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Deemed IRAs in Qualified Retirement Plans

Q: I have had several 403(b) participants who have separated from service who want to continue making contributions to their 403(b). What are the voluntary employee contributions, and how might they apply to active participants and to those who are no longer eligible for SRAs? Specifically, can a retired 403(b) participant who is eligible to make a maximum IRA contribution for 2016 make a $6,000 premium payment into her/his 403(b)?

A: Yes, contributions for deemed IRAs to 403(b) plans are permitted (due to EGTRRA passed in 2001); however, only if the plan document permits this optional feature. Because I don't believe many plans permit these contributions, you will want to first check with the employer on whether it adopted this feature. Following is some information on deemed IRAs.

TCRS 2004-06: A Summary of the Final Rules on Deemed IRAs in Qualified Retirement Plans

The IRS issued final regulations relating to deemed individual retirement accounts (Deemed IRAs) for tax qualified retirement plans under Internal Revenue Code (Code) Section 408(q). At the same time, the IRS issued proposed and temporary rules for governmental units to qualify as non-bank trustees for Deemed IRAs. The final regulations were originally proposed in May 2003, and apply to Deemed IRAs established on and after August 1, 2003.


The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) added Deemed IRA provisions to the Code effective for plan years beginning after Dec. 31, 2002. Under the Deemed IRA rules, employers, rather than employees, assume the burden of setting up the IRAs. Deemed IRA contributions are not included in contribution limits applicable to qualified employer plans.

Deemed IRAs are subject to ERISA’s exclusive benefit and fiduciary rules, but are not subject to its qualified plan reporting and disclosure, participation, vesting and funding requirements.

Highlights of Key Provisions

  • Deemed IRAs can be established under Code Sections 401(a), 403(a), 403(b) or governmental 457 plans.

  • A Deemed IRA is a separate entity from the qualified employer plan and, therefore, each would be subject to its own rules.

  • A Deemed IRA may be an individual retirement account or an individual retirement annuity.

  • A plan sponsor must make an affirmative election in its adoption agreement to adopt the Deemed IRA feature.

  • Deemed IRA contributions may be held in a trust separate from the trust holding assets of the qualified plan or in the same trust holding qualified plan assets, provided a separate account is maintained for each Deemed IRA. If the assets of the Deemed IRAs and the assets of the qualified employer plan are held in separate trusts, then a qualification failure of the Deemed IRA portion of the plan will not cause the qualified employer plan portion to be automatically disqualified. The reverse is also true; a qualification failure of the qualified employer plan portion will not cause the Deemed IRA portion of the plan to be automatically disqualified.

  • Deemed IRA assets may not be invested in life insurance contracts.

  • Because a Deemed IRA can be either a Roth IRA or a traditional IRA, the qualified employer plan must allow after-tax employee contributions.

  • Deemed IRA contributions must be designated as such on or before the time contributions are made.

  • A transitional rule allowed plans to operate during 2003 without Deemed IRA provisions, provided such provisions were adopted by the end of the 2003 plan year. However, in 2004, the plan document of the qualified employer plan must contain Deemed IRA provisions and a Deemed IRA must be in effect at the time Deemed IRA contributions are accepted.

  • IRA provisions that satisfy Code Section 408 (traditional IRA) or Code Section 408(A) (Roth IRA) must be in the plan document. Incorporation of these provisions by reference is not permitted. A sample plan amendment for Deemed IRAs is in Revenue Procedure 2003-13.

  • When a single trust is used, there can only be one trustee for both the qualified employer plan and Deemed IRAs.

  • The Pension Benefit Guaranty Corporation (PBGC) as advised IRS and Treasury that Deemed IRAs and Deemed IRA assets will not be covered by Title IV of ERISA.

  • If a qualified employer plan subject to Title IV is terminated the fiduciary of the Deemed IRAs will continue to be responsible for the operation, transfer and termination of the Deemed IRAs.