductible employee contributions do not become eligible for additional tax benefits (or freed from limitations) through the use of rollovers.
(5) Definitions and special rules
For purposes of this subsection—
(A) Deductible employee contributions
The term “deductible employee contributions” means any qualified voluntary employee contribution (as defined in ) made after
(B) Accumulated deductible employee contributions
The term “accumulated deductible employee contributions” means the deductible employee contributions—
(i) increased by the amount of income and gain allocable to such contributions, and
(ii) reduced by the sum of the amount of loss and expense allocable to such contributions and the amounts distributed with respect to the employee which are attributable to such contributions (or income or gain allocable to such contributions).
(C) Qualified employer plan
The term “qualified employer plan” has the meaning given to such term by subsection (p)(3)(A)(i).
(D) Government plan
The term “government plan” has the meaning given such term by subsection (p)(3)(B).
(6) Ordering rules
Unless the plan specifies otherwise, any distribution from such plan shall not be treated as being made from the accumulated deductible employee contributions, until all other amounts to the credit of the employee have been distributed.
(1) Treatment as distributions
(A) Loans
If during any taxable year a participant or beneficiary receives (directly or indirectly) any amount as a loan from a qualified employer plan, such amount shall be treated as having been received by such individual as a distribution under such plan.
(B) Assignments or pledges
If during any taxable year a participant or beneficiary assigns (or agrees to assign) or pledges (or agrees to pledge) any portion of his interest in a qualified employer plan, such portion shall be treated as having been received by such individual as a loan from such plan.
(2) Exception for certain loans
(A) General rule
Paragraph (1) shall not apply to any loan to the extent that such loan (when added to the outstanding balance of all other loans from such plan whether made on, before, or after
(i) $50,000, reduced by the excess (if any) of—
$50,000, reduced by the excess (if any) of—
(I) the highest outstanding balance of loans from the plan during the 1-year period ending on the day before the date on which such loan was made, over
(II) the outstanding balance of loans from the plan on the date on which such loan was made, or
(ii) the greater of (I) one-half of the present value of the nonforfeitable accrued benefit of the employee under the plan, or (II) $10,000.
(B) Requirement that loan be repayable within 5 years
(i) In general
Subparagraph (A) shall not apply to any loan unless such loan, by its terms, is required to be repaid within 5 years.
(ii) Exception for home loans
Clause (i) shall not apply to any loan used to acquire any dwelling unit which within a reasonable time is to be used (determined at the time the loan is made) as the principal residence of the participant.
(C) Requirement of level amortization
Except as provided in regulations, this paragraph shall not apply to any loan unless substantially level amortization of such loan (with payments not less frequently than quarterly) is required over the term of the loan.
(D) Prohibition of loans through credit cards and other similar arrangements
Subparagraph (A) shall not apply to any loan which is made through the use of any credit card or any other similar arrangement.
(E) Related employers and related plans
For purposes of this paragraph—
(i) the rules of subsections (b), (c), and (m) of section 414 shall apply, and
(ii) all plans of an employer (determined after the application of such subsections) shall be treated as 1 plan.
(3) Denial of interest deductions in certain cases
(A) In general
No deduction otherwise allowable under this chapter shall be allowed under this chapter for any interest paid or accrued on any loan to which paragraph (1) does not apply by reason of paragraph (2) during the period described in subparagraph (B).
(B) Period to which subparagraph (A) applies
For purposes of subparagraph (A), the period described in this subparagraph is the period—
(i) on or after the 1st day on which the individual to whom the loan is made is a key employee (as defined in ), or
(ii) such loan is secured by amounts attributable to elective deferrals described in subparagraph (A) or (C) of .
(4) Qualified employer plan, etc.
For purposes of this subsection—
(A) Qualified employer plan
(i) In general
(I) a plan described in which includes a trust exempt from tax under ,
(II) an annuity plan described in , and
(III) a plan under which amounts are contributed by an individual’s employer for an annuity contract described in .
(ii) Special rule
The term “qualified employer plan” shall include any plan which was (or was determined to be) a qualified employer plan or a government plan.
(B) Government plan
The term “government plan” means any plan, whether or not qualified, established and maintained for its employees by the United States, by a State or political subdivision thereof, or by an agency or instrumentality of any of the foregoing.
(5) Special rules for loans, etc., from certain contracts
For purposes of this subsection, any amount received as a loan under a contract purchased under a qualified employer plan (and any assignment or pledge with respect to such a contract) shall be treated as a loan under such employer plan.
(6) Increase in limit on loans not treated as distributions
(A) In general
In the case of any loan from a qualified employer plan to a qualified individual made during the applicable period—
(i) clause (i) of paragraph (2)(A) shall be applied by substituting “$100,000” for “$50,000”, and
(ii) clause (ii) of such paragraph shall be applied by substituting “the present value of the nonforfeitable accrued benefit of the employee under the plan” for “one-half of the present value of the nonforfeitable accrued benefit of the employee under the plan”.
(B) Delay of repayment
In the case of a qualified individual with respect to any qualified disaster with an outstanding loan from a qualified employer plan on or after the applicable date with respect to the qualified disaster—
(i) if the due date pursuant to subparagraph (B) or (C) of paragraph (2) for any repayment with respect to such loan occurs during the period beginning on the first day of the incident period of such qualified disaster and ending on the date which is 180 days after the last day of such incident period, such due date may be delayed for 1 year,
(ii) any subsequent repayments with respect to any such loan may be appropriately adjusted to reflect the delay in the due date under clause (i) and any interest accruing during such delay, and
(iii) in determining the 5-year period and the term of a loan under subparagraph (B) or (C) of paragraph (2), the period described in clause (i) may be disregarded.
(C) Definitions
For purposes of this paragraph—
(i) Qualified individual
(I) whose principal place of abode at any time during the incident period of any qualified disaster is located in the qualified disaster area with respect to such qualified disaster, and
(II) who has sustained an economic loss by reason of such qualified disaster.
(ii) Applicable period
(I) beginning on the applicable date with respect to such disaster, and
(II) ending on the date that is 180 days after such applicable date.
(iii) Other terms
(I) the terms “applicable date”, “qualified disaster”, “qualified disaster area”, and “incident period” have the meaning given such terms under subsection (t)(11), and
(II) the term “applicable period” has the meaning given such term under subsection (t)(8).
(1) Imposition of penalty
If any taxpayer receives any amount under an annuity contract, the taxpayer’s tax under this chapter for the taxable year in which such amount is received shall be increased by an amount equal to 10 percent of the portion of such amount which is includible in gross income.
(2) Subsection not to apply to certain distributions
Paragraph (1) shall not apply to any distribution—
(A) made on or after the date on which the taxpayer attains age 59½,
(B) made on or after the death of the holder (or, where the holder is not an individual, the death of the primary annuitant (as defined in subsection (s)(6)(B))),
(C) attributable to the taxpayer’s becoming disabled within the meaning of subsection (m)(7),
(D) which is a part of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the taxpayer or the joint lives (or joint life expectancies) of such taxpayer and his designated beneficiary,
(E) from a plan, contract, account, trust, or annuity described in subsection (e)(5)(D),
(F) allocable to investment in the contract before
(G) under a qualified funding asset (within the meaning of , but without regard to whether there is a qualified assignment),
(H) to which subsection (t) applies (without regard to paragraph (2) thereof),
(I) under an immediate annuity contract (within the meaning of ), or
(J) which is purchased by an employer upon the termination of a plan described in or 403(a) and which is held by the employer until such time as the employee separates from service.
For purposes of subparagraph (D), periodic payments shall not fail to be treated as substantially equal merely because they are amounts received as an annuity, and such periodic payments shall be deemed to be substantially equal if they are payable over a period described in subparagraph (D) and would satisfy the requirements applicable to annuity payments under section 401(a)(9) if such requirements applied.
(3) Change in substantially equal payments
(A) In general
If—
(i) paragraph (1) does not apply to a distribution by reason of paragraph (2)(D), and
(ii) the series of payments under such paragraph are subsequently modified (other than by reason of death or disability)—
the series of payments under such paragraph are subsequently modified (other than by reason of death or disability)—
(I) before the close of the 5-year period beginning on the date of the first payment and after the taxpayer attains age 59½, or
(II) before the taxpayer attains age 59½,
(B) Exchanges to subsequent contracts
If—
(i) payments described in paragraph (2)(D) are being made from an annuity contract,
(ii) an exchange of all or a portion of such contract for another contract is made under section 1035, and
(iii) the aggregate distributions from the contracts involved in the exchange continue to satisfy the requirements of paragraph (2)(D) as if the exchange had not taken place,
(1) In general
Notwithstanding any other provision of law, any benefit provided under the Railroad Retirement Act of 1974 (other than a tier 1 railroad retirement benefit) shall be treated for purposes of this title as a benefit provided under an employer plan which meets the requirements of .
(2) Tier 2 taxes treated as contributions
(A) In general
For purposes of paragraph (1)—
(i) the tier 2 portion of the tax imposed by section 3201 (relating to tax on employees) shall be treated as an employee contribution,
(ii) the tier 2 portion of the tax imposed by section 3211 (relating to tax on employee representatives) shall be treated as an employee contribution, and
(iii) the tier 2 portion of the tax imposed by section 3221 (relating to tax on employers) shall be treated as an employer contribution.
(B) Tier 2 portion
For purposes of subparagraph (A)—
(i) After 1984
With respect to compensation paid after 1984, the tier 2 portion shall be the taxes imposed by sections 3201(b), 3211(b), and 3221(b).
(ii) After
(I) so much of the tax imposed by section 3201 as is determined at the 2 percent rate, and
(II) so much of the taxes imposed by sections 3211 and 3221 as is determined at the 11.75 percent rate.
(iii) Before
(I) the tax imposed for such period by section 3201, 3211, or 3221, as the case may be (other than any tax imposed with respect to man-hours), over
(II) the tax which would have been imposed by such section for such period had the rates of the comparable taxes imposed by chapter 21 for such period applied under such section.
(C) Contributions not allocable to supplemental annuity or windfall benefits
For purposes of paragraph (1), no amount treated as an employee contribution under this paragraph shall be allocated to—
(i) any supplemental annuity paid under of the Railroad Retirement Act of 1974, or
(ii) any benefit paid under , 4(e), or 4(h) of such Act.
(3) Tier 1 railroad retirement benefit
For purposes of paragraph (1), the term “tier 1 railroad retirement benefit” has the meaning given such term by .
(1) In general
A contract shall not be treated as an annuity contract for purposes of this title unless it provides that—
(A) if any holder of such contract dies on or after the annuity starting date and before the entire interest in such contract has been distributed, the remaining portion of such interest will be distributed at least as rapidly as under the method of distributions being used as of the date of his death, and
(B) if any holder of such contract dies before the annuity starting date, the entire interest in such contract will be distributed within 5 years after the death of such holder.
(2) Exception for certain amounts payable over life of beneficiary
If—
(A) any portion of the holder’s interest is payable to (or for the benefit of) a designated beneficiary,
(B) such portion will be distributed (in accordance with regulations) over the life of such designated beneficiary (or over a period not extending beyond the life expectancy of such beneficiary), and
(C) such distributions begin not later than 1 year after the date of the holder’s death or such later date as the Secretary may by regulations prescribe,
then for purposes of paragraph (1), the portion referred to in subparagraph (A) shall be treated as distributed on the day on which such distributions begin.
(3) Special rule where surviving spouse beneficiary
If the designated beneficiary referred to in paragraph (2)(A) is the surviving spouse of the holder of the contract, paragraphs (1) and (2) shall be applied by treating such spouse as the holder of such contract.
(4) Designated beneficiary
For purposes of this subsection, the term “designated beneficiary” means any individual designated a beneficiary by the holder of the contract.
(5) Exception for certain annuity contracts
This subsection shall not apply to any annuity contract—
(A) which is provided—
which is provided—
(i) under a plan described in which includes a trust exempt from tax under section 501, or
(ii) under a plan described in ,
(B) which is described in ,
(C) which is an individual retirement annuity or provided under an individual retirement account or annuity, or
(D) which is a qualified funding asset (as defined in , but without regard to whether there is a qualified assignment).
(6) Special rule where holder is corporation or other non-individual
(A) In general
For purposes of this subsection, if the holder of the contract is not an individual, the primary annuitant shall be treated as the holder of the contract.
(B) Primary annuitant
For purposes of subparagraph (A), the term “primary annuitant” means the individual, the events in the life of whom are of primary importance in affecting the timing or amount of the payout under the contract.
(7) Treatment of changes in primary annuitant where holder of contract is not an individual
For purposes of this subsection, in the case of a holder of an annuity contract which is not an individual, if there is a change in a primary annuitant (as defined in paragraph (6)(B)), such change shall be treated as the death of the holder.
(1) Imposition of additional tax
If any taxpayer receives any amount from a qualified retirement plan (as defined in ), the taxpayer’s tax under this chapter for the taxable year in which such amount is received shall be increased by an amount equal to 10 percent of the portion of such amount which is includible in gross income.
(2) Subsection not to apply to certain distributions
Except as provided in paragraphs (3) and (4), paragraph (1) shall not apply to any of the following distributions:
(A) In general
Distributions which are—
(i) made on or after the date on which the employee attains age 59½,
(ii) made to a beneficiary (or to the estate of the employee) on or after the death of the employee,
(iii) attributable to the employee’s being disabled within the meaning of subsection (m)(7),
(iv) part of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the employee or the joint lives (or joint life expectancies) of such employee and his designated beneficiary,
(v) made to an employee after separation from service after attainment of age 55,
(vi) dividends paid with respect to stock of a corporation which are described in ,
(vii) made on account of a levy under section 6331 on the qualified retirement plan,
(viii) payments under a phased retirement annuity under section 8366a(a)(5)
(ix) attributable to withdrawal of net income attributable to a contribution which is distributed pursuant to .
(B) Medical expenses
Distributions made to the employee (other than distributions described in subparagraph (A), (C), or (D)) to the extent such distributions do not exceed the amount allowable as a deduction under section 213 to the employee for amounts paid during the taxable year for medical care (determined without regard to whether the employee itemizes deductions for such taxable year).
(C) Payments to alternate payees pursuant to qualified domestic relations orders
Any distribution to an alternate payee pursuant to a qualified domestic relations order (within the meaning of ).
(D) Distributions to unemployed individuals for health insurance premiums
(i) In general
(I) if such individual has received unemployment compensation for 12 consecutive weeks under any Federal or State unemployment compensation law by reason of such separation,
(II) if such distributions are made during any taxable year during which such unemployment compensation is paid or the succeeding taxable year, and
(III) to the extent such distributions do not exceed the amount paid during the taxable year for insurance described in with respect to the individual and the individual’s spouse and dependents (as defined in section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof).
(ii) Distributions after reemployment
Clause (i) shall not apply to any distribution made after the individual has been employed for at least 60 days after the separation from employment to which clause (i) applies.
(iii) Self-employed individuals
To the extent provided in regulations, a self-employed individual shall be treated as meeting the requirements of clause (i)(I) if, under Federal or State law, the individual would have received unemployment compensation but for the fact the individual was self-employed.
(E) Distributions from individual retirement plans for higher education expenses
Distributions to an individual from an individual retirement plan to the extent such distributions do not exceed the qualified higher education expenses (as defined in paragraph (7)) of the taxpayer for the taxable year. Distributions shall not be taken into account under the preceding sentence if such distributions are described in subparagraph (A), (C), or (D) or to the extent paragraph (1) does not apply to such distributions by reason of subparagraph (B).
(F) Distributions from certain plans for first home purchases
Distributions to an individual from an individual retirement plan which are qualified first-time homebuyer distributions (as defined in paragraph (8)). Distributions shall not be taken into account under the preceding sentence if such distributions are described in subparagraph (A), (C), (D), or (E) or to the extent paragraph (1) does not apply to such distributions by reason of subparagraph (B).
(G) Distributions from retirement plans to individuals called to active duty
(i) In general
Any qualified reservist distribution.
(ii) Amount distributed may be repaid
Any individual who receives a qualified reservist distribution may, at any time during the 2-year period beginning on the day after the end of the active duty period, make one or more contributions to an individual retirement plan of such individual in an aggregate amount not to exceed the amount of such distribution. The dollar limitations otherwise applicable to contributions to individual retirement plans shall not apply to any contribution made pursuant to the preceding sentence. No deduction shall be allowed for any contribution pursuant to this clause.
(iii) Qualified reservist distribution
(I) such distribution is from an individual retirement plan, or from amounts attributable to employer contributions made pursuant to elective deferrals described in subparagraph (A) or (C) of or ,
(II) such individual was (by reason of being a member of a reserve component (as defined in
(III) such distribution is made during the period beginning on the date of such order or call and ending at the close of the active duty period.
(iv) Application of subparagraph
This subparagraph applies to individuals ordered or called to active duty after
(H) Distributions from retirement plans in case of birth of child or adoption
(i) In general
Any qualified birth or adoption distribution.
(ii) Limitation
The aggregate amount which may be treated as qualified birth or adoption distributions by any individual with respect to any birth or adoption shall not exceed $5,000.
(iii) Qualified birth or adoption distribution
(I) The term “qualified birth or adoption distribution” means any distribution from an applicable eligible retirement plan to an individual if made during the 1-year period beginning on the date on which a child of the individual is born or on which the legal adoption by the individual of an eligible adoptee is finalized.
(II) The term “eligible adoptee” means any individual (other than a child of the taxpayer’s spouse) who has not attained age 18 or is physically or mentally incapable of self-support.
(iv) Treatment of plan distributions
(I) If a distribution to an individual would (without regard to clause (ii)) be a qualified birth or adoption distribution, a plan shall not be treated as failing to meet any requirement of this title merely because the plan treats the distribution as a qualified birth or adoption distribution, unless the aggregate amount of such distributions from all plans maintained by the employer (and any member of any controlled group which includes the employer) to such individual exceeds $5,000.
(II) For purposes of subclause (I), the term “controlled group” means any group treated as a single employer under subsection (b), (c), (m), or (
(v) Amount distributed may be repaid
(I) Any individual who receives a qualified birth or adoption distribution may, at any time during the 3-year period beginning on the day after the date on which such distribution was received, make one or more contributions in an aggregate amount not to exceed the amount of such distribution to an applicable eligible retirement plan of which such individual is a beneficiary and to which a rollover contribution of such distribution could be made under , 403(a)(4), 403(b)(8), 408(d)(3), or 457(e)(16), as the case may be.
(II) The aggregate amount of contributions made by an individual under subclause (I) to any applicable eligible retirement plan which is not an individual retirement plan shall not exceed the aggregate amount of qualified birth or adoption distributions which are made from such plan to such individual. Subclause (I) shall not apply to contributions to any applicable eligible retirement plan which is not an individual retirement plan unless the individual is eligible to make contributions (other than those described in subclause (I)) to such applicable eligible retirement plan.
(III) If a contribution is made under subclause (I) with respect to a qualified birth or adoption distribution from an applicable eligible retirement plan other than an individual retirement plan, then the taxpayer shall, to the extent of the amount of the contribution, be treated as having received such distribution in an eligible rollover distribution (as defined in ) and as having transferred the amount to the applicable eligible retirement plan in a direct trustee to trustee transfer within 60 days of the distribution.
(IV) If a contribution is made under subclause (I) with respect to a qualified birth or adoption distribution from an individual retirement plan, then, to the extent of the amount of the contribution, such distribution shall be treated as a distribution described in and as having been transferred to the applicable eligible retirement plan in a direct trustee to trustee transfer within 60 days of the distribution.
(vi) Definition and special rules
(I) The term “applicable eligible retirement plan” means an eligible retirement plan (as defined in ) other than a defined benefit plan.
(II) For purposes of sections 401(a)(31), 402(f), and 3405, a qualified birth or adoption distribution shall not be treated as an eligible rollover distribution.
(III) A distribution shall not be treated as a qualified birth or adoption distribution with respect to any child or eligible adoptee unless the taxpayer includes the name, age, and TIN of such child or eligible adoptee on the taxpayer’s return of tax for the taxable year.
(IV) Any qualified birth or adoption distribution shall be treated as meeting the requirements of sections 401(k)(2)(B)(i), 403(b)(7)(A)(i), 403(b)(11), and 457(d)(1)(A).
(I) Distributions for certain emergency expenses
(i) In general
Any emergency personal expense distribution.
(ii) Annual limitation
Not more than 1 distribution per calendar year may be treated as an emergency personal expense distribution by any individual.
(iii) Dollar limitation
(I) the individual’s total nonforfeitable accrued benefit under the plan (the individual’s total interest in the plan in the case of an individual retirement plan), determined as of the date of each such distribution, over
(II) $1,000.
(iv) Emergency personal expense distribution
For purposes of this subparagraph, the term “emergency personal expense distribution” means any distribution from an applicable eligible retirement plan (as defined in subparagraph (H)(vi)(I)) to an individual for purposes of meeting unforeseeable or immediate financial needs relating to necessary personal or family emergency expenses. The administrator of an applicable eligible retirement plan may rely on an employee’s written certification that the employee satisfies the conditions of the preceding sentence in determining whether any distribution is an emergency personal expense distribution. The Secretary may provide by regulations for exceptions to the rule of the preceding sentence in cases where the plan administrator has actual knowledge to the contrary of the employee’s certification, and for procedures for addressing cases of employee misrepresentation.
(v) Treatment of plan distributions
If a distribution to an individual would (without regard to clause (ii) or (iii)) be an emergency personal expense distribution, a plan shall not be treated as failing to meet any requirement of this title merely because the plan treats the distribution as an emergency personal expense distribution, unless the number or the aggregate amount of such distributions from all plans maintained by the employer (and any member of any controlled group which includes the employer, determined as provided in subparagraph (H)(iv)(II)) to such individual exceeds the limitation determined under clause (ii) or (iii).
(vi) Amount distributed may be repaid
Rules similar to the rules of subparagraph (H)(v) shall apply with respect to an individual who receives a distribution to which clause (i) applies.
(vii) Limitation on subsequent distributions
(I) such previous distribution is fully repaid to such plan pursuant to clause (vi), or
(II) the aggregate of the elective deferrals and employee contributions to the plan (the total amounts contributed to the plan in the case of an individual retirement plan) subsequent to such previous distribution is at least equal to the amount of such previous distribution which has not been so repaid.
(viii) Special rules
Rules similar to the rules of subclauses (II) and (IV) of subparagraph (H)(vi) shall apply to any emergency personal expense distribution.
(J) Distributions from pension-linked emergency savings account
Distributions from a pension-linked emergency savings account pursuant to .
(K) Distribution from retirement plan in case of domestic abuse
(i) In general
Any eligible distribution to a domestic abuse victim.
(ii) Limitation
(I) $10,000, or
(II) 50 percent of the present value of the nonforfeitable accrued benefit of the employee under the plan.
(iii) Eligible distribution to a domestic abuse victim
(I) A distribution shall be treated as an eligible distribution to a domestic abuse victim if such distribution is from an applicable eligible retirement plan and is made to an individual during the 1-year period beginning on any date on which the individual is a victim of domestic abuse by a spouse or domestic partner.
(II) The term “domestic abuse” means physical, psychological, sexual, emotional, or economic abuse, including efforts to control, isolate, humiliate, or intimidate the victim, or to undermine the victim’s ability to reason independently, including by means of abuse of the victim’s child or another family member living in the household.
(iv) Treatment of plan distributions
If a distribution to an individual would (without regard to clause (ii)) be an eligible distribution to a domestic abuse victim, a plan shall not be treated as failing to meet any requirement of this title merely because the plan treats the distribution as an eligible distribution to a domestic abuse victim, unless the aggregate amount of such distributions from all plans maintained by the employer (and any member of any controlled group which includes the employer, determined as provided in subparagraph (H)(iv)(II)) to such individual exceeds the limitation under clause (ii).
(v) Amount distributed may be repaid
Rules similar to the rules of subparagraph (H)(v) shall apply with respect to an individual who receives a distribution to which clause (i) applies.
(vi) Definition and special rules
(I) The term “applicable eligible retirement plan” means an eligible retirement plan (as defined in ) other than a defined benefit plan or a plan to which sections 401(a)(11) and 417 apply.
(II) For purposes of sections 401(a)(31), 402(f), and 3405, an eligible distribution to a domestic abuse victim shall not be treated as an eligible rollover distribution.
(III) Any distribution which the employee or participant certifies as being an eligible distribution to a domestic abuse victim shall be treated as meeting the requirements of sections 401(k)(2)(B)(i), 403(b)(7)(A)(i), 403(b)(11), and 457(d)(1)(A).
(vii) Inflation adjustment
(I) such dollar amount, multiplied by
(II) the cost-of-living adjustment determined under for the calendar year in which the taxable year begins, determined by substituting ‘calendar year 2023’ for ‘calendar year 2016’ in subparagraph (A)(ii) thereof.
(L) Terminal illness
(i) In general
Distributions which are made to the employee who is a terminally ill individual on or after the date on which such employee has been certified by a physician as having a terminal illness.
(ii) Definition
For purposes of this subparagraph, the term “terminally ill individual” has the same meaning given such term under , except that “84 months” shall be substituted for “24 months”.
(iii) Documentation
For purposes of this subparagraph, an employee shall not be considered to be a terminally ill individual unless such employee furnishes sufficient evidence to the plan administrator in such form and manner as the Secretary may require.
(iv) Amount distributed may be repaid
Rules similar to the rules of subparagraph (H)(v) shall apply with respect to an individual who receives a distribution to which clause (i) applies.
(M) Distributions from retirement plans in connection with federally declared disasters
Any qualified disaster recovery distribution.
For purposes of clause (iv), periodic payments shall not fail to be treated as substantially equal merely because they are amounts received as an annuity, and such periodic payments shall be deemed to be substantially equal if they are payable over a period described in clause (iv) and satisfy the requirements applicable to annuity payments under section 401(a)(9).
(3) Limitations
(A) Certain exceptions not to apply to individual retirement plans
Subparagraphs (A)(v) and (C) of paragraph (2) shall not apply to distributions from an individual retirement plan.
(B) Periodic payments under qualified plans must begin after separation
Paragraph (2)(A)(iv) shall not apply to any amount paid from a trust described in which is exempt from tax under or from a contract described in unless the series of payments begins after the employee separates from service.
(4) Change in substantially equal payments
(A) In general
If—
(i) paragraph (1) does not apply to a distribution by reason of paragraph (2)(A)(iv), and
(ii) the series of payments under such paragraph are subsequently modified (other than by reason of death or disability or a distribution to which paragraph (10) applies)—
the series of payments under such paragraph are subsequently modified (other than by reason of death or disability or a distribution to which paragraph (10) applies)—
(I) before the close of the 5-year period beginning with the date of the first payment and after the employee attains age 59½, or
(II) before the employee attains age 59½,
(B) Deferral period
For purposes of this paragraph, the term “deferral period” means the period beginning with the taxable year in which (without regard to paragraph (2)(A)(iv)) the distribution would have been includible in gross income and ending with the taxable year in which the modification described in subparagraph (A) occurs.
(C) Rollovers to subsequent plan
If—
(i) payments described in paragraph (2)(A)(iv) are being made from a qualified retirement plan,
(ii) a transfer or a rollover from such qualified retirement plan of all or a portion of the taxpayer’s benefit under the plan is made to another qualified retirement plan, and
(iii) distributions from the transferor and transferee plans would in combination continue to satisfy the requirements of paragraph (2)(A)(iv) if they had been made only from the transferor plan,
(5) Employee
For purposes of this subsection, the term “employee” includes any participant, and in the case of an individual retirement plan, the individual for whose benefit such plan was established.
(6) Special rules for simple retirement accounts
(A) In general
(B) Waiver in case of plan conversion to 401(k) or 403(b)
In the case of an employee of an employer which terminates the qualified salary reduction arrangement of the employer under and establishes a qualified cash or deferred arrangement described in or purchases annuity contracts described in , subparagraph (A) shall not apply to any amount which is paid in a rollover contribution described in into a qualified trust under (but only if such contribution is subsequently subject to the rules of ) or an annuity contract described in (but only if such contribution is subsequently subject to the rules of ) for the benefit of the employee.
In the case of any amount received from a simple retirement account (within the meaning of section 408(p)) during the 2-year period beginning on the date such individual first participated in any qualified salary reduction arrangement maintained by the individual’s employer under section 408(p)(2), paragraph (1) shall be applied by substituting “25 percent” for “10 percent”.
(7) Qualified higher education expenses
For purposes of paragraph (2)(E)—
(A) In general
The term “qualified higher education expenses” means qualified higher education expenses (as defined in section 529(e)(3)) for education furnished to—
(i) the taxpayer,
(ii) the taxpayer’s spouse, or
(iii) any child (as defined in ) or grandchild of the taxpayer or the taxpayer’s spouse,
(B) Coordination with other benefits
The amount of qualified higher education expenses for any taxable year shall be reduced as provided in .
(8) Qualified first-time homebuyer distributions
For purposes of paragraph (2)(F)—
(A) In general
The term “qualified first-time homebuyer distribution” means any payment or distribution received by an individual to the extent such payment or distribution is used by the individual before the close of the 120th day after the day on which such payment or distribution is received to pay qualified acquisition costs with respect to a principal residence of a first-time homebuyer who is such individual, the spouse of such individual, or any child, grandchild, or ancestor of such individual or the individual’s spouse.
(B) Lifetime dollar limitation
The aggregate amount of payments or distributions received by an individual which may be treated as qualified first-time homebuyer distributions for any taxable year shall not exceed the excess (if any) of—
(i) $10,000, over
(ii) the aggregate amounts treated as qualified first-time homebuyer distributions with respect to such individual for all prior taxable years.
(C) Qualified acquisition costs
For purposes of this paragraph, the term “qualified acquisition costs” means the costs of acquiring, constructing, or reconstructing a residence. Such term includes any usual or reasonable settlement, financing, or other closing costs.
(D) First-time homebuyer; other definitions
For purposes of this paragraph—
(i) First-time homebuyer
(I) such individual (and if married, such individual’s spouse) had no present ownership interest in a principal residence during the 2-year period ending on the date of acquisition of the principal residence to which this paragraph applies, and
(II) subsection (h) or (k) of section 1034
(ii) Principal residence
The term “principal residence” has the same meaning as when used in section 121.
(iii) Date of acquisition
(I) on which a binding contract to acquire the principal residence to which subparagraph (A) applies is entered into, or
(II) on which construction or reconstruction of such a principal residence is commenced.
(E) Special rule where delay in acquisition
If any distribution from any individual retirement plan fails to meet the requirements of subparagraph (A) solely by reason of a delay or cancellation of the purchase or construction of the residence, the amount of the distribution may be contributed to an individual retirement plan as provided in section 408(d)(3)(A)(i) (determined by substituting “120th day” for “60th day” in such section), except that—
(i) shall not be applied to such contribution, and
(ii) such amount shall not be taken into account in determining whether applies to any other amount.
(F) Recontributions
(i) General rule
(I) Any individual who received a qualified distribution may, during the applicable period, make one or more contributions in an aggregate amount not to exceed the amount of such qualified distribution to an eligible retirement plan (as defined in ) of which such individual is a beneficiary and to which a rollover contribution of such distribution could be made under , 403(a)(4), 403(b)(8), or 408(d)(3), as the case may be.
(II) Rules similar to the rules of clauses (ii) and (iii) of paragraph (11)(C) shall apply for purposes of this subsection.
(ii) Qualified distribution
(I) which is a qualified first-time homebuyer distribution,
(II) which was to be used to purchase or construct a principal residence in a qualified disaster area, but which was not so used on account of the qualified disaster with respect to such area, and
(III) which was received during the period beginning on the date which is 180 days before the first day of the incident period of such qualified disaster and ending on the date which is 30 days after the last day of such incident period.
(iii) Applicable period
For purposes of this subparagraph, the term “applicable period” means, in the case of a principal residence in a qualified disaster area with respect to any qualified disaster, the period beginning on the first day of the incident period of such qualified disaster and ending on the date which is 180 days after the applicable date with respect to such disaster.
(9) Special rule for rollovers to section 457 plans
For purposes of this subsection, a distribution from an eligible deferred compensation plan (as defined in ) of an eligible employer described in shall be treated as a distribution from a qualified retirement plan described in 4974(c)(1) to the extent that such distribution is attributable to an amount transferred to an eligible deferred compensation plan from a qualified retirement plan (as defined in ).
(10) Distributions to qualified public safety employees and private sector firefighters
(A) In general
In the case of a distribution to a qualified public safety employee from a governmental plan (within the meaning of ) or a distribution from a plan described in clause (iii), (iv), or (vi) of to an employee who provides firefighting services, paragraph (2)(A)(v) shall be applied by substituting “age 50 or 25 years of service under the plan, whichever is earlier” for “age 55”.
(B) Qualified public safety employee
For purposes of this paragraph, the term “qualified public safety employee” means—
(i) any employee of a State or political subdivision of a State who provides police protection, firefighting services, emergency medical services, or services as a corrections officer or as a forensic security employee providing for the care, custody, and control of forensic patients for any area within the jurisdiction of such State or political subdivision, or
(ii) any Federal law enforcement officer described in or 8401(17) of title 5, United States Code, any Federal customs and border protection officer described in or 8401(36) of such title, any Federal firefighter described in or 8401(14) of such title, any air traffic controller described in 8331(30) or 8401(35) of such title, any nuclear materials courier described in or 8401(33) of such title, any member of the United States Capitol Police, any member of the Supreme Court Police, or any diplomatic security special agent of the Department of State.
(11) Qualified disaster recovery distribution
For purposes of paragraph (2)(M)—
(A) In general
Except as provided in subparagraph (B), the term “qualified disaster recovery distribution” means any distribution made—
(i) on or after the first day of the incident period of a qualified disaster and before the date that is 180 days after the applicable date with respect to such disaster, and
(ii) to an individual whose principal place of abode at any time during the incident period of such qualified disaster is located in the qualified disaster area with respect to such qualified disaster and who has sustained an economic loss by reason of such qualified disaster.
(B) Aggregate dollar limitation
(i) In general
For purposes of this subsection, the aggregate amount of distributions received by an individual which may be treated as qualified disaster recovery distributions with respect to any qualified disaster in all taxable years shall not exceed $22,000.
(ii) Treatment of plan distributions
If a distribution to an individual would (without regard to clause (i)) be a qualified disaster recovery distribution, a plan shall not be treated as violating any requirement of this title merely because the plan treats such distribution as a qualified disaster recovery distribution, unless the aggregate amount of such distributions from all plans maintained by the employer (and any member of any controlled group which includes the employer) to such individual exceeds $22,000 with respect to the same qualified disaster.
(iii) Controlled group
For purposes of clause (ii), the term “controlled group” means any group treated as a single employer under subsection (b), (c), (m), or (
(C) Amount distributed may be repaid
(i) In general
Any individual who receives a qualified disaster recovery distribution may, at any time during the 3-year period beginning on the day after the date on which such distribution was received, make one or more contributions in an aggregate amount not to exceed the amount of such distribution to an eligible retirement plan of which such individual is a beneficiary and to which a rollover contribution of such distribution could be made under , 403(a)(4), 403(b)(8), 408(d)(3), or 457(e)(16), as the case may be.
(ii) Treatment of repayments of distributions from eligible retirement plans other than IRAs
For purposes of this title, if a contribution is made pursuant to clause (i) with respect to a qualified disaster recovery distribution from a plan other than an individual retirement plan, then the taxpayer shall, to the extent of the amount of the contribution, be treated as having received the qualified disaster recovery distribution in an eligible rollover distribution (as defined in ) and as having transferred the amount to the eligible retirement plan in a direct trustee to trustee transfer within 60 days of the distribution.
(iii) Treatment of repayments for distributions from IRAs
For purposes of this title, if a contribution is made pursuant to clause (i) with respect to a qualified disaster recovery distribution from an individual retirement plan, then, to the extent of the amount of the contribution, the qualified disaster recovery distribution shall be treated as a distribution described in and as having been transferred to the eligible retirement plan in a direct trustee to trustee transfer within 60 days of the distribution.
(D) Income inclusion spread over 3-year period
(i) In general
In the case of any qualified disaster recovery distribution, unless the taxpayer elects not to have this subparagraph apply for any taxable year, any amount required to be included in gross income for such taxable year shall be so included ratably over the 3-taxable year period beginning with such taxable year.
(ii) Special rule
For purposes of clause (i), rules similar to the rules of subparagraph (E) of shall apply.
(E) Qualified disaster
For purposes of this paragraph and paragraph (8), the term “qualified disaster” means any disaster with respect to which a major disaster has been declared by the President under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act after
(F) Other definitions
For purposes of this paragraph and paragraph (8)—
(i) Qualified disaster area
(I) The term “qualified disaster area” means, with respect to any qualified disaster, the area with respect to which the major disaster was declared under the Robert T. Stafford Disaster Relief and Emergency Assistance Act.
(II) Such term shall not include any area which is a qualified disaster area solely by reason of section 301 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020.
(ii) Incident period
The term “incident period” means, with respect to any qualified disaster, the period specified by the Federal Emergency Management Agency as the period during which such disaster occurred.
(iii) Applicable date
(I) the date of the enactment of this paragraph,
(II) the first day of the incident period with respect to the qualified disaster, or
(III) the date of the disaster declaration with respect to the qualified disaster.
(iv) Eligible retirement plan
The term “eligible retirement plan” shall have the meaning given such term by .
(G) Special rules
(i) Exemption of distributions from trustee to trustee transfer and withholding rules
For purposes of sections 401(a)(31), 402(f), and 3405, qualified disaster recovery distributions shall not be treated as eligible rollover distributions.
(ii) Qualified disaster recovery distributions treated as meeting plan distribution requirements
(I) a qualified disaster recovery distribution shall be treated as meeting the requirements of sections 401(k)(2)(B)(i), 403(b)(7)(A)(i), 403(b)(11), and 457(d)(1)(A), and
(II) in the case of a money purchase pension plan, a qualified disaster recovery distribution which is an in-service withdrawal shall be treated as meeting the requirements of applicable to distributions.
(1) In general
If any annuity contract is held by a person who is not a natural person—
(A) such contract shall not be treated as an annuity contract for purposes of this subtitle (other than subchapter L), and
(B) the income on the contract for any taxable year of the policyholder shall be treated as ordinary income received or accrued by the owner during such taxable year.
For purposes of this paragraph, holding by a trust or other entity as an agent for a natural person shall not be taken into account.
(2) Income on the contract
(A) In general
For purposes of paragraph (1), the term “income on the contract” means, with respect to any taxable year of the policyholder, the excess of—
(i) the sum of the net surrender value of the contract as of the close of the taxable year plus all distributions under the contract received during the taxable year or any prior taxable year, reduced by
(ii) the sum of the amount of net premiums under the contract for the taxable year and prior taxable years and amounts includible in gross income for prior taxable years with respect to such contract under this subsection.
(B) Net premiums
For purposes of this paragraph, the term “net premiums” means the amount of premiums paid under the contract reduced by any policyholder dividends.
(3) Exceptions
This subsection shall not apply to any annuity contract which—
(A) is acquired by the estate of a decedent by reason of the death of the decedent,
(B) is held under a plan described in or 403(a), under a program described in , or under an individual retirement plan,
(C) is a qualified funding asset (as defined in , but without regard to whether there is a qualified assignment),
(D) is purchased by an employer upon the termination of a plan described in or 403(a) and is held by the employer until all amounts under such contract are distributed to the employee for whom such contract was purchased or the employee’s beneficiary, or
(E) is an immediate annuity.
(4) Immediate annuity
For purposes of this subsection, the term “immediate annuity” means an annuity—
(A) which is purchased with a single premium or annuity consideration,
(B) the annuity starting date (as defined in subsection (c)(4)) of which commences no later than 1 year from the date of the purchase of the annuity, and
(C) which provides for a series of substantially equal periodic payments (to be made not less frequently than annually) during the annuity period.
(1) Imposition of additional tax
If any taxpayer receives any amount under a modified endowment contract (as defined in section 7702A), the taxpayer’s tax under this chapter for the taxable year in which such amount is received shall be increased by an amount equal to 10 percent of the portion of such amount which is includible in gross income.
(2) Subsection not to apply to certain distributions
Paragraph (1) shall not apply to any distribution—
(A) made on or after the date on which the taxpayer attains age 59½,
(B) which is attributable to the taxpayer’s becoming disabled (within the meaning of subsection (m)(7)), or
(C) which is part of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the taxpayer or the joint lives (or joint life expectancies) of such taxpayer and his beneficiary.
(1) In general
Notwithstanding any other provision of this section, for purposes of determining the portion of any distribution which is includible in gross income of a distributee who is a citizen or resident of the United States, the investment in the contract shall not include any applicable nontaxable contributions or applicable nontaxable earnings.
(2) Applicable nontaxable contribution
For purposes of this subsection, the term “applicable nontaxable contribution” means any employer or employee contribution—
(A) which was made with respect to compensation—
which was made with respect to compensation—
(i) for labor or personal services performed by an employee who, at the time the labor or services were performed, was a nonresident alien for purposes of the laws of the United States in effect at such time, and
(ii) which is treated as from sources without the United States, and
(B) which was not subject to income tax (and would have been subject to income tax if paid as cash compensation when the services were rendered) under the laws of the United States or any foreign country.
(3) Applicable nontaxable earnings
For purposes of this subsection, the term “applicable nontaxable earnings” means earnings—
(A) which are paid or accrued with respect to any employer or employee contribution which was made with respect to compensation for labor or personal services performed by an employee,
(B) with respect to which the employee was at the time the earnings were paid or accrued a nonresident alien for purposes of the laws of the United States, and
(C) which were not subject to income tax under the laws of the United States or any foreign country.
(4) Regulations
The Secretary shall prescribe such regulations as may be necessary to carry out the provisions of this subsection, including regulations treating contributions and earnings as not subject to tax under the laws of any foreign country where appropriate to carry out the purposes of this subsection.
For limitation on adjustments to basis of annuity contracts sold, see section 1021.