3605. What is a “deemed IRA”?Nuco Employeercline212015-06-04T19:11:00Z2015-06-04T19:11:00Z25803312Albany Law School277388514Site Map/Individual Retirement Plans/Roth IRA/In GeneralSite Map/Individual Retirement Plans/Traditional IRA/In Generalindividual retirement account annuity2005-01-25T00:00:00ZTaxFactsDefaultArticle114640211-00-tf1.xml212.00;#1812;#1821;#0x010100C568DB52D9D0A14D9B2FDCC96666E9F2007948130EC3DB064584E219954237AF3900242457EFB8B24247815D688C526CD44D009C4E67E972694125ABDA91AC61F5E51FTax Facts 1What is a “deemed IRA”?103300.000000000TaxFactsDefaultArticle2010-01-15T00:23:35ZSBMEDIA\moss-admin0f08e536-ecc3-4201-b7c3-d3285df31d4d|e397f4f8-7604-4866-8476-e67ae2709435|2e908c51-8a30-43c7-9b6c-7908044edcee3605. What is a “deemed IRA”?A deemed IRA is an account or annuity created under an employer’s retirement plan that is treated as a traditional IRA or Roth IRA and are subject to the same rules regarding contributions and distributions. For plan years beginning after December 31, 2002, a qualified plan, Section 403(b) tax sheltered annuity plan, or eligible Section 457 governmental plan may allow employees to make voluntary employee contributions to a separate account or annuity established under the plan. If such account or annuity meets the rules for traditional IRAs under IRC Section 408 or for Roth IRAs under IRC Section 408A, then such account or annuity will be “deemed” an IRA and not a qualified employer plan. A voluntary employee contribution is any non-mandatory contribution that the individual designates as such. Such “deemed IRAs” will not be subject to the IRC rules governing the employer plan, but they will be subject to the exclusive benefit and fiduciary rules of ERISA to the extent they otherwise apply to the employer plan..IRC Sec. 408(q). See Rev. Proc. 2003-13, 2003-1 CB 317.Under final regulations, a deemed IRA and the plan under which it is adopted generally are treated as separate entities, with each subject to the rules generally applicable to that type of entity..Treas. Reg. §1.408(q)-1. The regulations further provide that the “availability of a deemed IRA is not a benefit, right, or feature of the qualified employer plan,” meaning that eligibility for and contributions to deemed IRAs are not subject to the general nondiscrimination requirements applicable to qualified plans..Treas. Reg. §1.408(q)-1(f)(6).The regulations provide three exceptions to treating a qualified plan and deemed IRAs as separate entities:(1)The qualified plan documents must contain the deemed IRA provisions and be in effect at the time the deemed IRA contributions are accepted. (Plans offering deemed IRAs for the 2002 or 2003 plan years had until the plan year beginning in 2004 to have such provisions in writing);.Treas. Reg. §1.408(q)-1(d)(1).(2) Deemed IRA and qualified plan assets may be commingled. The prohibition against commingling in IRC Section 408(a)(5) (Q 3602) does not apply to deemed IRA and qualified plan assets. Deemed IRA and qualified plan assets still may not be further commingled with non-plan assets;.Treas. Reg. §1.408(q)-1(d)(2). and(3)if deemed IRA and qualified plan assets are commingled in a single trust, the failure of any of the deemed IRAs maintained by a plan to meet the requirements of IRC Section 408 (traditional IRAs) or IRC Section 408A (Roth IRAs) can disqualify the qualified plan, requiring correction through the Employee Plans Compliance Resolution System or another administrative procedure (Q 3758). Likewise, the disqualification of a plan can cause the individual accounts to no longer be considered deemed IRAs..Treas. Reg. §1.408(q)-1(g).If deemed IRA and qualified plan assets are maintained in separate trusts, a qualified plan will not be disqualified solely because of the failure of any of the deemed IRAs to meet the requirements of IRC Section 408 (traditional IRAs) or IRC Section 408A (Roth IRAs). Likewise, if separate trusts are maintained, individual accounts will not fail to be deemed IRAs solely because of the disqualification of the plan..Treas. Reg. §1.408(q)-1(g).Planning Point: The advantages of a deemed IRA as part of the employer plan include the ability of the employee to consolidate retirement investment savings, perceived ease of making additional contributions to retirement savings, and may provide more investment options than are available with a stand-alone IRA. However, a participant may prefer to create IRAs outside of a an employer’s qualified plan or use separate trusts to avoid any possibility of either the IRA or the qualified plan causing disqualification of the other.