26 U.S.C. § 402A — Optional treatment of elective deferrals

Page 1262 TITLE 26—INTERNAL REVENUE CODE § 402A section and the applicable provisions of section 402(a)(5) or 403(a)(4) of such Code.’’ § 402A. Optional treatment of elective deferrals as Roth contributions (a) General rule If an applicable retirement plan includes a qualified Roth contribution program— (1) any designated Roth contribution made by an employee pursuant to the program shall be treated as an elective deferral for purposes of this chapter, except that such contribution shall not be excludable from gross income, (2) any designated Roth contribution which pursuant to the program is made by the em- ployer on the employee’s behalf on account of the employee’s contribution, elective deferral, or (subject to the requirements of section 401(m)(13)) qualified student loan payment shall be treated as a matching contribution for purposes of this chapter, except that such contribution shall not be excludable from gross income, (3) any designated Roth contribution which pursuant to the program is made by the em- ployer on the employee’s behalf and which is a nonelective contribution shall be nonforfeit- able and shall not be excludable from gross in- come, and (4) such plan (and any arrangement which is part of such plan) shall not be treated as fail- ing to meet any requirement of this chapter solely by reason of including such program. (b) Qualified Roth contribution program For purposes of this section— (1) In general The term ‘‘qualified Roth contribution pro- gram’’ means a program under which an em- ployee may elect to make, or to have made on the employee’s behalf, designated Roth con- tributions in lieu of all or a portion of elective deferrals the employee is otherwise eligible to make, or of matching contributions or non- elective contributions which may otherwise be made on the employee’s behalf, under the ap- plicable retirement plan. (2) Separate accounting required A program shall not be treated as a qualified Roth contribution program unless the applica- ble retirement plan— (A) establishes separate accounts (‘‘des- ignated Roth accounts’’) for the designated Roth contributions of each employee and any earnings properly allocable to the con- tributions, and (B) maintains separate recordkeeping with respect to each account. (c) Definitions and rules relating to designated Roth contributions For purposes of this section— (1) Designated Roth contribution The term ‘‘designated Roth contribution’’ means any elective deferral, matching con- tribution, or nonelective contribution which— (A) is excludable from gross income of an employee without regard to this section, and (B) the employee designates (at such time and in such manner as the Secretary may prescribe) as not being so excludable. (2) Designation limits The amount of elective deferrals which an employee may designate under paragraph (1) shall not exceed the excess (if any) of— (A) the maximum amount of elective de- ferrals excludable from gross income of the employee for the taxable year (without re- gard to this section), over (B) the aggregate amount of elective defer- rals of the employee for the taxable year which the employee does not designate under paragraph (1). (3) Rollover contributions (A) In general A rollover contribution of any payment or distribution from a designated Roth account which is otherwise allowable under this chapter may be made only if the contribu- tion is to— (i) another designated Roth account of the individual from whose account the payment or distribution was made, or (ii) a Roth IRA of such individual. (B) Coordination with limit Any rollover contribution to a designated Roth account under subparagraph (A) shall not be taken into account for purposes of paragraph (1). (4) Taxable rollovers to designated Roth ac- counts (A) In general Notwithstanding sections 402(c), 403(b)(8), and 457(e)(16), in the case of any distribution to which this paragraph applies— (i) there shall be included in gross in- come any amount which would be includ- ible were it not part of a qualified rollover contribution, (ii) section 72(t) shall not apply, and (iii) unless the taxpayer elects not to have this clause apply, any amount re- quired to be included in gross income for any taxable year beginning in 2010 by rea- son of this paragraph shall be so included ratably over the 2-taxable-year period be- ginning with the first taxable year begin- ning in 2011. Any election under clause (iii) for any dis- tributions during a taxable year may not be changed after the due date for such taxable year. (B) Distributions to which paragraph applies In the case of an applicable retirement plan which includes a qualified Roth con- tribution program, this paragraph shall apply to a distribution from such plan other than from a designated Roth account which is contributed in a qualified rollover con- tribution (within the meaning of section 408A(e)) to the designated Roth account maintained under such plan for the benefit of the individual to whom the distribution is made. (C) Coordination with limit Any distribution to which this paragraph applies shall not be taken into account for purposes of paragraph (1). Page 1263 TITLE 26—INTERNAL REVENUE CODE § 402A 1 See References in Text note below. (D) Other rules The rules of subparagraphs (D), (E), and (F) of section 408A(d)(3) (as in effect for tax- able years beginning after 2009) shall apply for purposes of this paragraph. (E) Special rule for certain transfers In the case of an applicable retirement plan which includes a qualified Roth con- tribution program— (i) the plan may allow an individual to elect to have the plan transfer any amount not otherwise distributable under the plan to a designated Roth account maintained for the benefit of the individual, (ii) such transfer shall be treated as a distribution to which this paragraph ap- plies which was contributed in a qualified rollover contribution (within the meaning of section 408A(e)) to such account, and (iii) the plan shall not be treated as vio- lating the provisions of section 401(k)(2)(B)(i), 403(b)(7)(A)(ii),1 403(b)(11), or 457(d)(1)(A), or of section 8433 of title 5, United States Code, solely by reason of such transfer. (d) Distribution rules For purposes of this title— (1) Exclusion Any qualified distribution from a designated Roth account shall not be includible in gross income. (2) Qualified distribution For purposes of this subsection— (A) In general The term ‘‘qualified distribution’’ has the meaning given such term by section 408A(d)(2)(A) (without regard to clause (iv) thereof). (B) Distributions within nonexclusion period A payment or distribution from a des- ignated Roth account shall not be treated as a qualified distribution if such payment or distribution is made within the 5-taxable- year period beginning with the earlier of— (i) the first taxable year for which the individual made a designated Roth con- tribution to any designated Roth account established for such individual under the same applicable retirement plan, or (ii) if a rollover contribution was made to such designated Roth account from a designated Roth account previously estab- lished for such individual under another applicable retirement plan, the first tax- able year for which the individual made a designated Roth contribution to such pre- viously established account. (C) Distributions of excess deferrals and con- tributions and earnings thereon The term ‘‘qualified distribution’’ shall not include any distribution of any excess deferral under section 402(g)(2) or any excess contribution under section 401(k)(8), and any income on the excess deferral or contribu- tion. (3) Treatment of distributions of certain excess deferrals Notwithstanding section 72, if any excess de- ferral under section 402(g)(2) attributable to a designated Roth contribution is not distrib- uted on or before the 1st April 15 following the close of the taxable year in which such excess deferral is made, the amount of such excess deferral shall— (A) not be treated as investment in the contract, and (B) be included in gross income for the tax- able year in which such excess is distributed. (4) Aggregation rules Section 72 shall be applied separately with respect to distributions and payments from a designated Roth account and other distribu- tions and payments from the plan. (5) Mandatory distribution rules not to apply before death Notwithstanding sections 403(b)(10) and 457(d)(2), the following provisions shall not apply to any designated Roth account: (A) Section 401(a)(9)(A). (B) The incidental death benefit require- ments of section 401(a). (e) Pension-linked emergency savings accounts (1) In general An applicable retirement plan— (A) may— (i) include a pension-linked emergency savings account established pursuant to section 801 of the Employee Retirement In- come Security Act of 1974, which, except as otherwise provided in this subsection, shall be treated for purposes of this title as a designated Roth account, and (ii) either— (I) offer to enroll an eligible partici- pant in such pension-linked emergency savings account, or (II) automatically enroll an eligible participant in such account pursuant to an automatic contribution arrangement described in paragraph (4), and (B) shall— (i) separately account for contributions to such account and any earnings properly allocable to the contributions, (ii) maintain separate recordkeeping with respect to each such account, and (iii) allow withdrawals from such ac- count in accordance with paragraph (7). (2) Eligible participant (A) In general For purposes of this subsection, the term ‘‘eligible participant’’, with regard to a de- fined contribution plan, means an indi- vidual, without regard to whether the indi- vidual is otherwise a participant in such plan, who— (i) meets any age, service, and other eli- gibility requirements of the plan, and (ii) is not a highly compensated em- ployee (as defined in section 414(q)). (B) Eligible participant who becomes a high- ly compensated employee Notwithstanding subparagraph (A)(ii), an individual on whose behalf a pension-linked Page 1264 TITLE 26—INTERNAL REVENUE CODE § 402A emergency savings account is established who thereafter becomes a highly com- pensated employee (as so defined) may not make further contributions to such account, but retains the right to withdraw any ac- count balance of such account in accordance with paragraphs (7) and (8). (3) Contribution limitation (A) In general Subject to subparagraph (B), no contribu- tion shall be accepted to a pension-linked emergency savings account to the extent such contribution would cause the portion of the account balance attributable to partici- pant contributions to exceed the lesser of— (i) $2,500; or (ii) an amount determined by the plan sponsor of the pension-linked emergency savings account. In the case of contributions made in taxable years beginning after December 31, 2024, the Secretary shall adjust the amount under clause (i) at the same time and in the same manner as the adjustment made under sec- tion 415(d), except that the base period shall be the calendar quarter beginning July 1, 2023. Any increase under the preceding sen- tence which is not a multiple of $100 shall be rounded to the next lowest multiple of $100. (B) Excess contributions To the extent any contribution to the pen- sion-linked emergency savings account of a participant for a taxable year would exceed the limitation of subparagraph (A)— (i) in the case of an eligible participant with another designated Roth account under the defined contribution plan, the plan may provide that— (I) the participant may elect to in- crease the participant’s contribution to such other account, and (II) in the absence of such a participant election, the participant is deemed to have elected to increase the partici- pant’s contributions to such account at the rate at which contributions were being made to the pension-linked emer- gency savings account, and (ii) in any other case, such plan shall provide that such excess contributions will not be accepted. (4) Automatic contribution arrangement For purposes of this section— (A) In general An automatic contribution arrangement described in this paragraph is an arrange- ment under which an eligible participant is treated as having elected to have the plan sponsor make elective contributions to a pension-linked emergency savings account at a participant contribution rate that is not more than 3 percent of the compensation of the eligible participant, unless the eligible participant, at any time (subject to such reasonable advance notice as is required by the plan administrator), affirmatively elects to— (i) make contributions at a different rate, or (ii) opt out of such contributions. (B) Participant contribution rate For purposes of an automatic contribution arrangement described in subparagraph (A), the plan sponsor— (i) shall select a participant contribution rate under such automatic contribution arrangement which meets the require- ments of subparagraph (A), and (ii) may amend such rate (prior to the plan year for which such amendment would take effect) not more than once an- nually. (5) Disclosure by plan sponsor (A) In general With respect to a defined contribution plan which includes a pension-linked emer- gency savings account, the administrator of the plan shall, not less than 30 days and not more than 90 days prior to the date of the first contribution to the pension-linked emergency savings account, including any contribution under an automatic contribu- tion arrangement described in section 801(d)(2) of the Employee Retirement Income Security Act of 1974, or the date of any ad- justment to the participant contribution rate under section 801(d)(2)(B)(ii) of such Act, and not less than annually thereafter, shall furnish to the participant a notice de- scribing— (i) the purpose of the account, which is for short-term, emergency savings; (ii) the limits on, and tax treatment of, contributions to the pension-linked emer- gency savings account of the participant; (iii) any fees, expenses, restrictions, or charges associated with such pension- linked emergency savings account; (iv) procedures for electing to make con- tributions or opting out of the pension- linked emergency savings account, chang- ing participant contribution rates for such account, and making participant with- drawals from such pension-linked emer- gency savings account, including any lim- its on frequency; (v) the amount of the intended contribu- tion or the change in the percentage of the compensation of the participant of such contribution, if applicable; (vi) the amount in the pension-linked emergency savings account and the amount or percentage of compensation that a participant has contributed to such account; (vii) the designated investment option under section 801(c)(1)(A)(iii) of the Em- ployee Retirement Income Security Act of 1974 for amounts contributed to the pen- sion-linked emergency savings account; (viii) the options under section 801(e) of such Act for the account balance of the pension-linked emergency savings account after termination of the employment of the participant; and (ix) the ability of a participant who be- comes a highly compensated employee (as Page 1265 TITLE 26—INTERNAL REVENUE CODE § 402A such term is defined in section 414(q)) to, as described in section 801(b)(2) of the Em- ployee Retirement Income Security Act of 1974, withdraw any account balance from a pension-linked emergency savings account and the restriction on the ability of such a participant to make further contributions to the pension-linked emergency savings account. (B) Notice requirements A notice furnished to a participant under subparagraph (A) shall be— (i) sufficiently accurate and comprehen- sive to apprise the participant of the rights and obligations of the participant with regard to the pension-linked emer- gency savings account of the participant; and (ii) written in a manner calculated to be understood by the average participant. (C) Consolidated notices The required notices under subparagraph (A) may be included with any other notice under the Employee Retirement Income Se- curity Act of 1974, including under section 404(c)(5)(B) or 514(e)(3) of such Act, or under section 401(k)(13)(E) or 414(w)(4), if such other notice is provided to the participant at the time required for such notice. (6) Employer matching contributions to a de- fined contribution plan for employee con- tributions to a pension-linked emergency savings account (A) In general If an employer makes any matching con- tributions to a defined contribution plan of which a pension-linked emergency savings account is part, subject to the limitations of paragraph (3), the employer shall make matching contributions on behalf of an eligi- ble participant on account of the partici- pant’s contributions to the pension-linked emergency savings account at the same rate as any other matching contribution on ac- count of an elective contribution by such participant. The matching contributions shall be made to the participant’s account under the defined contribution plan which is not the pension-linked emergency savings account. Such matching contributions on account of contributions to the pension- linked emergency savings account shall not exceed the maximum account balance under paragraph (3)(A) for such plan year. (B) Coordination rule For purposes of any applicable limitation on matching contributions, any matching contributions made under the plan shall be treated first as attributable to the elective deferrals of the participant other than con- tributions to a pension-linked emergency savings account. (C) Matching contributions For purposes of subparagraph (A), the term ‘‘matching contribution’’ has the meaning given such term in section 401(m)(4). (7) Distributions (A) In general A pension-linked emergency savings ac- count shall allow for withdrawal by the par- ticipant on whose behalf the account is es- tablished of the account balance, in whole or in part at the discretion of the participant, at least once per calendar month and for dis- tribution of such withdrawal to the partici- pant as soon as practicable after the date on which the participant elects to make such withdrawal. (B) Treatment of distributions Any distribution from a pension-linked emergency savings account in accordance with subparagraph (A)— (i) shall be treated as a qualified dis- tribution for purposes of subsection (d), and (ii) shall be treated as meeting the re- quirements of sections 401(k)(2)(B)(i), 403(b)(7)(A)(i), 403(b)(11), and 457(d)(1)(A). (8) Account balance after termination (A) In general Upon termination of employment of the participant, or termination by the plan sponsor of the pension-linked emergency savings account, the pension-linked emer- gency savings account of such participant in a defined contribution plan shall— (i) allow, at the election of the partici- pant, for transfer by the participant of the account balance of such account, in whole or in part, into another designated Roth account of the participant under the de- fined contribution plan; and (ii) for any amounts in such account not transferred under paragraph (1), make such amounts available within a reasonable time to the participant. (B) Prohibition of certain transfers No amounts shall be transferred by the participant from another account of the par- ticipant under any plan of the employer into the pension-linked emergency savings ac- count of the participant. (C) Coordination with section 72 Subparagraph (F) of section 408A(d)(3) shall not apply (including by reason of sub- section (c)(4)(D) of this section) to any roll- over contribution of amounts in a pension- linked emergency savings account under subparagraph (A). (9) Coordination with distribution of excess de- ferrals If any excess deferrals are distributed under section 402(g)(2)(A) to a participant, such amounts shall be distributed first from any pension-linked emergency savings account of the participant to the extent contributions were made to such account for the taxable year. (10) Treatment of account balances (A) In general Except as provided in subparagraph (B), a distribution from a pension-linked emer- Page 1266 TITLE 26—INTERNAL REVENUE CODE § 402A gency savings account shall not be treated as an eligible rollover distribution for pur- poses of sections 401(a)(31), 402(f), and 3405. (B) Termination In the case of termination of employment of the participant, or termination by the plan sponsor of the pension-linked emer- gency savings account, except for purposes of 401(a)(31)(B), a distribution from a pen- sion-linked emergency savings account which is contributed as provided in para- graph (8)(A)(i) shall be treated as an eligible rollover distribution. (11) Exception to plan amendment rules Notwithstanding section 411(d)(6), a plan which includes a pension-linked emergency savings account may cease to offer such ac- counts at any time. (12) Anti-abuse rules A plan of which a pension-linked emergency savings account is part— (A) may employ reasonable procedures to limit the frequency or amount of matching contributions with respect to contributions to such account, solely to the extent nec- essary to prevent manipulation of the rules of the plan to cause matching contributions to exceed the intended amounts or fre- quency, and (B) shall not be required to suspend match- ing contributions following any participant withdrawal of contributions, including elec- tive deferrals and employee contributions, whether or not matched and whether or not made pursuant to an automatic contribution arrangement described in paragraph (4). The Secretary, in consultation with the Sec- retary of Labor, shall issue regulations or other guidance not later than 12 months after the date of the enactment of the SECURE 2.0 Act of 2022 with respect to the anti-abuse rules described in the preceding sentence. (f) Other definitions For purposes of this section— (1) Applicable retirement plan The term ‘‘applicable retirement plan’’ means— (A) an employees’ trust described in sec- tion 401(a) which is exempt from tax under section 501(a), (B) a plan under which amounts are con- tributed by an individual’s employer for an annuity contract described in section 403(b), and (C) an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A). (2) Elective deferral The term ‘‘elective deferral’’ means— (A) any elective deferral described in sub- paragraph (A) or (C) of section 402(g)(3), and (B) any elective deferral of compensation by an individual under an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A). (3) Matching contribution The term ‘‘matching contribution’’ means— (A) any matching contribution described in section 401(m)(4)(A), and (B) any contribution to an eligible deferred compensation plan (as defined in section 457(b)) by an eligible employer described in section 457(e)(1)(A) on behalf of an employee and on account of such employee’s elective deferral under such plan, but only if such contribution is nonforfeitable at the time received. (Added Pub. L. 107–16, title VI, § 617(a), June 7, 2001, 115 Stat. 103; amended Pub. L. 111–240, title II, §§ 2111(a), (b), 2112(a), Sept. 27, 2010, 124 Stat. 2565, 2566; Pub. L. 112–240, title IX, § 902(a), Jan. 2, 2013, 126 Stat. 2371; Pub. L. 113–295, div. A, title II, § 220(k), Dec. 19, 2014, 128 Stat. 4036; Pub. L. 117–328, div. T, title I, § 127(e)(1), title III, § 325(a), title VI, § 604(a)–(d), Dec. 29, 2022, 136 Stat. 5324, 5359, 5392.) INFLATION ADJUSTED ITEMS FOR CERTAIN YEARS For inflation adjustment of certain items in this section, see Internal Revenue Notices listed in a table under section 401 of this title. Editorial Notes REFERENCES IN TEXT Section 403(b)(7)(A)(ii), referred to in subsec. (c)(4)(E)(iii), probably means section 403(b)(7)(A)(ii) of this title prior to amendment by Pub. L. 116–94, div. O, title I, § 109(c)(2), Dec. 20, 2019, 133 Stat. 3151. The Employee Retirement Income Security Act of 1974, referred to in subsec. (e)(1)(A)(i), (5)(A), (C), is Pub. L. 93–406, Sept. 2, 1974, 88 Stat. 829. Sections 404, 514, and 801 of the Act are classifed to sections 1104, 1144, and 1193, respectively, of Title 29, Labor. For com- plete classification of this Act to the Code, see Short Title note set out under section 1001 of Title 29 and Ta- bles. The date of the enactment of the SECURE 2.0 Act of 2022, referred to in subsec. (e)(12), is the date of enact- ment of div. T of Pub. L. 117–328, which was approved Dec. 29, 2022. AMENDMENTS 2022—Subsec. (a). Pub. L. 117–328, § 604(a), added pars. (2) and (3) and redesignated former par. (2) as (4). Subsec. (b)(1). Pub. L. 117–328, § 604(b), inserted ‘‘, or to have made on the employee’s behalf,’’ after ‘‘elect to make’’ and ‘‘, or of matching contributions or nonelec- tive contributions which may otherwise be made on the employee’s behalf,’’ after ‘‘otherwise eligible to make’’. Subsec. (c)(1). Pub. L. 117–328, § 604(c), inserted ‘‘, matching contribution, or nonelective contribution’’ after ‘‘elective deferral’’ in introductory provisions. Subsec. (d)(5). Pub. L. 117–328, § 325(a), added par. (5). Subsec. (e). Pub. L. 117–328, § 127(e)(1), added subsec. (e). Former subsec. (e) redesignated (f). Subsec. (f). Pub. L. 117–328, § 127(e)(1), redesignated subsec. (e) as (f). Subsec. (f)(3). Pub. L. 117–328, § 604(d), added par. (3). 2014—Subsec. (c)(4)(E)(iii). Pub. L. 113–295 substituted ‘‘403(b)(7)(A)(ii)’’ for ‘‘403(b)(7)(A)(i)’’. 2013—Subsec. (c)(4)(E). Pub. L. 112–240 added subpar. (E). 2010—Subsec. (c)(4). Pub. L. 111–240, § 2112(a), added par. (4). Subsec. (e)(1)(C). Pub. L. 111–240, § 2111(a), added sub- par. (C). Subsec. (e)(2). Pub. L. 111–240, § 2111(b), amended par. (2) generally. Prior to amendment, text read as follows: ‘‘The term ‘elective deferral’ means any elective defer- ral described in subparagraph (A) or (C) of section 402(g)(3).’’ Page 1267 TITLE 26—INTERNAL REVENUE CODE § 403 Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2022 AMENDMENT Amendment by section 127 of Pub. L. 117–328 applica- ble to plan years beginning after Dec. 31, 2023, see sec- tion 127(g) of Pub. L. 117–328, set out as a note under section 72 of this title. Pub. L. 117–328, div. T, title III, § 325(b), Dec. 29, 2022, 136 Stat. 5359, provided that: ‘‘(1) IN GENERAL.—Except as provided in paragraph (2), the amendment made by this section [amending this section] shall apply to taxable years beginning after December 31, 2023. ‘‘(2) SPECIAL RULE.—The amendment made by this section shall not apply to distributions which are re- quired with respect to years beginning before January 1, 2024, but are permitted to be paid on or after such date.’’ Pub. L. 117–328, div. T, title VI, § 604(e), Dec. 29, 2022, 136 Stat. 5393, provided that: ‘‘The amendments made by this section [amending this section] shall apply to contributions made after the date of the enactment of this Act [Dec. 29, 2022].’’ EFFECTIVE DATE OF 2013 AMENDMENT Pub. L. 112–240, title IX, § 902(b), Jan. 2, 2013, 126 Stat. 2371, provided that: ‘‘The amendment made by this sec- tion [amending this section] shall apply to transfers after December 31, 2012, in taxable years ending after such date.’’ EFFECTIVE DATE OF 2010 AMENDMENT Pub. L. 111–240, title II, § 2111(c), Sept. 27, 2010, 124 Stat. 2566, provided that: ‘‘The amendments made by this section [amending this section] shall apply to tax- able years beginning after December 31, 2010.’’ Pub. L. 111–240, title II, § 2112(b), Sept. 27, 2010, 124 Stat. 2566, provided that: ‘‘The amendments made by this section [amending this section] shall apply to dis- tributions after the date of the enactment of this Act [Sept. 27, 2010].’’ EFFECTIVE DATE Section applicable to taxable years beginning after Dec. 31, 2005, see section 617(f) of Pub. L. 107–16, set out as an Effective Date of 2001 Amendment note under sec- tion 402 of this title. REGULATORY AUTHORITY Pub. L. 117–328, div. T, title I, § 127(f), Dec. 29, 2022, 136 Stat. 5329, provided that: ‘‘The Secretary of Labor and the Secretary of the Treasury (or a delegate of either such Secretary) shall have authority to issue regula- tions or other guidance, and to coordinate in devel- oping regulations or other guidance, to carry out the purposes of this Act [div. T of Pub. L. 117–328, see Ta- bles for classification], including— ‘‘(1) adjustment of the limitation under section 801(d)(1) of the Employee Retirement Income Secu- rity Act of 1974 [29 U.S.C. 1193(d)(1)] and section 402A(e)(3) of the Internal Revenue Code of 1986, as added by this Act, to account for inflation; ‘‘(2) expansion of corrections programs, if nec- essary; ‘‘(3) model plan language and notices relating to pension-linked emergency savings accounts; and ‘‘(4) with regard to interactions with section 401(k)(13) of the Internal Revenue Code of 1986.’’ § 403. Taxation of employee annuities (a) Taxability of beneficiary under a qualified annuity plan (1) Distributee taxable under section 72 If an annuity contract is purchased by an employer for an employee under a plan which meets the requirements of section 404(a)(2) (whether or not the employer deducts the amounts paid for the contract under such sec- tion), the amount actually distributed to any distributee under the contract shall be taxable to the distributee (in the year in which so dis- tributed) under section 72 (relating to annu- ities). (2) Special rule for health and long-term care insurance To the extent provided in section 402(l), paragraph (1) shall not apply to the amount distributed under the contract which is other- wise includible in gross income under this sub- section. (3) Self-employed individuals For purposes of this subsection, the term ‘‘employee’’ includes an individual who is an employee within the meaning of section 401(c)(1), and the employer of such individual is the person treated as his employer under section 401(c)(4). (4) Rollover amounts (A) General rule If— (i) any portion of the balance to the credit of an employee in an employee an- nuity described in paragraph (1) is paid to him in an eligible rollover distribution (within the meaning of section 402(c)(4)), (ii) the employee transfers any portion of the property he receives in such dis- tribution to an eligible retirement plan, and (iii) in the case of a distribution of prop- erty other than money, the amount so transferred consists of the property dis- tributed, then such distribution (to the extent so transferred) shall not be includible in gross income for the taxable year in which paid. (B) Certain rules made applicable The rules of paragraphs (2) through (7) and (11) and (9) of section 402(c) and section 402(f) shall apply for purposes of subparagraph (A). (5) Direct trustee-to-trustee transfer Any amount transferred in a direct trustee- to-trustee transfer in accordance with section 401(a)(31) shall not be includible in gross in- come for the taxable year of such transfer. (b) Taxability of beneficiary under annuity pur- chased by section 501(c)(3) organization or public school (1) General rule If— (A) an annuity contract is purchased— (i) for an employee by an employer de- scribed in section 501(c)(3) which is exempt from tax under section 501(a), (ii) for an employee (other than an em- ployee described in clause (i)), who per- forms services for an educational organiza- tion described in section 170(b)(1) (A)(ii), by an employer which is a State, a polit- ical subdivision of a State, or an agency or instrumentality of any one or more of the foregoing, or