Deemed IRA

[Brenda Wren]

Can anyone briefly explain the purpose of the "deemed IRA"? When these were first introduced, I recall hearing the experts indicate that they didn't really see much use for them. But now I see a lot of guidance that I honestly haven't taken the time to read. Any thoughts?

[Guest JimD]

EGTRRA provided that qualified plans could allow participants to make voluntary employee contributions that meet the requirements of an IRA or Roth IRA. The Plan has to provide for the IRA rules. Separate accounting is needed. Some issues are: 1. Will there be a big demand from employees to be able to contribute these dollars? 2. Will employers want to amend their plans, provide payroll deduction, learn new rules

[Brenda Wren]

But what is the point? What does a deemed IRA offer than a 401(k) deferral doesn't?

[Guest timeout]

This may be an example as to why ... Let's say one is age 72 and wants to continue working for the time being, but has an personal IRA that is kicking out required minimums. This person also knows that because they are not a greater than 5% owner and still working they are not subject to the required minimums until after they retire ... one may want to get around the 401(a)(9) rules by rolling their IRA into the employer plan ... (yes, this example/plan permits IRA rollovers) ... but, this does not work because the deemed IRA status requires the employer plan to continue the required minimums from the deemed IRA. (My impression is a 'conduit' rollover will not/does not have 'deemed IRA' status within a qualified plan - so, this example really applies to personal IRAs, or non-conduit IRA situations).

[Guest JimD]

Brenda: I think you have to reach to find any benefit. A deemed Roth IRA may be attractive to employees who have enough disposable income and want to make 401(k) deferrals, Roth or regular IRA contributions to the same plan. Doubtful an employer would change their qualified plan to accommodate. Doubtful an employer would make IRA's convienent thru payroll deduction if they had a profit sharing only plan. Prior to 1987 participants could make voluntary deductible employee contributions (IRA type) to qualified plans. Plan documents still reference this contribution but I have never seen such a contribution in any plan. Allowing these contributions probably were just other methods to increase personal savings or maybe Congress has a grand plan that will be made clear. For what its worth!!

[Guest FormsRmylife]

By my reading of the rollover rules, it is possible to roll a non-conduit IRA to a qualified plan without setting up a deemed IRA. As long as continuing IRA contributions cannot be made, the deemed IRA rules do not need to be met. Am I wrong? (Won't be the first time.)

[Guest rmeigs]

Two “advantages” are 1) easy payroll deduction for the Deemed IRA contributions and 2) the contributions are invested in funds that are selected and monitored by the plan fiduciaries.

This being said, I don’t see many plans adopting them. More complexity is not what we need.

[Guest JimD]

FormsRmylife: I agree a regular IRA rollover would not be considered a deemed IRA. There was a newspaper Article posted on Benefitslink 8/2 with information about deemed IRA's.