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Internal Revenue Code, § 3405. Special Rules For Pensions, Annuities, And Certain Other Deferred Income

I.R.C. § 3405(a) Periodic Payments
I.R.C. § 3405(a)(1) Withholding As If Payment Were Wages
The payor of any periodic payment (as defined in subsection (e)(2)) shall withhold from such payment the amount which would be required to be withheld from such payment if such payment were a payment of wages by an employer to an employee for the appropriate payroll period.
I.R.C. § 3405(a)(2) Election Of No Withholding
An individual may elect to have paragraph (1) not apply with respect to periodic payments made to such individual. Such an election shall remain in effect until revoked by such individual.
I.R.C. § 3405(a)(3) When Election Takes Effect
Any election under this subsection (and any revocation of such an election) shall take effect as provided by subsection (f)(3) of section 3402 for withholding allowance certificates.
I.R.C. § 3405(a)(4) Amount Withheld Where No Withholding Allowance Certificate In Effect
In the case of any payment with respect to which a withholding allowance certificate is not in effect, the amount withheld under paragraph (1) shall be determined under rules prescribed by the Secretary.
I.R.C. § 3405(b) Nonperiodic Distribution
I.R.C. § 3405(b)(1) Withholding
The payor of any nonperiodic distribution (as defined in subsection (e)(3)) shall withhold from such distribution an amount equal to 10 percent of such distribution.
I.R.C. § 3405(b)(2) Election Of No Withholding
I.R.C. § 3405(b)(2)(A) In General
An individual may elect not to have paragraph (1) apply with respect to any nonperiodic distribution.
I.R.C. § 3405(b)(2)(B) Scope Of Election
An election under subparagraph (A)
I.R.C. § 3405(b)(2)(B)(i)
except as provided in clause (ii), shall be on a distribution-by-distribution basis, or
I.R.C. § 3405(b)(2)(B)(ii)
to the extent provided in regulations, may apply to subsequent nonperiodic distributions made by the payor to the payee under the same arrangement.
I.R.C. § 3405(c) Eligible Rollover Distributions
I.R.C. § 3405(c)(1) In General
In the case of any designated distribution which is an eligible rollover distribution—
I.R.C. § 3405(c)(1)(A)
subsections (a) and (b) shall not apply, and
I.R.C. § 3405(c)(1)(B)
the payor of such distribution shall withhold from such distribution an amount equal to 20 percent of such distribution.
I.R.C. § 3405(c)(2) Exception
Paragraph (1)(B) shall not apply to any distribution if the distributee elects under section 401(a)(31)(A) to have such distribution paid directly to an eligible retirement plan.
I.R.C. § 3405(c)(3) Eligible Rollover Distribution
For purposes of this subsection, the term “eligible rollover distribution” has the meaning given such term by section 402(f)(2)(A).
I.R.C. § 3405(d) Liability For Withholding
I.R.C. § 3405(d)(1) In General
Except as provided in paragraph (2), the payor of a designated distribution (as defined in subsection (e)(1)) shall withhold, and be liable for, payment of the tax required to be withheld under this section.
I.R.C. § 3405(d)(2) Plan Administrator Liable In Certain Cases
I.R.C. § 3405(d)(2)(A) In General
In the case of any plan to which this paragraph applies, paragraph (1) shall not apply and the plan administrator shall withhold, and be liable for, payment of the tax unless the plan administrator—
I.R.C. § 3405(d)(2)(A)(i)
directs the payor to withhold such tax, and
I.R.C. § 3405(d)(2)(A)(ii)
provides the payor with such information as the Secretary may require by regulations.
I.R.C. § 3405(d)(2)(B) Plans To Which Paragraph Applies
This paragraph applies to any plan described in, or which at any time has been determined to be described in—
I.R.C. § 3405(d)(2)(B)(iii)
section 301(d) of the Tax Reduction Act of 1975, or
I.R.C. § 3405(d)(2)(B)(iv)
section 457(b) and which is maintained by an eligible employer described in section 457(e)(1)(A).
I.R.C. § 3405(e) Definitions And Special Rules
For purposes of this section—
I.R.C. § 3405(e)(1) Designated Distribution
I.R.C. § 3405(e)(1)(A) In General
Except as provided in subparagraph (B), the term “designated distribution” means any distribution or payment from or under—
I.R.C. § 3405(e)(1)(A)(i)
an employer deferred compensation plan,
I.R.C. § 3405(e)(1)(A)(ii)
an individual retirement plan (as defined in section 7701(a)(37)), or
I.R.C. § 3405(e)(1)(A)(iii)
a commercial annuity.
I.R.C. § 3405(e)(1)(B) Exceptions
The term “designated distribution” shall not include—
I.R.C. § 3405(e)(1)(B)(i)
any amount which is wages without regard to this section,
I.R.C. § 3405(e)(1)(B)(ii)
the portion of a distribution or payment which it is reasonable to believe is not includible in gross income, and
I.R.C. § 3405(e)(1)(B)(iii)
any amount which is subject to withholding under subchapter A of chapter 3 (relating to withholding of tax on nonresident aliens and foreign corporations) by the person paying such amount or which would be so subject but for a tax treaty, or
I.R.C. § 3405(e)(1)(B)(iv)
any distribution described in section 404(k)(2).
For purposes of clause (ii), any distribution or payment from or under an individual retirement plan (other than a Roth IRA) shall be treated as includible in gross income.
I.R.C. § 3405(e)(2) Periodic Payment
The term “periodic payment” means a designated distribution which is an annuity or similar periodic payment.
I.R.C. § 3405(e)(3) Nonperiodic Distribution
The term “nonperiodic distribution” means any designated distribution which is not a periodic payment.
I.R.C. § 3405(e)(4)
[Repealed.]
I.R.C. § 3405(e)(5) Employer Deferred Compensation Plan
The term “employer deferred compensation plan” means any pension, annuity, profit-sharing, or stock bonus plan or other plan deferring the receipt of compensation.
I.R.C. § 3405(e)(6) Commercial Annuity
The term “commercial annuity” means an annuity, endowment, or life insurance contract issued by an insurance company licensed to do business under the laws of any State.
I.R.C. § 3405(e)(7) Plan Administrator
The term “plan administrator” has the meaning given such term by section 414(g).
I.R.C. § 3405(e)(8) Maximum Amount Withheld
The maximum amount to be withheld under this section on any designated distribution shall not exceed the sum of the amount of money and the fair market value of other property (other than securities of the employer corporation) received in the distribution. No amount shall be required to be withheld under this section in the case of any designated distribution which consists only of securities of the employer corporation and cash (not in excess of $200) in lieu of financial shares. For purposes of this paragraph, the term “securities of the employer corporation” has the meaning given such term by section 402(e)(4)(E).
I.R.C. § 3405(e)(9) Separate Arrangements To Be Treated Separately
If the payor has more than 1 arrangement under which designated distributions may be made to any individual, each such arrangement shall be treated separately.
I.R.C. § 3405(e)(10) Time And Manner Of Election
I.R.C. § 3405(e)(10)(A) In General
Any election and any revocation under this section shall be made at such time and in such manner as the Secretary shall prescribe.
I.R.C. § 3405(e)(10)(B) Payor Required To Notify Payee Of Rights To Elect
I.R.C. § 3405(e)(10)(B)(i) Periodic Payments
The payor of any periodic payment—
I.R.C. § 3405(e)(10)(B)(i)(I)
shall transmit to the payee notice of the right to make an election under subsection (a) not earlier than 6 months before the first of such payments and not later than when making the first of such payments,
I.R.C. § 3405(e)(10)(B)(i)(II)
if such a notice is not transmitted under subclause (I) when making such first payment, shall transmit such a notice when making such first payment, and
I.R.C. § 3405(e)(10)(B)(i)(III)
shall transmit to payees, not less frequently than once each calendar year, notice of their rights to make elections under subsection (a) and to revoke such elections.
I.R.C. § 3405(e)(10)(B)(ii) Nonperiodic Distributions
The payor of any nonperiodic distribution shall transmit to the payee notice of the right to make any election provided in subsection (b) at the time of the distribution (or at such earlier time as may be provided in regulations).
I.R.C. § 3405(e)(10)(B)(iii) Notice
Any notice transmitted pursuant to this subparagraph shall be in such form and contain such information as the Secretary shall prescribe.
I.R.C. § 3405(e)(11) Withholding Includes Deduction
The terms “withholding”, “withhold”, and “withheld" include “deducting”, “deduct”, and “deducted”.
I.R.C. § 3405(e)(12) Failure To Provide Correct TIN
If—
I.R.C. § 3405(e)(12)(A)
a payee fails to furnish his TIN to the payor in the manner required by the Secretary, or
I.R.C. § 3405(e)(12)(B)
the Secretary notifies the payor before any payment or distribution that the TIN furnished by the payee is incorrect,
no election under subsection (a)(2) or (b)(2) shall be treated as in effect and subsection (a)(4) shall not apply to such payee.
I.R.C. § 3405(e)(13) Election May Not Be Made With Respect To Certain Payments Outside The United States Or Its Possessions
I.R.C. § 3405(e)(13)(A) In General
Except as provided in subparagraph (B), in the case of any periodic payment or nonperiodic distribution which is to be delivered outside of the United States and any possession of the United States, no election may be made under subsection (a)(2) or (b)(2) with respect to such payment.
I.R.C. § 3405(e)(13)(B) Exception
Subparagraph (A) shall not apply if the recipient certifies to the payor, in such manner as the Secretary may prescribe, that such person is not—
I.R.C. § 3405(e)(13)(B)(i)
a United States citizen or a resident alien of the United States, or
I.R.C. § 3405(e)(13)(B)(ii)
an individual to whom section 877 applies.
I.R.C. § 3405(f) Withholding To Be Treated As Wage Withholding Under Section 3402 For Other Purposes
For purposes of this chapter (and so much of subtitle F as relates to this chapter)—
I.R.C. § 3405(f)(1)
any designated distribution (whether or not an election under this section applies to such distribution) shall be treated as if it were wages paid by an employer to an employee with respect to which there has been withholding under section 3402, and
I.R.C. § 3405(f)(2)
in the case of any designated distribution not subject to withholding under this section by reason of an election under this section, the amount withheld shall be treated as zero.
(Added by Pub. L. 97-248, title III, 334(a), Sept. 3, 1982, 96 Stat. 623, and amended Pub. L. 98-369, div. A, title V, 542(c), title VII, 714(j)(1), (4), (5), 722(h)(4)(A), July 18, 1984, 98 Stat. 891, 962, 963, 976; Pub. L. 99-514, title XI, 1102(e)(1), title XII, 1234(b)(1), title XVIII, 1875(c)(10), Oct. 22, 1986, 100 Stat. 2416, 2566, 2895; Pub. L. 100-647, title I, 1012(bb)(2)(A)-(C), Nov. 10, 1988, 102 Stat. 3534; Pub. L. 102-318, title V, 521(b), 522, July 3, 1992; Pub. L. 104-188, 1704, Aug. 20, 1996, 110 Stat. 1755; Pub. L. 106-554, Sec. 314, Dec. 21, 2000, 114 Stat. 2763; Pub. L. 107-16, Sec. 641(a)(1)(D), June 7, 2001, 115 Stat. 38; Pub. L. 115-97, title I, Sec. 11041(c)(2)(F), (G), Dec. 22, 2017, 131 Stat. 2054.)
BACKGROUND NOTES
AMENDMENTS
2017—Subsec. (a)(3). Pub. L. 115-97, Sec. 11041(c)(2)(F), amended par. (3) by substituting “allowance” for “exemption”.
Subsec. (a)(4). Pub. L. 115-97, Sec. 11041(c)(2)(F), amended par. (4) by substituting “allowance” for “exemption”.
Subsec. (a)(4) heading. Pub. L. 115-97, Sec. 11041(c)(2)(F), amended the heading of par. (4) by substituting “allowance” for “exemption”.
Subsec. (a)(4). Pub. L. 115-97, Sec. 11041(c)(2)(G), amended par. (4) by substituting “shall be determined under rules prescribed by the Secretary” for “shall be determined by treating the payee as a married individual claiming 3 withholding exemptions”.
2001—Subsec. (c)(3). Pub. L. 107-16, Sec. 641(a)(1)(D)(ii), amended par. (3). Before amendment it read as follows:
“(3) Eligible rollover distribution.--
“For purposes of this subsection, the term ‘eligible rollover distribution’ has the meaning given such term by section 402(f)(2)(A) (or in the case of an annuity contract under section 403(b), a distribution from such contract described in section 402(f)(2)(A)).
Subsec. (d)(2)(B). Pub. L. 107-16, Sec. 641(a)(1)(D)(iii), amended subpar. (B) by striking “or” at the end of clause (ii), by substituting “, or” for the period at the end of clause (iii), and by adding clause (iv).
2000--Subsec. (e)(1)(B). Pub. L. 106-554, 314(b), inserted “(other than a Roth IRA)” after “individual retirement plan in the last sentence.
1996--Subsec. (e)(12). Pub. L. 104-188, 1704(t)(71), substituted “(b)(2)” for “(b)(3)”.
1992—Subsec. (a). Pub. L. 102-318, 521(b)(36), amended subsec. (a) by substituting “Periodic Payments—” for “Pensions, Annuities, Etc.—” in the heading.
Subsec. (b). Pub. L. 102-318, 521(b)(37), amended subsec. (b) by substituting “an amount equal to 10 percent of such distribution” for “the amount determined under paragraph (2)” in par. (1); by striking par. (2), and by redesignating par. (3) as par. (2). Before being struck, par. (2) read as follows:
“(2) Amount of withholding
“(A) Distributions which are not qualified total distributions.—In the case of any nonperiodic distribution which is not a qualified total distribution, the amount withheld under paragraph (1) shall be the amount determined by multiplying such distribution by 10 percent.
“(B) Qualified total distributions.—In the case of any nonperiodic distribution which is a qualified total distribution, the amount withheld under paragraph (1) shall be determined under tables (or other computational procedures) prescribed by the Secretary which are based on the amount of tax which would be imposed on such distribution under section 402(e) if the recipient elected to treat such distribution as a lump-sum distribution (within the meaning of section 402(e)(4)(A)).
“(C) Special rule for distributions by reason of death.—In the case of any nonperiodic distribution from or under any plan or contract described in section 401(a), 403(a), or 403(b)--
“(i) which is made by reason of a participant's death, and
“(ii) with respect to which the requirements of clauses (ii) and (iv) of subsection (d)(4)(A) are met,
“subparagraph (A) or (B) (as the case may be) shall be applied by taking into account the exclusion from gross income provided by section 101(b) (whether or not allowable).”
Subsec. (a)(1). Pub. L. 102-318, 522(b)(2)(A), amended par. (1) by substituting “subsection (e)(2)” for “subsection (d)(2)”.
Subsec. (b)(1). Pub. L. 102-318, 521(b)(2)(B), amended par. (1) by substituting “subsection (e)(3)” for “subsection (d)(3)”.
Subsec. (c)-(e). Pub. L. 102-318, 522(b)(1), redesignated subsec. (c)-(e) as subsec. (d)-(r), respectively and added a new subsec. (c).
Subsec. (d)(1). Pub. L. 102-318, 522(b)(2)(C), amended par. (1) of subsec. (d) (as redesignated) by substituting “subsection (e)(1)” for “subsection (d)(1)”.
Subsec. (d)(4). Pub. L. 102-318, 521(b)(38), repealed par. (4). Before repeal, it read as follows:
“(4) Qualified total distribution
“(A) In general.—The term “qualified total distribution” means any distribution which--
“(i) is a designated distribution,
“(ii) it is reasonable to believe is made within 1 taxable year of the recipient,
“(iii) is made under a plan described in section 401(a), or 403(a), and
“(iv) consists of the balance to the credit of the employee under such plan.
“(B) Special rule for accumulated deductible employee contributions.—For purposes of subparagraph (A), accumulated deductible employee contributions (within the meaning of section 72(o)(5)(B)) shall be treated separately in determining if there has been a qualified total distribution.”
Subsec. (d)(8). Pub. L. 102-318, 521(b)(39), amended par. (8). Before amendment, it read as follows:
“(8) Maximum amount withheld.—The maximum amount to be withheld under this section on any designated distribution shall not exceed the sum of the amount of money and the fair market value of other property (other than employer securities of the employer corporation (within the meaning of section 402(a)(3))) received in the distribution. No amount shall be required to be withheld under this section in the case of any designated distribution which consists only of employer securities of the employer corporation (within the meaning of section 402(a)(3)) and cash (not in excess of $200) in lieu of fractional shares.”
Subsec. (d)(13)(A). Pub. L. 102-318, 521(b)(40), amended subpar. (A) by substituting “(b)(2)” for “(b)(3)”.
1988--Subsec. (d)(13). Pub. L. 100-647, 1012(bb)(2)(C), substituted “United States or its possessions” for “United States" in heading.
Subsec. (d)(13)(A). Pub. L. 100-647, 1012(bb)(2)(A), substituted “the United States and any possession of the United States” for “the United States”.
Subsec. (d)(13)(B)(i). Pub. L. 100-647, 1012(bb)(2)(B), amended cl. (i) generally, substituting “or a resident alien of the United States” for “who is a bona fide resident of a foreign country”.
1986--Subsec. (d)(1)(B). Pub. L. 99-514, 1102(e)(1), inserted last sentence for “For purposes of clause (ii), any distribution or payment from or under an individual retirement plan shall be treated as includible in gross income.”
Subsec. (d)(1)(B)(iii), (iv). Pub. L. 99-514, 1875(c)(10), reenacted cl. (iii) relating to amounts subject to withholding under subchapter A of chapter 3 as cl. (iii) and reenacted cl. (iii) relating to distribution described in section 404(k)(2) as cl. (iv).
Subsec. (d)(13). Pub. L. 99-514, 1234(b)(1), added par. (13).
1984--Subsec. (b)(2)(C). Pub. L. 98-369, 714(j)(1), substituted “nonperiodic distribution” for “distribution described in subparagraph (B)” and “subparagraph (A) or (B) (as the case may be) shall be applied by taking into account” for “the Secretary, in prescribing tables or procedures under paragraph (1), shall take into account”, designated phrase “which is made by reason of a participant's death” as cl. (i) and added cl. (ii).
Subsec. (d)(1)(B)(iii). Pub. L. 98-369, 714(j)(4), added cl. (iii) relating to amounts subject to withholding under subchapter A of chapter 3.
Pub. L. 98-369, 542(c), added cl. (iii) relating to distributions described in section 404(k)(2). Directory language that section (d)(1)(B) be amended by striking out “and” at end of cl. (i) and substituting “,or” for the period at end of cl. (ii) could not be executed in view of prior amendment by section 714(j)(4) of Pub. L. 98-369, which struck out “and” at end of cl. (i) and substituted “, and” for the period at end of cl. (ii).
Subsec. (d)(8). Pub. L. 98-369, 714(j)(5), freed from withholding requirement any designated distribution which consists only of employer securities of the employer corporation (within the meaning of section 402(a)(3)) and cash (not in excess of $200) in lieu of fractional shares.
Subsec. (d)(12). Pub. L. 98-369, 722(h)(4), added par. (12).
EFFECTIVE DATE OF 2017 AMENDMENTS
Sec. 11041(f) of Pub. L. 115-97 provided:
“(f) EFFECTIVE DATE.—
“(1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 2017.
“(2) WAGE WITHHOLDING.—The Secretary of the Treasury may administer section 3402 for taxable years beginning before January 1, 2019, without regard to the amendments made by subsections (a) and (c).”
EFFECTIVE DATE OF 2001 AMENDMENT
Amendment by Sec. 641(a)(1)(D) of Pub. L. 107-16 effective for distributions after December 31, 2001.
Section 901 (Sunset of Provisions of Act) of Pub. L. 107-16, as amended by Pub. L. 107-358, provided that:
“(a) IN GENERAL.--All provisions of, and amendments made by, this Act shall not apply--
“(1) to taxable, plan, or limitation years beginning after December 31, 2010, or
“(2) in the case of title V, to estates of decedents dying, gifts made, or generation skipping transfers, after December 31, 2010.
“(b) APPLICATION OF CERTAIN LAWS.--The Internal Revenue Code of 1986 and the Employee Retirement Income Security Act of 1974 shall be applied and administered to years, estates, gifts, and transfers described in subsection (a) as if the provisions and amendments described in subsection (a) had never been enacted.
“(c) EXCEPTION.-Subsection (a) shall not apply to section 803 (relating to no federal income tax on restitution received by victims of the Nazi regime or their heirs or estates).”
PENSIONS AND INDIVIDUAL RETIREMENT ARRANGEMENT PROVISIONS OF ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF 2001 MADE PERMANENT
Section 811 of Pub. L. 109-280 provided that:
“Title IX of the Economic Growth and Tax Relief Reconciliation Act of 2001 shall not apply to the provisions of, and amendments made by, subtitles A through F of title VI of such Act (relating to pension and individual retirement arrangement provisions).”
EFFECTIVE DATE OF 2000 AMENDMENT
Amendment by Sec. 314(b) of Pub. L. 106-554 effective as if included in the provisions of the Taxpayer Relief Act of 1997 to which it relates [taxable years after 1997].
EFFECTIVE DATE OF 1992 AMENDMENTS
Amendments by Sec. 521(b) and 522(b) of Pub. L. 102-318 effective for distributions after December 31, 1992.
EFFECTIVE DATE OF 1988 AMENDMENT
Section 1012(bb)(2)(D) of Pub. L. 100-647 provided that: “The amendments made by this paragraph [amending this section] shall apply to distributions made after the date of the enactment of this Act [Nov. 10, 1988].”
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1102(e)(1) of Pub. L. 99-514 applicable to contributions and distributions for taxable years beginning after Dec. 31, 1986, see section 1102(g) of Pub. L. 99-514, set out as a note under section 219 of this title.
Section 1234(b)(2) of Pub. L. 99-514 provided that: “The amendment made by this subsection [amending this section] shall apply to payments after December 31, 1986.”
Amendment by section 1875(c)(10) of Pub. L. 99-514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99-514, set out as a note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by section 542(c) of Pub. L. 98-369 applicable to taxable years beginning after July 18, 1984, see section 542(d) of Pub. L. 98-369, set out as a note under section 404 of this title.
Amendment by section 714(j)(1), (4), (5) of Pub. L. 98-369 effective as if included in the provision of the Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-248, to which such amendment relates, see section 715 of Pub. L. 98-369, set out as a note under section 31 of this title.
Amendment by section 722(h)(4)(A) of Pub. L. 98-369 applicable to payments or distributions after Dec. 31, 1984, unless the payor elects to have such amendment apply to payments or distributions before Jan. 1, 1985, see section 722(h)(5)(B) of Pub. L. 98-369, set out as a note under section 643 of this title.
EFFECTIVE DATE
Section 334(e) of Pub. L. 97-248, as amended by Pub. L. 99-514, 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
“(1) Amendment made by subsections (a) and (d).--Except as provided in paragraph (4), the amendment made by subsections (a) [enacting this section] and (d) [amending section 3402 of this title] shall apply to payments or other distributions made after December 31, 1982.
“(2) Amendments made by subsection (b).--Except as provided in paragraph (4), the amendments made by subsection (b) [amending section 6047 of this title] shall take effect on January 1, 1983.
“(3) Amendments made by subsection (c).--The amendments made by subsection (c) [enacting section 6704 of this title] shall take effect on January 1, 1985.
“(4) Periodic payments beginning before January 1, 1983.--For purposes of section 3405(a) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954], in the case of periodic payments beginning before January 1, 1983, the first periodic payment after December 31, 1982, shall be treated as the first such periodic payment.
“(5) Delay in application.--The Secretary of the Treasury shall prescribe such regulations which delay (but not beyond June 30, 1983) the application of some or all of the amendments made by this section with respect to any payor until such time as such payor is able to comply without undue hardship with the requirements of such provisions.
“(6) Waiver of penalty.--No penalty shall be assessed under section 6672 with respect to any failure to withhold as required by the amendments made by this section if such failure was before July 1, 1983, and if the person made a good faith effort to comply with such withholding requirements.”
RELIEF FOR 2016 DISASTER AREAS
Section 11028 of Pub. L. 115-97 provided:
“(a) IN GENERAL.—For purposes of this section, the term ‘‘2016 disaster area’’ means any area 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 during calendar year 2016.
“(b) SPECIAL RULES FOR USE OF RETIREMENT FUNDS WITH RESPECT TO AREAS DAMAGED BY 2016 DISASTERS.—
“(1) TAX-FAVORED WITHDRAWALS FROM RETIREMENT PLANS.—
“(A) IN GENERAL.—Section 72(t) of the Internal Revenue Code of 1986 shall not apply to any qualified 2016 disaster distribution.
“(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 2016 disaster distributions for any taxable year shall not exceed the excess (if any) of—
“(I) $100,000, over
“(II) the aggregate amounts treated as qualified 2016 disaster distributions received by such individual for all prior taxable years.
“(ii) TREATMENT OF PLAN DISTRIBUTIONS.—If a distribution to an individual would (without regard to clause (i)) be a qualified 2016 disaster distribution, a plan shall not be treated as violating any requirement of this title merely because the plan treats such distribution as a qualified 2016 disaster 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 $100,000.
“(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 (o) of section 414 of the Internal Revenue Code of 1986.
“(C) AMOUNT DISTRIBUTED MAY BE REPAID.—
“(i) IN GENERAL.—Any individual who receives a qualified 2016 disaster 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 section 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or 457(e)(16) of the Internal Revenue Code of 1986, as the case may be.
“(ii) TREATMENT OF REPAYMENTS OF DISTRIBUTIONS FROM ELIGIBLE RETIREMENT PLANS OTHER THAN IRAS.— For purposes of the Internal Revenue Code of 1986, if a contribution is made pursuant to clause (i) with respect to a qualified 2016 disaster distribution from an 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 the qualified 2016 disaster distribution in an eligible rollover distribution (as defined in section 402(c)(4) of the Internal Revenue Code of 1986) 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 the Internal Revenue Code of 1986, if a contribution is made pursuant to clause (i) with respect to a qualified 2016 disaster distribution from an individual retirement plan (as defined by section 7701(a)(37) of the Internal Revenue Code of 1986), then, to the extent of the amount of the contribution, the qualified 2016 disaster distribution shall be treated as a distribution described in section 408(d)(3) of such Code and as having been transferred to the eligible retirement plan in a direct trustee to trustee transfer within 60 days of the distribution.
“(D) DEFINITIONS.—For purposes of this paragraph—
“(i) QUALIFIED 2016 DISASTER DISTRIBUTION.—Except as provided in subparagraph (B), the term ‘‘qualified 2016 disaster distribution’’ means any distribution from an eligible retirement plan made on or after January 1, 2016, and before January 1, 2018, to an individual whose principal place of abode at any time during calendar year 2016 was located in a disaster area described in subsection (a) and who has sustained an economic loss by reason of the events giving rise to the Presidential declaration described in subsection (a) which was applicable to such area.
“(ii) ELIGIBLE RETIREMENT PLAN.—The term ‘eligible retirement plan’ shall have the meaning given such term by section 402(c)(8)(B) of the Internal Revenue Code of 1986.
“(E) INCOME INCLUSION SPREAD OVER 3-YEAR PERIOD.—
“(i) IN GENERAL.—In the case of any qualified 2016 disaster 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 section 408A(d)(3) of the Internal Revenue Code of 1986 shall apply.
“(F) 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 of the Internal Revenue Code of 1986, qualified 2016 disaster distribution shall not be treated as eligible rollover distributions.
“(ii) QUALIFIED 2016 DISASTER DISTRIBUTIONS TREATED AS MEETING PLAN DISTRIBUTION REQUIREMENTS.—For purposes of the Internal Revenue Code of 1986, a qualified 2016 disaster distribution shall be treated as meeting the requirements of sections 401(k)(2)(B)(i), 403(b)(7)(A)(ii), 403(b)(11), and 457(d)(1)(A) of the Internal Revenue Code of 1986.
“(2) PROVISIONS RELATING TO PLAN AMENDMENTS.—
“(A) IN GENERAL.—If this paragraph applies to any amendment to any plan or annuity contract, such plan or contract shall be treated as being operated in accordance with the terms of the plan during the period described in subparagraph (B)(ii)(I).
“(B) AMENDMENTS TO WHICH SUBSECTION APPLIES.—
“(i) IN GENERAL.—This paragraph shall apply to any amendment to any plan or annuity contract which is made—
“(I) pursuant to any provision of this section, or pursuant to any regulation under any provision of this section, and
“(II) on or before the last day of the first plan year beginning on or after January 1, 2018, or such later date as the Secretary prescribes. In the case of a governmental plan (as defined in section 414(d) of the Internal Revenue Code of 1986), subclause (II) shall be applied by substituting the date which is 2 years after the date otherwise applied under subclause (II).
“(ii) CONDITIONS.—This paragraph shall not apply to any amendment to a plan or contract unless such amendment applies retroactively for such period, and shall not apply to any such amendment unless the plan or contract is operated as if such amendment were in effect during the period—
“(I) beginning on the date that this section or the regulation described in clause (i)(I) takes effect (or in the case of a plan or contract amendment not required by this section or such regulation, the effective date specified by the plan), and
“(II) ending on the date described in clause (i)(II) (or, if earlier, the date the plan or contract amendment is adopted).
“(c) SPECIAL RULES FOR PERSONAL CASUALTY LOSSES RELATED TO 2016 MAJOR DISASTER.—
“(1) IN GENERAL.—If an individual has a net disaster loss for any taxable year beginning after December 31, 2015, and before January 1, 2018—
“(A) the amount determined under section 165(h)(2)(A)(ii) of the Internal Revenue Code of 1986 shall be equal to the sum of—
“(i) such net disaster loss, and
“(ii) so much of the excess referred to in the matter preceding clause (i) of section 165(h)(2)(A) of such Code (reduced by the amount in clause (i) of this subparagraph) as exceeds 10 percent of the adjusted gross income of the individual,
“(B) section 165(h)(1) of such Code shall be applied by substituting ‘$500’ for ‘$500 ($100 for taxable years beginning after December 31, 2009)’,
“(C) the standard deduction determined under section 63(c) of such Code shall be increased by the net disaster loss,
“(D) section 56(b)(1)(E) of such Code shall not apply to so much of the standard deduction as is attributable to the increase under subparagraph (C) of this paragraph.
“(2) NET DISASTER LOSS.—For purposes of this subsection, the term ‘‘net disaster loss’’ means the excess of qualified disaster-related personal casualty losses over personal casualty gains (as defined in section 165(h)(3)(A) of the Internal Revenue Code of 1986).
“(3) QUALIFIED DISASTER-RELATED PERSONAL CASUALTY LOSSES.—For purposes of this paragraph, the term ‘qualified disaster-related personal casualty losses’‘ means losses described in section 165(c)(3) of the Internal Revenue Code of 1986 which arise in a disaster area described in subsection (a) on or after January 1, 2016, and which are attributable to the events giving rise to the Presidential declaration described in subsection (a) which was applicable to such area.”
EXEMPTION OF DISTRIBUTIONS FROM TRUSTEE TO TRUSTEE TRANSFER AND WITH HOLDING RULES
Section 502(a) of Pub. L. 115-63 provided:
“ (1) IN GENERAL .--Section 72(t) of the Internal Revenue Code of 1986 shall not apply to any qualified hurricane distribution.
“ (2) AGGREGATE DOLLAR LIMITATION.--
“(A) IN GENERAL. --For purposes of this subsection, the aggregate amount of distributions received by an individual which may be treated as qualified hurricane distributions for any taxable year shall not exceed the excess (if any) of--
“(i) $100,000, over
“(ii) the aggregate amounts treated as qualified hurricane distributions received by such individual for all prior taxable years.
“(B) TREATMENT OF PLAN DISTRIBUTIONS.--If a distribution to an individual would (without regard to subparagraph (A)) be a qualified hurricane distribution, a plan shall not be treated as violating any requirement of the Internal Revenue Code of 1986 merely because the plan treats such distribution as a qualified hurricane 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 $100,000.
“(C) CONTROLLED GROUP.--For purposes of subparagraph (B), the term “controlled group” means any group treated as a single employer under subsection (b), (c), (m), or (o) of section 414 of the Internal Revenue Code of 1986.
“(3) AMOUNT DISTRIBUTED MAY BE REPAID.--
“(A) IN GENERAL.--Any individual who receives a qualified hurricane 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 section 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or 457(e)(16), of the Internal Revenue Code of 1986, as the case may be.
“ (B) TREATMENT OF REPAYMENTS OF DISTRIBUTIONS FROM ELIGIBLE RETIREMENT PLANS OTHER THAN IRAS.--For purposes of the Internal Revenue Code of 1986, if a contribution is made pursuant to subparagraph (A) with respect to a qualified hurricane distribution from an 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 the qualified hurricane distribution in an eligible rollover distribution (as defined in section 402(c)(4) of such Code) and as having transferred the amount to the eligible retirement plan in a direct trustee to trustee transfer within 60 days of the distribution. (C) Treatment of repayments for distributions from iras.--For purposes of the Internal Revenue Code of 1986, if a contribution is made pursuant to subparagraph (A) with respect to a qualified hurricane distribution from an individual retirement plan (as defined by section 7701(a)(37) of such Code), then, to the extent of the amount of the contribution, the qualified hurricane distribution shall be treated as a distribution described in section 408(d)(3) of such Code and as having been transferred to the eligible retirement plan in a direct trustee to trustee transfer within 60 days of the distribution.
“(4) DEFINITIONS.--For purposes of this subsection--
“(A) QUALIFIED HURRICANE DISTRIBUTION.--Except as provided in paragraph (2), the term “qualified hurricane distribution” means--
“(i) any distribution from an eligible retirement plan made on or after August 23, 2017, and before January 1, 2019, to an individual whose principal place of abode on August 23, 2017, is located in the Hurricane Harvey disaster area and who has sustained an economic loss by reason of Hurricane Harvey,
“(ii) any distribution (which is not described in clause (i)) from an eligible retirement plan made on or after September 4, 2017, and before January 1, 2019, to an individual whose principal place of abode on September 4, 2017, is located in the Hurricane Irma disaster area and who has sustained an economic loss by reason of Hurricane Irma, and
“(iii) any distribution (which is not described in clause (i) or (ii)) from an eligible retirement plan made on or after September 16, 2017, and before January 1, 2019, to an individual whose principal place of abode on September 16, 2017, is located in the Hurricane Maria disaster area and who has sustained an economic loss by reason of Hurricane Maria.
“(B) ELIGIBLE RETIREMENT PLAN.--The term “eligible retirement plan” shall have the meaning given such term by section 402(c)(8)(B) of the Internal Revenue Code of 1986.
“(5) INCOME INCLUSION SPREAD OVER 3-YEAR PERIOD.--
“(A) IN GENERAL.--In the case of any qualified hurricane distribution, unless the taxpayer elects not to have this paragraph 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.
“(B) SPECIAL RULE.--For purposes of subparagraph (A), rules similar to the rules of subparagraph (E) of section 408A(d)(3) of the Internal Revenue Code of 1986 shall apply. (6) Special rules.--
“(A) EXEMPTION OF DISTRIBUTIONS FROM TRUSTEE TO TRUSTEE TRANSFER AND WITHHOLDING RULES.--For purposes of sections 401(a)(31), 402(f), and 3405 of the Internal Revenue Code of 1986, qualified hurricane distributions shall not be treated as eligible rollover distributions.
“(B) QUALIFIED HURRICANE DISTRIBUTIONS TREATED AS MEETING PLAN DISTRIBUTION REQUIREMENTS.--For purposes the Internal Revenue Code of 1986, a qualified hurricane distribution shall be treated as meeting the requirements of sections 401(k)(2)(B)(i), 403(b)(7)(A)(ii), 403(b)(11), and 457(d)(1)(A) of such Code.
“(b) RECONTRIBUTIONS OF WITHDRAWALS FOR HOME PURCHASES.--
“(1) RECONTRIBUTIONS.--
“(A) IN GENERAL.--Any individual who received a qualified distribution may, during the period beginning on August 23, 2017, and ending on February 28, 2018, 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 section 402(c)(8)(B) of the Internal Revenue Code of 1986) of which such individual is a beneficiary and to which a rollover contribution of such distribution could be made under section 402(c), 403(a)(4), 403(b)(8), or 408(d)(3), of such Code, as the case may be.
“(B) TREATMENT OF REPAYMENTS.--Rules similar to the rules of subparagraphs (B) and (C) of subsection (a)(3) shall apply for purposes of this subsection.
“(2) QUALIFIED DISTRIBUTION.--For purposes of this subsection, the term “qualified distribution” means any distribution--
“(A) described in section 401(k)(2)(B)(i)(IV), 403(b)(7)(A)(ii) (but only to the extent such distribution relates to financial hardship), 403(b)(11)(B), or 72(t)(2)(F), of the Internal Revenue Code of 1986,
“(B) received after February 28, 2017, and before September 21, 2017, and
“(C) which was to be used to purchase or construct a principal residence in the Hurricane Harvey disaster area, the Hurricane Irma disaster area, or the Hurricane Maria disaster area, but which was not so purchased or constructed on account of Hurricane Harvey, Hurricane Irma, or Hurricane Maria.”
SPECIAL RULES
Section 101(f)(1) of Pub. L. 109-73, before repeal by Pub. L. 109-135, Sec. 201(b)(4) (effective Dec. 21, 2005), provided that:
“(1) EXEMPTION OF DISTRIBUTIONS FROM TRUSTEE TO TRUSTEE TRANSFER AND WITHHOLDING RULES.--For purposes of sections 401(a)(31), 402(f), and 3405 of such Code, qualified Hurricane Katrina distributions shall not be treated as eligible rollover distributions.”
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by section 1102(e)(1) of Pub. L. 99-514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99-514, set out as a note under section 401 of this title.