Indian Fishing Rights Income and Retirement Plan Compensation
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This rule lets certain tax-exempt income from Indian fishing rights-related work count as compensation when calculating limits for qualified retirement plan contributions and benefits. The income does not lose that treatment just because it is exempt from federal income tax and employment taxes. The rule mainly affects Tribal employees, Tribal retirement plan sponsors, plan administrators, and beneficiaries. Plans may need to update administration practices so eligible fishing rights-related pay is included in compensation for section 415 retirement plan limits for plan years ending on or after May 4, 2026.
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Key Changes
- Treats eligible Indian fishing rights-related service income as compensation for qualified retirement plan contribution and benefit limits.
- Confirms that the income can count even though it is exempt from federal income tax and employment taxes.
- Applies to plan years ending on or after May 4, 2026.
Obligations
What this law requires
When applying Internal Revenue Code section 415 limits on qualified retirement plan benefits and contributions, treat amounts paid to an Indian Tribe member, directly or through a qualified Indian entity, for services performed in the Tribe’s fishing rights-related activity as potentially includible compensation; do not exclude the amounts solely because they are exempt from federal income tax or employment taxes under section 7873(a)(1) or (a)(2).
Determine whether eligible fishing rights-related remuneration constitutes wages, salaries, or earned income for section 415 compensation purposes without regard to the income tax and employment tax exemptions provided by section 7873.
For qualified retirement plan distributions attributable to contributions based on remuneration for services performed by a Tribal employee in a fishing rights-related activity, treat the contribution amount as the participant’s investment in the contract under section 72(f)(2), so that distributions of those contribution amounts are nontaxable while distributions attributable to earnings on those contributions are taxable under section 72 basis recovery rules.
Apply the section 72 basis recovery rules to determine the taxable and nontaxable portions of distributions attributable to fishing rights-related income; do not allow participants to elect to receive the nontaxable portion first in a manner inconsistent with section 72.
If a qualified retirement plan permits designated Roth contributions, contributions attributable to fishing rights-related income may be treated as designated Roth contributions only where the participant is entitled to treat the amount as investment in the contract under section 72(f)(2).