2023 Laws of Puerto Rico › TITLE THIRTEEN - Taxation and Finance (§§ 1 — 33423) › Subtitle 17 - Internal Revenue Code of 2011 (§§ 30001 — 33423) › PART II - Income Taxes (§§ 30041 — 30622) › Chapter 1010 - Estates and Trusts (§§ 30391 — 30419) › Subchapter A - Employee Trusts (§§ 30391 — 30396) › § 30393 - Nondeductible individual retirement account

(a) General rule.— Except as otherwise provided in this section, and as provided by regulations promulgated by the Secretary, a nondeductible individual retirement account shall be treated, for purposes of this part, in the same manner as an individual retirement account under § 30392 of this title, and shall be subject to the requirements provided in said section.
(b) Nondeductible individual retirement account.— For purposes of this part, the term “nondeductible individual retirement account” shall mean an individual retirement account that meets the definition and the requirements established in subsections (a), (b), or (c) of § 30392 of this title, and which is designated as a nondeductible individual retirement account (as required by the Secretary) at the time of its establishment as a nondeductible individual retirement account. The designation of an individual retirement account as a nondeductible individual retirement account shall be made as provided by the Secretary.
(c) Treatment of contributions.—
(1) No deduction allowed.— No deduction shall be allowed for contributions made to a nondeductible individual retirement account.
(2) Contribution limit.— The aggregate amount of contributions for any taxable year to all nondeductible individual retirement accounts maintained for the benefit of an individual shall not exceed the excess (if any) of:
(A) The maximum amount allowable as a deduction under § 30135(a)(7) of this title with respect to such individual for such taxable year (computed without regard to subsection (a)(7)(D) of said section, over
(B) the aggregate amount of contributions for such taxable year to all other individual retirement accounts (other than nondeductible individual retirement accounts) maintained for the benefit of the individual.
(3) Contributions allowed after attaining the age of seventy and a half (70½) years.— Contributions to nondeductible individual retirement accounts shall be allowed even after the individual in whose name the account is maintained has attained the age of seventy and a half (70½) years.
(4) Mandatory distribution rules not to apply before death.— The provisions of subsections (a)(6) and (b)(3) of § 30392 of this title shall not apply to any nondeductible individual retirement account.
(5) Rollover contributions.—
(A) In general.— No rollover contribution shall be made to a nondeductible individual retirement account unless it is a qualified rollover contribution, as said term is defined in subsection (e) of this section.
(B) Coordination with maximum amount of contributions.— A qualified rollover contribution shall not be taken into account for purposes of the limit provided in clause (2) of this subsection.
(6) Time when contribution is made.— For purposes of this section, a taxpayer shall be deemed to have made contributions to a nondeductible individual retirement account on the last day of the taxable year if the contribution is made on account of such taxable year and is made not later than the last day provided by this part for filing the income tax return of such taxable year, including extensions thereof granted by the Secretary.
(d) Tax treatment of distributions.— For purposes of this part:
(1) Exclusion.— Any qualified distribution of a nondeductible individual retirement account shall not be includible in gross income and shall be exempt from taxation.
(2) Qualified distribution.— For purposes of this section:
(A) In general.— The term “qualified distribution” means any payment or distribution:
(i) Made on or after the date on which the taxpayer attains the age of sixty (60) years;
(ii) made to the beneficiary (or to the estate of the individual) on or after the death of the individual;
(iii) which is a qualified special purpose distribution, as said term is defined in clause (6) of this subsection.
(B) Distributions of excess contributions and earnings.— The term “qualified distribution” shall not include any distribution of an excess contribution described under § 30392(d)(2) of this title), and any amount of net income attributable to said excess contribution.
(3) Nonqualified distributions.— Any distribution of a nondeductible individual retirement account other than a qualified distribution shall be subject to taxation pursuant to the provisions of § 30392(d) of this title and shall be subject to the penalties set forth in § 30392(g) of this title in the same manner as the distributions of individual retirement accounts described in § 30392 of this title. For purposes of § 30392(d)(1)(A) of this title, the basis of any person in the nondeductible individual retirement account shall be equal to the sum of:
(A) Nondeductible contributions made to the account;
(B) qualified rollover contributions made to the account, and
(C) the income earned by the account exempt from income taxes.
(4) Rollovers from an individual retirement account to a nondeductible individual retirement account.—
(A) In general.— Notwithstanding the provisions of § 30392(d)(4) of this title, in the case of any distribution to which the provisions of this clause apply,
(i) The amount that would be includible as gross income under § 30392(d) of this title (without taking into account the provisions of § 30392(d)(4) of this title) shall be included as gross income; and, except as otherwise provided in subparagraph (iii) of this paragraph, the same shall be subject to taxation and to the withholdings provided in said § 30392(d) of this title;
(ii) the provisions of § 30392(g) of this title shall not apply, and
(iii) any amount which may be included as gross income for a taxable year by reason of this clause for any distribution made before July 1, 2003, shall be subject to a twelve-and-a-half-percent (12.5%) tax, in lieu of any other tax imposed by the Code.
For purposes of this paragraph, the total amount of the distribution includible as gross income under § 30392(d) of this title shall be equal to the total amount of the distribution less the basis attributable to said distribution pursuant to the provisions of § 30392(d)(1)(A) of this title, increasing said basis, as it may apply, by the amount provided in § 30396(a)(2)(A) of this title.
(B) Distribution to which clause applies.— This clause shall apply to a distribution from an individual retirement account (other than a nondeductible individual retirement account) maintained for the benefit of an individual, which is contributed to a nondeductible individual retirement account as a qualified rollover contribution. However, the distributions of an individual retirement account that were subject to the special taxes imposed by § 30396 of this title shall not be subject to the taxes provided in paragraph (A) of this clause.
(C) Conversions.— The conversion of an individual retirement account (other than a nondeductible individual retirement account) to a nondeductible individual retirement account shall be treated, for purposes of this clause, as a distribution to which this clause applies. However, the Secretary shall establish through regulations the application of the provisions of paragraph (F) to this clause.
(D) Use of the nondeductible individual retirement account as collateral.—
(i) Limit.— An individual may use a nondeductible individual retirement account as collateral for a loan only if the entirety of the proceeds of the loan is used to pay the income tax imposed in a rollover to which the provisions of paragraph (A)(iii) of this clause apply.
(ii) Effect of pledging a nondeductible individual retirement account as collateral.— Notwithstanding the provisions of § 30392(e)(3) of this title, the use of a nondeductible individual retirement account as collateral shall not be treated as a distribution subject to taxation provided that the proceeds of the loan are used for the purpose stated in subparagraph (i) of this paragraph.
(E) Additional requirements of information.— The trustees of nondeductible individual retirement accounts and of individual retirement accounts other than nondeductible individual retirement accounts, or both, as the case may be, shall include in the reports referred to under § 30392(f) of this title, any additional information required by the Secretary to ensure that the amounts that should be included as part of the gross income under paragraph (A) of this clause are thus included.
(F) Special rules for the contributions to which the twelve-and-a-half-percent (12.5%) tax applies.— In case of a qualified rollover contribution to a nondeductible individual retirement account of a distribution subject to the provisions of paragraph (A)(iii) of this clause, the following rules shall apply:
(i) Obligation to deduct and withhold at the source and pay or deposit the tax imposed by (A)(iii) of this clause:
(I) Requirement to deduct and withhold.— Every individual retirement account trustee who makes distributions of individual retirement accounts subject to the tax established in paragraph (A)(iii) of this clause, shall deduct and withhold from said distributions an amount equal to twelve and a half percent (12.5%) of the amount thereof that constitutes gross income.
(II) Requirement to pay or deposit deducted and withheld taxes.— Every trustee of an individual retirement account who is required to deduct and withhold a tax provided in item (I), shall pay the amount of the tax thus deducted and withheld pursuant to the provisions of § 30392(d)(1)(E) of this title. Every trustee shall be responsible to the Secretary for the payment of said tax, and shall not be responsible to any other person for the amount of any payment thereof.
(III) No withholding.— If the trustee of the individual retirement account, in violation of the provisions of this subparagraph, fails to make the withholding referred to in item (I), the amount that should have been deducted and withheld (unless the receiver of the distribution pays the tax to the Secretary) shall be collected from the trustee of the individual retirement account following the same procedure and in the same way as if it were a tax owed by the trustee.
(IV) Penalty.— For the provisions related to the penalties applicable for failure to withhold or deposit the tax provided in item (I) of this subparagraph, see §§ 33001 et seq. of this title.
(5) Transfers of distributions of an employee trust to a nondeductible individual retirement account.—
(A) In general.— Notwithstanding the provisions of § 30391(b)(2) of this title, a distribution that has been fully paid to or placed at the disposal of any participant, by an exempt trust under § 30391 of this title, within only one (1) taxable year of the participant by reason of separation of service, which is contributed to a nondeductible individual retirement account as a qualified rollover contribution, shall be subject to taxation and the withholdings applicable thereto pursuant to the provisions of § 30391(b) of this title.
(B) Additional requirements.— The requirements and rules established under paragraphs (E) and (F) of clause (4) of this subsection shall apply to the distributions covered by this clause.
(6) Special purpose distribution.— For purposes of this section, the term “special purpose distribution” means any distribution to which § 30392(g)(2) of this title applies.
(7) Adjustments before due date.—
(A) In general.— Except as provided by the Secretary, if, not later than the due date under this part for filing the income tax return for one particular taxable year, including any extension thereof granted by the Secretary, a taxpayer transfers in a trust-to-trust transfer any contribution to an individual retirement account made during such taxable year to any other individual retirement account, for purposes of this part, such contribution shall be treated as having been made to the transferee account (and not the transferor account).
(B) Special rules.—
(i) Transfer of earnings.— Paragraph (A) of this clause shall not apply to the transfer of any contribution unless said transfer is accompanied by any net income allocable to such contribution.
(ii) No deduction.— Paragraph (A) of this clause shall apply to the transfer of any contribution only to the extent no deduction was allowed with respect to the contribution to the transferor account.
(e) Qualified rollover contribution.— For purposes of this section, the term “qualified rollover contribution” means:
(1) A rollover contribution to a nondeductible individual retirement account from another nondeductible individual retirement account or individual retirement account other than a nondeductible individual retirement account, but only if said rollover contribution meets the requirements of § 30392(d)(4) of this title. For purposes of § 30392(d)(4)(B) of this title, there shall be disregarded any qualified rollover contribution from an individual retirement account (other than a nondeductible individual retirement account) to a nondeductible individual retirement account.
(2) A contribution by distributions of an exempt trust under the provisions of § 30391(a) of this title, but only if said rollover contribution originates from a fully paid distribution within one (1) single taxable year of a participant by reason of separation of service, and if the rollover contribution meets the requirements of subsection (b)(2) of said section.
(3) A rollover contribution of the balance of the savings account of the participants in the Retirement Savings Accounts Program, created under the provisions of §§ 761 et seq. of Title 3, but only if said rollover contribution meets the requirements set forth in subsection (b)(5) of § 786-9 of Title 3.
For purposes of this subsection, and subject to the limitations of clauses (1) and (2), the qualified rollover contribution shall be equal to the amount paid or distributed out of an individual retirement account, a nondeductible individual retirement account, or a trust exempt under the provisions of § 30391(a) of this title, reduced by the tax withheld pursuant to clauses (4)(A) and (5)(A) of subsection (d) of this section.
History —Jan. 31, 2011, No. 1, § 1081.03, retroactive to Jan. 1, 2011; Dec. 10, 2011, No. 232, § 97.