Rev. Proc. 77-24

Section 1. Purpose

.01 The purpose of this Revenue Procedure is to provide guidance to sponsoring organizations that may need to revise their prototype individual retirement accounts, annuity contracts, or endowment contracts (IRA's) to permit them to be used as spousal IRA's. The Tax Reform Act (TRA) of 1976 [Pub. L. 94-455, 1976-3 C.B.] authorizes deductions from income in taxable years beginning after December 31, 1976, for contributions to separate spousal IRA's established and maintained for both the employed individual and his or her nonemployed spouse.

.02 This Revenue Procedure identifies those plans for which changes are appropriate because of the TRA of 1976, and provides revisions which can be incorporated in them with resultant automatic IRS approval of the revised plan instruments without the issuance of new option letters.

.03 Except as provided in section 4, this Revenue Procedure does not apply to spousal IRA plan instruments providing for the use of a single account with two subaccounts.

Sec. 2. Background and General Information

.01 Under Rev. Proc. 75-6, 1975-1 C.B. 646, the National Office has issued several thousand favorable opinion letters on prototype trust and custodial account agreements which satisfy the requirements of section 408(a) of the Internal Revenue Code of 1954 and prototype annuity or endowment contracts which satisfy the requirements of section 408(b). Many of these plan instruments may be used for spousal IRA's without further change because the TRA of 1976 did not create any new requirements, or modify any of the existing requirements in section 408(a) and (b) of the Code.

.02 The TRA of 1976 added or revised the following sections of the Internal Revenue Code relating to the tax treatment of contributions to or distributions from IRA's:

220 -- (New) Deductibility of contributions for the benefit of a spouse.

219 -- Additional 45 days provided for making contributions; extended eligibility to permit participation by certain members of the armed forces reserves, national guard units, and volunteer firefighters.

408(d)(4) -- Taxes income on excess contributions in the year contribution was made instead of in the year distributed.

4973 -- Relief from the excise tax on certain excess contributions which are withdrawn timely.

None of the above revisions affect sections 408(a) and (b) of the Code, which contain the requirements that IRA programs must meet in order to be offered to the public as savings vehicles.

.03 Sponsoring organizations that have received favorable opinion letters covering their prototype trust and custodial account instruments, and prototype annuity and endowment contracts, may use those instruments for establishing new spousal IRA's since they already satisfy the requirements of either section 408(a) or 408(b) of the Code.

.04 Where IRA instruments (including annuity and endowment contracts) now contain information paragraphs on the limitations and restrictions on the deductibility of contributions under section 219 of the Code and the treatment of excess contributions under sections 408(d)(4) and 4973, sponsors will undoubtedly want to modify those paragraphs to reflect the revisions pertaining to them made by the TRA of 1976, as described in sec. 2.02 above.

.05 Sponsoring organizations may also want to redesign their trust or custodial account instruments so that the signature of both spouses on a single instrument will authorize the creation of separate trust or custodial accounts for each of them.

.06 Although the TRA of 1976 did not amend Code section 408(e)(2) through (4), relating to the effect of borrowing, pledging, and prohibited transactions, these actions by the nonemployed spouse will now have consequences under those provisions, since he or she will be the individual for whose benefit an IRA is established or the owner of an annuity or endowment contract. Where IRA instruments and contracts refer to the consequences, under those provisions of the Code, of actions by the individual contributing to the account or contract (who may be the employed spouse), sponsors may also want to modify the instruments and contracts to also refer to actions by the nonemployed spouse.

Sec. 3. Revisions to IRA Instruments

.01 No revisions are required to be made in previously approved IRA instruments with respect to any of the plan provisions which are required to be in the instruments by sections 408 (a) and (b) of the Code.

(1) However, even if a sponsor does not convert these approved instruments for use as spousal IRA's, trust and insurance contract provisions dealing with the deduction limitations and restrictions in section 219 of the Code, and the tax treatment of excess contributions as provided in sections 408(d)(4) and 4973, should be modified to reflect the changes made by the TRA of 1976 which are outlined in section 2.02 above.

(2) Plan instruments which are converted for use as spousal IRA's, in addition to the changes described in section 3.01(1) above, should be modified to add information about Code section 220 and the consequences of actions described in section 408(e)(2) through (4) caused by these changed circumstances, as explained in section 2.06 above.

.02 These modifications may be accomplished in either of two ways:

(1) By removing such paragraphs from the plan instrument and including the modified paragraphs only in the disclosure statement required by section 1.408-1(d)(4) of the Income Tax Regulations, or

(2) By changing affected paragraphs of the plan to revise information about sections 219, 408(d)(4) and section 4973 for all plans pursuant to section 3.01(1) above, and to add information about new section 220, and about section 408(e)(2) through (4) for plan instruments converted for use as spousal IRA's pursuant to section 3.01(2).

.03 Technical guidance on appropriate language for describing these changes may be obtained by reference to IRS Publication 590--Tax Information on Individual Retirement Savings Programs (1977 Edition). Single copies may be obtained from local District Directors' Offices, or supplies may be purchased from the U.S. Government Printing Office (Stock No. 048-004-01379-7).

.04 Each spouse opening an IRA through use of a trust or custodial account agreement or an annuity or endowment contract which the Service has already approved prior to the effective date of this Revenue Procedure may sign an IRA instrument in his or her own name as owner or grantor of his or her IRA. Where one spouse now has a regular IRA, the use of that account or contract may be continued as a separate spousal IRA.

.05 Sponsors that want to modify their trust and custodial account instruments to incorporate signatures for both spouses, so that a separate trust or custodial account may be maintained for each spouse under the same instrument, should make the following changes in addition to those in section 3.01(2):

(1) In the introductory or preamble paragraphs for the plan instrument, insert, with instructions to adopting individuals to check the appropriate box, the following sentence: "This agreement is for a ??? regular individual retirement account or a ??? spousal individual retirement account."

(2) In the section of the plan instrument which covers the administration of the plan, insert the following paragraph: "Where paragraph ---- is checked for spousal accounts, separate trust (custodial) accounts will be opened and maintained in each spouse's name. Contributions made on behalf of each spouse will be credited to that spouse's separate account." (The paragraph number is the one in the plan which contains the sentence in (1) above.)

(3) Provide a second signature line for the second trust grantor or owner.

.06 Amendments described herein to the IRA plan instruments will have no adverse effect on favorable opinion letters issued prior to the date of this Revenue Procedure. The Service will not accept requests for opinion letters on amendments that are within the scope of this Revenue Procedure.

.07 Form 5305, Individual Retirement Trust Account, and Form 5305-A, Individual Retirement Custodial Account, may be used to open a spousal IRA in the name of the spouse who signs the form. The husband should complete and sign the instrument covering his IRA, and the wife should complete and sign the instrument covering her IRA.

Sec. 4. Transitional Rule.

This Revenue Procedure does not authorize the submission of requests for approval of spousal IRA plan instruments providing for the use of a single account with two subaccounts. The Service will accept requests for opinion letters on such spousal IRA instruments only after issuance of proposed or temporary Income Tax Regulations, or other guidelines, covering their use.

Sec. 5. Disclosure Statement Requirements

.01 In the case of an IRA maintained or to be maintained by an individual, revisions of the plan instrument in accordance with Section 3 of this Revenue Procedure shall not be considered, with respect to that individual, to be either a material change in the governing instrument, within the meaning of section 1.408-1(d)(4)(ii)(B) of the regulations, or an amendment of the governing instrument to which section 1.408-1(d)(4)(ii)(C) of the regulations applies

.02 If a nonemployed spouse executes an IRA plan instrument, revised pursuant to section 3 of this Revenue Procedure, so that an IRA thereby is or will be maintained on behalf of, and owned by, such spouse, a disclosure statement shall be furnished to such spouse pursuant to section 408(i) of the Code. In addition, such a disclosure statement shall be furnished to the nonemployed spouse where he or she does not execute the IRA plan instrument but the other spouse executes any provision of such instrument, or any other document, whereby the IRA plan instrument becomes a spousal IRA.

Sec. 6. Effect on Other Documents

.01 Rev. Proc. 75-6 is hereby modified to provide automatic approval for amendments of IRA plan instruments made in accordance with section 3 of this Revenue Procedure by sponsors that have received prior opinion letters on their prototype trust agreements, custodial account agreements, and individual annuity or endowment contracts, approving them for use as IRA's.

.02 Rev. Proc. 75-6 is also modified to provide for the issuance of opinion letters on other prototype spousal IRA instruments not covered by section 6.01, and ruling letters on employer and employees association IRA's for their employees or members and their spouses, whether pertaining to amendments to plans or to initial approvals, submitted after this date. However, see section 4 for the transitional rule applicable to spousal IRA plan instruments providing for the use of a single trust or custodial account with two subaccounts.

Sec. 7. Effective Date

This Revenue Procedure is effective July 6, 1977.

¹ Also released as IR-1855, dated July 6, 1977.