Final Deemed IRA Regulations Issued
Rev. 07/22/04, E-mail Alert 2004-15

After consideration of comments made on the proposed regulations issued in May 2003, the IRS has issued final regulations. Many of the challenging aspects of the proposed regulations have been eliminated from the final regulations. Highlights follow:

• A separate trust for deemed IRA assets is not required.
  
• Deemed IRAs held in a single trust with qualified plan assets require separate accounting for each deemed IRA. i.e. a separate account for each deemed IRA within the qualified employer plan trust.
  
• Deemed IRA portion of a qualified plan is subject to the rules of 408 and 408A and not the rules applicable to plans under 401(a), 403(a), 403(b) or 457.
  
• Deemed individual retirement annuties require separate annuities.
  
• The failure of the deemed IRA or the qualified plan will not cause the other portion of the plan to be automatically disqualified -- if in a separate trust.
  
• If the deemed IRA and qualified plan are in separate trusts, and if the qualified plan is disqualified the deemed IRA assets may become individual IRAs if they satisfy the applicable requirements of 408 or 408A and 408(a)(5).
  
• Governmental units may qualify to act as nonbank trustees.
  
• Reporting and RMD rules apply to IRAs and qualified plans as applicable to IRAs and qualified plans; likewise with the 20% withholding rules being applicable only to qualified plans.
  
• Automatic enrollment may be applied to deemed IRAs as well as to qualified plans.
  
• A plan may have different eligibility requirements for the plan and the deemed IRA.
  
• Section 408(q) permits only employees to contribute in a deemed IRA, this is true for 457(b) governmental plans also. Thus, independent contractors may not contribute to a deemed IRA in a governmental 457 plan.
  
• PBGC has advised that deemed IRAs are a separate entity from the qualified plan for ERISA Title IV purposes. Thus, they are not included in the premium and the PBGC would not handle these assets, rather the employer is responsible for handling them.
  

Effective date is for accounts or annuities established under 408(q) on or after August 1, 2003.

Deemed IRA Final Regs.

Bill Grossman QPA