[Code of Federal Regulations]
[Title 26, Volume 5]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.408-1]

[Page 479-480]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.408-1  General rules.

    (a) In general. Section 408 prescribes rules relating to individual 
retirement accounts and individual retirement annuities. In addition to 
the rules set forth in Sec. Sec. 1.408-2 and 1.408-3, relating 
respectively to individual retirement accounts and individual retirement 
annuities, the rules set forth in this section shall also apply.
    (b) Exemption from tax. The individual retirement account or 
individual retirement annuity is exempt from all taxes under subtitle A 
of the Code other than the taxes imposed under section 511, relating to 
tax on unrelated business income of charitable, etc., organizations.
    (c) Sanctions--(1) Excess contributions. If an individual retirement 
account or individual retirement annuity accepts and retains excess 
contributions, the individual on whose behalf the account is established 
or who is the owner of the annuity will be subject to the excise tax 
imposed by section 4973.
    (2) Prohibited transactions by owner or beneficiary of individual 
retirement account--(i) Under section 408(e)(2), if, during any taxable 
year of the individual for whose benefit any individual retirement 
account is established, that individual or the individual's beneficiary 
engages in any transaction prohibited by section 4975 with respect to 
such account, such account ceases to be an individual retirement account 
as of the first day of such taxable year. In any case in which any 
individual retirement account ceases to be an individual retirement 
account by reason of the preceding sentence as of the first day of any 
taxable year, section 408(d)(1) applies as if there were a distribution 
on such first day in an amount equal to the fair market value (on such 
first day) of all assets in the account (on such first day). The 
preceding sentence applies even though part of the fair market value of 
the individual retirement account as of the first day of the taxable 
year is attributable to excess contributions which may be returned tax-
free under section 408(d)(4) or 408(d)(5).
    (ii) If the trust with which the individual engages in any 
transaction described in subdivision (i) of this subparagraph is 
established by an employer or employee association under section 408(c), 
only the employee who engages in the prohibited transaction is subject 
to disqualification of his separate account.
    (3) Prohibited transaction by person other than owner or beneficiary 
of account. If any person other than the individual on whose behalf an 
individual retirement account is established or the individual's 
beneficiary engages in any transaction prohibited by section 4975 with 
respect to such account, such person shall be subject to the taxes 
imposed by section 4975.

[[Page 480]]

    (4) Pledging account as security. Under section 408(e)(4), if, 
during any taxable year of the individual for whose benefit an 
individual retirement account is established, that individual uses the 
account or any portion thereof as security for a loan, the portion so 
used is treated as distributed to that individual.
    (5) Borrowing on annuity contract. Under section 408(e)(3), if 
during any taxable year the owner of an individual retirement annuity 
borrows any money under or by use of such contract, the contract ceases 
to be an individual retirement annuity as of the first day of such 
taxable year. See Sec. 1.408-3(c).
    (6) Premature distributions. If a distribution (whether a deemed 
distribution or an actual distribution) is made from an individual 
retirement account, or individual retirement annuity, to the individual 
for whose benefit the account was established, or who is the owner of 
the annuity, before the individual attains age 59\1/2\ (unless the 
individual has become disabled within the meaning of section 72(m)(7)), 
the tax under Chapter 1 of the Code for the taxable year in which such 
distribution is received is increased under section 408(f)(1) or (f)(2). 
The increase equals 10 percent of the amount of the distribution which 
is includible in gross income for the taxable year. Except in the case 
of the credits allowable under section 31, 39, or 42, no credit can be 
used to offset the increased tax described in this subparagraph. See, 
however, Sec. 1.408-4(c)(3).
    (d) Limitation on contributions and benefits. An individual 
retirement account or individual retirement annuity is subject to the 
limitation on contributions and benefits imposed by section 415 for 
years beginning after December 31, 1975.
    (e) Community property laws. Section 408 shall be applied without 
regard to any community property laws.

[T.D. 7714, 45 FR 52790, Aug. 8, 1980]