The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) added section 408(q) of the Internal Revenue Code (Code), which allows qualified retirement plan sponsors to offer "Deemed IRAs" under their plans beginning on January 1, 2003. If contributions are made to a separate account that meets the applicable requirements for either a Traditional or Roth IRA, then contributions to the Deemed IRA are treated as IRA contributions, not as qualified plan contributions. For example, during 2003, a participant using a Deemed IRA arrangement may contribute as much as $3,000 in Deemed IRA (Traditional or Roth) contributions. In Rev. Proc. 2003-13, which the IRS released on January 2, 2003, the IRS provided guidance regarding amendments needed to include a Deemed IRA in a qualified retirement plan.
In general, plan sponsors that want to provide for Deemed IRAs must amend their plan documents to allow for such accounts, and must have the separate accounts established no later than the date the Deemed IRA contributions are accepted from the employees. However, plan sponsors that wish to establish Deemed IRAs for plan years beginning on or after January 1, 2003, but before January 1, 2004, are not required to amend their plans before the end of the plan year to allow for Deemed IRAs. Nonetheless, the plan sponsor must adopt a good-faith plan amendment by the end of the first plan year beginning on or after January 1, 2004.
The revenue procedure includes a sample plan amendment for Deemed IRAs that meets the good faith plan amendment requirements. A plan that allows for Deemed IRAs must contain language that satisfies Code section 408 for a Traditional IRA, or that satisfies Code section 408A for a Roth IRA, in addition to the sample plan amendment. According to the revenue procedure, an amendment that addresses every applicable issue addressed in the IRS’s sample language for IRAs (known as its "Listing of Required Modifications," or LRMs) will be treated as containing language that satisfies the Code requirements for a Traditional or Roth IRA.
The revenue procedure indicates that the IRS intends to issue substantive regulations on Deemed IRAs under Code section 408(q) in the near future.
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