Deemed IRAs

Q. What are some of the features and distinctions of a deemed IRA?

A. With a deemed IRA: 

• Contributions can be made to a qualified plan, 403(b), or governmental 457(b) under the same rules that apply to traditional or Roth IRAs, as long as the employer allows it.
• The employer must keep separate account records and report in the same way that it does IRAs [Forms 1099-R (separate) and 5498].
• SEP or SIMPLE contributions cannot be made, effective in 2003 under EGTRAA and IRS guidance in Revenue Procedure 2003-13 and Treas. Reg. §1.408(q)-1.
• A separate trust is not required but separate accounting is required for deemed IRA portion, with the traditional and Roth accounts maintained separately.
• The trustee must be a bank.
• Governmental entities may become IRS-approved non-bank trustees for their own 457 and QP plans. 
• Disqualification issues may not spill into the IRA portion or the plan portion if separate trusts are maintained.
• Each portion may have different eligibility.
• It is treated as a separate entity from other parts of plan for purposes of Code Sections 401(a)(9) and 72(t) and ERISA protection. 
• IRA rules apply to the deemed IRA portion, and 403(b) rules apply to the other sources of monies.
• Deemed IRAs can help prevent leakage if employees can roll over the funds after separation from service into a deemed IRA. 
• Deemed IRAs can be used as an IRA for missing participants.