Page 317

TITLE 26-INTERNAL REVENUE CODE EFFECTIVE DATE Section applicable to taxable years ending after Dec. 31, 1963, see section 220(d) of Pub. L. 88-272, set out as an Effective Date note under section 406 of this title. § 408. Individual retirement accounts (a) Individual retirement account For purposes of this section, the term "indi- vidual retirement account" means a trust cre- ated or organized in the United States for the exclusive benefit of an individual or his benefi- ciaries, but only if the written governing instru- ment creating the trust meets the following re- quirements: (1) Except in the case of a rollover contribu- tion described in subsection (d)(3) in section 402(a)(5), 403(a)(4), or 409(b)(3)(C), no contri- bution will be accepted unless it is in cash, and contributions will not be accepted for the taxable year in excess of $1,500 on behalf of any individual. (2) The trustee is a bank (as defined in sec- tion 401(d)(1)) or such other person who dem- onstrates to the satisfaction of the Secretary that the manner in which such other person will administer the trust will be consistent with the requirements of this section. (3) No part of the trust funds will be invest- ed in life insurance contracts. (4) The interest of an individual in the bal- ance in his account is nonforfeitable. (5) The assets of the trust will not be com- mingled with other property except in a common trust fund or common investment fund. (6) The entire interest of an individual for whose benefit the trust is maintained will be distributed to him not later than the close of his taxable year in which he attains age 70V2, or will be distributed, commencing before the close of such taxable year, in accordance with regulations prescribed by the Secretary, over- (A) the life of such individual or the lives of such individual and his spouse, or (B) a period not extending beyond the life expectancy of such individual or the life ex- pectancy of such individual and his spouse. (7) If an individual for whose benefit the trust is maintained dies before his entire in- terest has been distributed to him, or if distri- bution has been commenced as provided in paragraph (6) to his surviving spouse and such surviving spouse dies before the entire interest has been distributed to such spouse, the entire interest (or the remaining part of such interest if distribution thereof has com- menced) will, within 5 years after his death (or the death of the surviving spouse), be dis- tributed, or applied to the purchase of an im- mediate annuity for his beneficiary or benefi- ciaries (or the beneficiary or beneficiaries of his surviving spouse) which will be payable for the life of such beneficiary or beneficia- ries (or for a term certain not extending beyond the life expectancy of such beneficia- ry or beneficiaries) and which annuity will be immediately distributed to such beneficiary or beneficiaries. The preceding sentence does not apply if distributions over a term certain commenced before the death of the individ- ual for whose benefit the trust was main- tained and the term certain is for a period permitted under paragraph (6). (b) Individual retirement annuity For purposes of this section, the term "indi- vidual retirement annuity" means an annuity contract, or an endowment contract (as deter- mined under regulations prescribed by the Sec- retary), issued by an insurance company which meets the following requirements: (1) The contract is not transferable by the owner. (2) The annual premium under the contract will not exceed $1,500 and any refund of pre- miums will be applied before the close of the calendar year following the year of the refund toward the payment of future premi- ums or the purchase of additional benefits. (3) The entire interest of the owner will be distributed to him not later than the close of his taxable year in which he attains age 70 2, or will be distributed, in accordance with reg- ulations prescribed by the Secretary, over- (A) the life of such owner or the lives of such owner and his spouse, or (B) a period not extending beyond the life expectancy of such owner or the life expec- tancy of such owner and his spouse. (4) If the owner dies before his entire inter- est has been distributed to him, or if distribu- tion has been commenced as provided in para- graph (3) to his surviving spouse and such surviving spouse dies before the entire inter- est has been distributed to such spouse, the entire interest (or the remaining part of such interest if distribution thereof has com- menced) will, within 5 years after his death (or the death of the surviving spouse), be dis- tributed, or applied to the purchase of an im- mediate annuity for his beneficiary or benefi- ciaries (or the beneficiary or beneficiaries of his surviving spouse) which will be payable for the life of such beneficiary or beneficia- ries (or for a term certain not extending beyond the life expectancy of such beneficia- ry or beneficiaries) and which annuity will be immediately distributed to such beneficiary or beneficiaries. The preceding sentence shall have no application if distributions over a term certain commenced before the death of the owner and the term certain is for a period permitted under paragraph (3). (5) The entire interest of the owner is non- forfeitable. Such term does not include such an annuity contract for any taxable year of the owner in which it is disqualified on the application of subsection (e) or for any subsequent taxable year. For purposes of this subsection, no con- tract shall be treated as an endowment contract if it matures later than the taxable year in which the individual in whose name such con- tract is purchased attains age 70/2; if it is not for the exclusive benefit of the individual in whose name it is purchased or his beneficiaries; or if the aggregate annual premiums under all such contracts purchased in the name of such individual for any taxable year exceed $1,500. Page 317/ § 408