[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: 26CFR1.408-6]

[Page 495-501]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.408-6  Disclosure statements for individual retirement arrangements.

    (a) In general--(1) General rule. Trustees and issuers of individual 
retirement accounts and annuities are, under the authority of section 
408(i), required to provide disclosure statements. This section sets 
forth these requirements.
    (2) [Reserved]
    (b)-(c) [Reserved]
    (d) Requirements. (1)-(3) [Reserved]
    (4) Disclosure statements--(i) Under the authority contained in 
section 408(i), a disclosure statement shall be furnished in accordance 
with the provisions of this subparagraph by the trustee of an individual 
retirement account described in section 408(a) or the issuer of an 
individual retirement annuity described in section 408(b) or of an 
endowment contract described in section 408(b) to the individual 
(hereinafter referred to as the ``benefited individual'') for whom such 
an account, annuity, or contract is, or is to be, established.
    (ii)(A)(1) The trustee or issuer shall furnish, or cause to be 
furnished, to the benefited individual, a disclosure statement 
satisfying the requirements of subdivisions (iii) through (viii) of this 
subparagraph, as applicable, and a copy of the governing instrument to 
be used in establishing the account, annuity, or endowment contract. The 
copy of such governing instrument need not be filled in with financial 
and other data pertaining to the benefited individual; however, such 
copy must be complete in all other respects. The disclosure statement 
and copy of the governing instrument must be received by the benefited 
individual at least seven days preceding the earlier of the date of 
establishment or purchase of the account, annuity, or endowment 
contract. A disclosure statement or copy of the governing instrument 
required by this subparagraph may be received by the benefited 
individual less than seven days preceding, but no later than, the 
earlier of the date of establishment or purchase, if the benefited 
individual is permitted to revoke the account, annuity, or endowment 
contract pursuant to a procedure which satisfies the requirements of 
subdivision (ii)(A)(2) of this subparagraph.
    (2) A procedure for revocation satisfies the requirements of this 
subdivision (ii)(A)(2) of this subparagraph if the benefited individual 
is permitted to revoke the account, or endowment contract by mailing or 
delivering, at his option, a notice of revocation on or before a day not 
less than seven days after the earlier of the date of establishment or 
purchase and, upon revocation, is entitled to a return of the entire 
amount of the consideration paid by him for the account, annuity, or 
endowment contract without adjustment for such items as sales 
commissions, administrative expenses or fluctuation in market value. The 
procedure may require that the notice be in writing or that it be oral, 
or it may require both a written and an oral notice. If an oral notice 
is required or permitted, the procedure must permit it to be delivered 
by telephone call during normal business hours. If a written notice is 
required or permitted, the procedure must provide that, if mailed, it 
shall be

[[Page 496]]

deemed mailed on the date of the postmark (or if sent by certified or 
registered mail, the date of certification or registration) if it is 
deposited in the mail in the United States in an envelope, or other 
appropriate wrapper, first class postage prepaid, properly addressed.
    (B) If after a disclosure statement has been furnished, or caused to 
be furnished, to the benefited individual pursuant to paragraph 
(d)(4)(ii)(A) of this section and--
    (1) On or before the earlier of the date of establishment or 
purchase, or
    (2) On or before the last day on which the benefited individual is 
permitted to revoke the account, annuity, or endowment contract (if the 
benefited individual has a right to revoke the account, annuity, or 
endowment contract pursuant to the rules of subdivision (ii)(A) of this 
subparagraph).

there becomes effective a material adverse change in the information set 
forth in such disclosure statement or a material change in the governing 
instrument to be used in establishing the account, annuity, or contract, 
the trustee or issuer shall furnish, or cause to be furnished, to the 
benefited individual such amendments to any previously furnished 
disclosure statement or governing instrument as may be necessary to 
adequately inform the benefited individual of such change. The trustee 
or issuer shall be treated as satisfying this subdivision (ii)(B) of 
this subparagraph only if material required to be furnished by this 
subdivision is received by the benefited individual at least seven days 
preceding the earlier of the date of establishment or purchase of the 
account, annuity, or endowment contract or if the benefited individual 
is permitted to revoke the account, annuity, or endowment contract on or 
before a date not less than seven days after the date on which such 
material is received, pursuant to a procedure for revocation otherwise 
satisfying the provisions of subdivision (ii)(A)(2) of this 
subparagraph.
    (C) If the governing instrument is amended after the account, 
annuity, or endowment contract is no longer subject to revocation 
pursuant to subdivision (ii)(A) or (B) of this subparagraph, the trustee 
or issuer shall not later than the 30th day after the later of the date 
on which the amendment is adopted or becomes effective, deliver or mail 
to the last known address of the benefited individual a copy of such 
amendment and, if such amendment affects a matter described in 
subdivisions (iii) through (viii) of this subparagraph, a disclosure 
statement with respect to such matter meeting the requirements of 
subdivision (iv) of this subparagraph.
    (D) For purposes of subdivision (ii) (A) and (B) of this 
subparagraph, if a disclosure statement, governing instrument, or an 
amendment to either, is mailed to the benefited individual, it shall be 
deemed (in the absence of evidence to the contrary) to be received by 
the benefited individual seven days after the date of mailing.
    (E) In the case of a trust described in section 408(c) (relating to 
certain retirement savings arrangements for employees or members of 
associations of employees), the following special rules shall be 
applied:
    (1) For purposes of this subparagraph, references to the benefited 
individual's account, annuity, or endowment contract shall refer to the 
benefited individual's interest in such trust, and
    (2) The provisions of subdivision (ii) of this subparagraph shall be 
applied by substituting ``the date on which the benefited individual's 
interest in such trust commences'' for ``the earlier of the date of 
establishment or purchase'' wherever it appear therein.
    Thus, for example, if an employer establishes a trust described in 
section 408(c) for the benefit of employees, and the trustee furnishes 
an employee with a disclosure statement and a copy of the governing 
instrument (as required by this subparagraph) on the date such 
employee's interest in the trust commences, such employee must be given 
a right to revoke such interest within a period of at least seven days. 
If any contribution has been made within such period (whether by the 
employee or by the employer), the full amount of such contribution must 
be paid to such employee pursuant to subdivision (ii)(A)(2) of this 
subparagraph.
    (iii) The disclosure statement required by this subparagraph shall 
set forth in nontechnical language the following matters as such matters 
relate

[[Page 497]]

to the account, annuity, or endowment contract (as the case may be);
    (A) Concise explanations of--
    (1) The statutory requirements prescribed in section 408(a) 
(relating to an individual retirement account) or section 408(b) 
(relating to an individual retirement annuity and an endowment 
contract), and any additional requirements (whether or not required by 
law) that pertain to the particular retirement savings arrangement.
    (2) The income tax consequences of establishing an account, annuity, 
or endowment contract (as the case may be) which meets the requirements 
of section 408(a) relating to an individual retirement account) or 
section 408(b) (relating to an individual retirement annuity and an 
endowment contract), including the deductibility of contributions to, 
the tax treatment of distributions (other than premature distributions) 
from, the availability of income tax free rollovers to and from, and the 
tax status of such account, annuity, or endowment contract.
    (3) The limitations and restrictions on the deduction for retirement 
savings under section 219, including the ineligibility of certain 
individuals who are active participants in a plan described in section 
219(b)(2)(A) or for whom amounts are contributed under a contract 
described in section 219(b)(2)(B) to make deductible contributions to an 
account or for an annuity or endowment contract.
    (4) The circumstances under which the benefited individual may 
revoke the account, annuity, or endowment contract, and the procedure 
therefor (including the name, address, and telephone number of the 
person designated to receive notice of such revocation). Such 
explanation shall be prominently displayed at the beginning of the 
disclosure statement.
    (B) Statements to the effect that--
    (1) If the benefited individual or his beneficiary engages in a 
prohibited transaction, described in section 4975(c) with respect to an 
individual retirement account, the account will lose its exemption from 
tax by reason of section 408(e)(2)(A), and the benefited individual must 
include in gross income, for the taxable year during which the benefited 
individual or his beneficiary engages in the prohibited transaction the 
fair market value of the account.
    (2) If the owner of an individual retirement annuity or endowment 
contract described in section 408(b) borrows any money under, or by use 
of, such annuity or endowment contract, then, under section 408(e)(3), 
such annuity or endowment contract loses its section 408(b) 
classification, and the owner must include in gross income, for the 
taxable year during which the owner borrows any money under, or by use 
of, such annuity or endowment contract, the fair market value of the 
annuity or endowment contract.
    (3) If a benefited individual uses all or any portion of an 
individual retirement account as security for a loan, then, under 
section 408(e)(4), the portion so used is treated as distributed to such 
individual and the benefited individual must include such distribution 
in gross income for the taxable year during which he so uses such 
account.
    (4) An additional tax of 10 percent is imposed by section 408(f) on 
distributions (including amounts deemed distributed as the result of a 
prohibited loan or use as security for a loan) made before the benefited 
individual has attained age 59\1/2\, unless such distribution is made on 
account of death or disability, or unless a rollover contribution is 
made with such distribution.
    (5) Sections 2039(e) (relating to exemption from estate tax of 
annuities under certain trusts and plans) and 2517 (relating to 
exemption from gift tax of specified transfers of certain annuities 
under qualified plans) apply (including the manner in which such 
sections apply) to the account, annuity, or endowment contract.
    (6) Section 402(a)(2) and (e) (relating to tax on lump sum 
distributions) is not applicable to distributions from an account, 
annuity, or endowment contract.
    (7) A minimum distribution is required under section 408(a) (6) or 
(7) and 408(b) (3) or (4) (including a brief explanation of the amount 
of minimum distribution) and that if the amount distributed from an 
account, annuity, or endowment contract during the taxable year of the 
payee is less than the minimum required during such year, an excise tax, 
which shall be paid by the

[[Page 498]]

payee, is imposed under section 4974, in an amount equal to 50 percent 
of the excess of the minimum required to be distributed over the amount 
actually distributed during the year.
    (8) An excise tax is imposed under section 4973 on excess 
contributions (including a brief explanation of an excess contribution).
    (9) The benefited individual must file Form 5329 (Return for 
Individual Retirement Savings Arrangement) with the Internal Revenue for 
each taxable year during which the account, annuity, or endowment 
contract is maintained.
    (10) The account or contract has or has not (as the case may be) 
been approved as to form for use as an account, annuity, or endowment 
contract by the Internal Revenue Service. For purposes of this 
subdivision, if a favorable opinion or determination letter with respect 
to the form of a prototype trust, custodial account, annuity, or 
endowment contract has been issued by the Internal Revenue Service, or 
the instrument which establishes an individual retirement trust account 
or an individual retirement custodial account utilizes the precise 
language of a form currently provided by the Internal Revenue Service 
(including any additional language permitted by such form), such account 
or contract may be treated as approved as to form.
    (11) The Internal Revenue Service approval is a determination only 
as to the form of the account, annuity, or endowment contract, and does 
not represent a determination of the merits of such account, annuity, or 
endowment contract.
    (12) The proceeds from the account, annuity or endowment contract 
may be used by the benefited individual as a rollover contribution to 
another account or annuity or retirement bond in accordance with the 
provisions of section 408(d)(3).
    (13) In the case of an endowment contract described in section 
408(b), no deduction is allowed under section 219 for that portion of 
the amounts paid under the contract for the taxable year properly 
allocable to the cost of life insurance.
    (14) If applicable, in the event that the benefited individual 
revokes the account, annuity, or endowment contract, pursuant to the 
procedure described in the disclosure statement (see subdivision (A)(4) 
of this subdivision (iii)), the benefited individual is entitled to a 
return of the entire amount of the consideration paid by him for the 
account, annuity, or endowment contract without adjustment for such 
items as sales commissions, administrative expenses or fluctuation in 
market value.
    (15) Further information can be obtained from any district office of 
the Internal Revenue Service.
    To the extent that information on the matters described in 
subdivisions (iii) (A) and (B) of this subparagraph is provided in a 
publication of the Internal Revenue Service relating to individual 
retirement savings arrangements, such publication may be furnished by 
the trustee or issuer in lieu of providing information relating to such 
matters in a disclosure statement.
    (C) The financial disclosure required by paragraph (d)(4) (v), (vi), 
and (vii) of this section.
    (iv) In the case of an amendment to the terms of an account, 
annuity, or endowment contract described in paragraph (d)(4)(i) of this 
section, the disclosure statement required by this subparagraph need not 
repeat material contained in the statement furnished pursuant to 
paragraph (d)(4)(iii) of this section, but it must set forth in 
nontechnical language those matters described in paragraph (d)(4)(iii) 
of this section which are affected by such amendment.
    (v) With respect to an account, annuity, or endowment contract 
described in paragraph (d)(4)(i) of this section (other than an account 
or annuity which is to receive only a rollover contribution described in 
paragraph (d)(4)(vi) of this section and to which no deductible 
contributions will be made), the disclosure statement must set forth in 
cases where either an amount is guaranteed over period of time (such as 
in the case of a nonparticipating endowment or annuity contract), or a 
projection of growth of the value of the account, annuity, or endowment 
contract can reasonably be made (such as in the case of a participating 
endowment or annuity contract

[[Page 499]]

(other than a variable annuity) or passbook savings account), the 
following:
    (A) To the extent that an amount is guaranteed,
    (1) The amount, determined without regard to any portion of a 
contribution which is not deductible, that would be guaranteed to be 
available to the benefited individual if (i) level annual contributions 
in the amount of $1,000 were to be made on the first day of each year, 
and (ii) the benefited individual were to withdraw in a single sum the 
entire amount of such account, annuity, or endowment contract at the end 
of each of the first five years during which contributions are to be 
made, at the end of the year in which the benefited individual attains 
the ages of 60, 65, and 70, and at the end of any other year during 
which the increase of the guaranteed available amount is less than the 
increase of the guaranteed available amount during any preceding year 
for any reason other than decrease of cessation of contributions, and
    (2) A statement that the amount described in subdivision (v)(A)(1) 
of this subparagraph is guaranteed, and the period for which guaranteed;
    (B) To the extent a projection of growth of the value of the 
account, annuity, or endowment contract can reasonably be made but the 
amounts are not guaranteed.
    (1) The amount, determined without regard to any portion of a 
contribution which is not deductible, and upon the basis of an earnings 
rate no greater than, and terms no different from, those currently in 
effect, that would be available to the benefited individual if (i) level 
annual contributions in the amount of $1,000 were to be made on the 
first day of each year, and (ii) the benefited individual were to 
withdraw in a single sum the entire amount of such account, annuity, or 
endowment contract at the end of each of the first five years during 
which contributions are to be made, at the end of each of the years in 
which the benefited individual attains the ages of 60, 65, and 70, and 
at the end of any other year during which the increase of the available 
amount is less than the increase of the available amount during any 
preceding year for any reason other than decrease or cessation of 
contributions, and
    (2) A statement that the amount described in paragraph 
(d)(4)(v)(B)(1) of this section is a projection and is not guaranteed 
and a statement of the earnings rate and terms on the basis of which the 
projection is made;
    (C) The portion of each $1,000 contribution attributable to the cost 
of life insurance, which would not be deductible, for each year during 
which contributions are to be made; and
    (D) The sales commission (including any commission attributable to 
the sale of life insurance), if any, to be charged in each year, 
expressed as a percentage of gross annual contributions (including any 
portion attributable to the cost of life insurance) to be made for each 
year.
    (vi) With respect to an account or annuity described in paragraph 
(d)(4)(i) of this section to which a rollover contribution described in 
section 402(a)(5)(A), 403(a)(4)(A), 408(d)(3)(A) or 409(b)(3)(C) will be 
made, the disclosure statement must set forth, in cases where an amount 
is guaranteed over a period of time (such as in the case of a non-
participating annuity contract, or a projection of growth of the value 
of the account or annuity can reasonably be made (such as in the case of 
a participating annuity contract (other than a variable annuity) or a 
passbook savings account), the following:
    (A) To the extent guaranteed,
    (1) The amount that would be guaranteed to be available to the 
benefited individual if (i) Such a rollover contribution in the amount 
of $1,000 were to be made on the first day of the year, (ii) No other 
contribution were to be made, and (iii) The benefited individual were to 
withdraw in a single sum the entire amount of such account or annuity at 
the end of each of the first five years after the contribution is made, 
at the end of the year in which the benefited individual attains the 
ages of 60, 65, and 70, and at the end of any other year during which 
the increase of the guaranteed available amount is less than the 
increase of the guaranteed available amount during any preceding year, 
and

[[Page 500]]

    (2) A statement that the amount described in paragraph (d)(vi)(A)(1) 
of this section is guaranteed;
    (B) To the extent that a projection of growth of the value of the 
account or annuity can reasonably be made but the amounts are not 
guaranteed,
    (1) The amount, determined upon the basis of an earnings rate no 
greater than, and terms no different from, those currently in effect, 
that would be available to the benefited individual if (i) such a 
rollover contribution in the amount of $1,000 were to be made on the 
first day of the year, (ii) no other contribution were to be made, and 
(iii) the benefited individual were to withdraw in a single sum the 
entire amount of such account or annuity at the end of each of the first 
five years after the contribution is made, at the end of each of the 
years in which the benefited individual attains the ages 60, 65, 70, and 
at the end of any other year during which the increase of the available 
amount is less than the increase of the available amount during any 
preceding year, and
    (2) A statement that the amount described in paragraph (d)(4)(vi)(B) 
(1) of this section is a projection and is not guaranteed and a 
statement of the earnings rate and terms on the basis of which the 
projection is made; and
    (C) The sales commission, if any, to be charged in each year, 
expressed as a percentage of the assumed $1,000 contribution.
    (vii) With respect to an account, annuity, or endowment contract 
described in paragraph (d)(4)(i) of this section, in all cases not 
subject to paragraph (d)(4) (v) or (vi) of this section (such as in the 
case of a mutual fund or variable annuity), the disclosure statement 
must set forth information described in subdivisions (A) through (C) of 
this subdivisions (vii) based (as applicable with respect to the type or 
types of contributions to be received by the account, annuity, or 
endowment contract) upon the assumption of (1) level annual 
contributions of $1,000 on the first day of each year, (2) a rollover 
contribution of $1,000 on the first day of the year and no other 
contributions, or (3) a rollover contribution of $1,000 on the first day 
of the year plus level annual contributions of $1,000 on the first day 
of each year.
    (A) A description (in nontechnical language) with respect to the 
benefited individual's interest in the account, annuity, or endowment 
contract, of:
    (1) Each type of charge, and the amount thereof, which may be made 
against a contribution,
    (2) The method for computing and allocating annual earnings, and
    (3) Each charge (other than those described in complying with 
paragraph (d)(4)(vii)(A)(1) of this section) which may be applied to 
such interest in determining the net amount of money available to the 
benefited individual and the method of computing each such charge;
    (B) A statement that growth in value of the account, annuity, or 
endowment contract is neither guaranteed nor projected; and
    (C) The portion of each $1,000 contribution attributable to the cost 
of life insurance, which would not be deductible, for every year during 
which contributions are to be made.
    (viii) A disclosure statement, or an amendment thereto, furnished 
pursuant to the provisions of this subparagraph may contain information 
in addition to that required by paragraph (d)(4)(iii) through (vii) of 
this section. However, such disclosure statement will not be considered 
to comply with the provisions of this subparagraph if the substance of 
such additional material or the form in which it is presented causes 
such disclosure statement to be false or misleading with respect to the 
information required to be disclosed by this paragraph.
    (ix) The provisions of section 6693, relating to failure to provide 
reports on individual retirement accounts or annuities, shall apply to 
any trustee or issuer who fails to furnish, or cause to be furnished, a 
disclosure statement, a copy of the governing instrument, or an 
amendment to either, as required by this paragraph.
    (x) This section shall be effective for disclosure statements and 
copies of governing instruments mailed, or delivered without mailing, 
after February 14, 1977.
    (xi) This section does not reflect the amendments made by section 
1501 of

[[Page 501]]

the Tax Reform Act of 1976 (90 Stat. 1734) relating to retirement 
savings for certain married individuals.

[T.D. 7714, 45 FR 52795, Aug. 8, 1980; 45 FR 56802, Aug. 26, 1980]