The Pension Specialists Blog

To: IRA Custodians/Trustees

From: James M. Carlson, J.D. President

Date: October 20, 2011

Subject: IRS Announces 2012 Limits For IRAs and Pension Plans

Today the IRS announced to 2012 limits applying to IRAs and pension plans by issuing IRS news release 2011-103.

The IRA contribution limits are unchanged - $5,000 if the individual is younger than age 50 in 2012, and $5,000 if he or she attains age 50 or older in 2012.

The maximum SEP contribution for 2012 will increase to $50,000 from $49,000.

The SIMPLE IRA contribution limits are unchanged for 2012. The maximum elective deferral contribution amount is $11,500 for a person who is younger than age 50 in 2012 and $14,000 if he or she attains age 50 or older in 2012.

The 401(k) elective deferral contribution limits do change for 2012. The maximum elective deferral contribution amount is $17,000 (up from $16,500) for a person who is younger than age 50 in 2012 and $22,500 (up from $22,000) if he or she attains age 50 or older in 2012.

The compensation ranges applying to deductible IRA contributions do increase.

The 2012 compensation range applying to a person whose filing status is single, head of household or qualifying widower is $58,000 - $68,000 (up from $56,000 - $66,000).

The 2012 compensation range applying to a person whose filing status is married/joint return and an active participant is $92,000 - $112,000 (up from $90,000 - $110,000).

The 2012 compensation range applying to a person whose filing status is married/joint return but not an active participant is $173,000 - $183,000 (up from $169,000 - $179,000).

The 2012 compensation range applying to a person whose filing status is married but filing a separate return is unchanged at $0 - $10,000.

The compensation ranges applying to Roth IRA contributions have increased for 2012.

The 2012 compensation range applying to a person whose filing status is single, head of household or qualifying widower is $110,000 - $125,000 up from $107,000 - $112,000.

The 2012 compensation range applying to a person whose filing status is married/joint return is $173,000 - $183,000 up from $169,000 - $179,000.

The 2012 compensation range applying to a person whose filing status is married but filing a separate return is unchanged at $0 - $10,000.

The compensation ranges applying to a savers tax credit also will increase. The new income ranges will be covered in the October issue of the Pension Digest.

CWF will be revising its brochures and IRA Forms to incorporate the 2012 limits.

Categories:

On September 17, 2011, the Employee Benefits Security Administration (EBSA) of the Department of Labor announced it will re-propose its rule on the definition of a fiduciary. The new proposed rule is expected to be released in early 2012.

On October 22, 2010, the EBSA had published a proposed rule revising a 1975 regulation defining when a person is a “fiduciary” with respect to an IRA or pension plan by reason of giving investment advice for a fee. The 1975 regulation provided for a five-part test to determine if a person was a fiduciary. Under this rule, a person is a fiduciary only if he or she: (1) makes recommendations on investing in, purchasing or selling securities or other property, or gives advice as to their value; (2) on a regular basis; (3) pursuant to a mutual understanding that the advice; (4) will serve as a primary basis for investment decisions; and (5) will be individualized to the particular needs of the IRA or plan.

A person who did not meet all five conditions was and is not a fiduciary. The current EBSA believes there are situations where a person should be a fiduciary even though they are not one under existing law. So a new rule was proposed with the goal to make many more individuals fiduciaries.

On July 26, 2011, Phylis C. Borzi, assistant secretary of labor, EBSA, testified before the House Committee on Education and the Workforce, Subcommittee on Health, Employment, Labor, and Pensions. She testified as to the goals and need for a new definition of fiduciary. There was substantial negative feedback. Even Rep. Barney Frank, D-Mass., the ranking member of the House Financial Services Committee, wrote the DOL and suggested the withdrawal of the proposed rule and the issuance of a new proposed rule to be coordinated with similar actions being taken by the SEC and the CFTC.

CWF will keep you informed.

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IRS Issues 2012 Indexed Amounts for HSAs

The HSA contribution limits for 2012 are slightly larger than the 2011 limits. The Treasury Department and Internal Revenue Service issued new guidance on the maximum contribution levels for Health Savings Accounts (HSAs) and out-of-pocket spending and deductible limits for High Deductible Health Plans (HDHPs) that must be used in conjunction with HSAs. The 2012 limits are set forth in Revenue Procedure 2011-32. In this revenue procedure, the IRS did not discuss whether the catch-up contribution amount of $1,000 changed. We have assumed it did not change for 2012.

HSA Maximum Contribution Limits

	2011	2012	Change
Single HDHP	$3,050	$3,100	+ $50
Family HDHP	$6,150	$6,250	+ $ 100

HSA Catch-Up Contributions

	2011	2012	Change
Age 55 and Older	$1,000	$1,000	$0

High Deductible Health Plans

Minimum Annual Deductible Maximum Annual Out-of Pocket Expense

	2011	2012	2011	2012
Single Coverage	$1,200	$1,200	$5,950	$6,050
Family Coverage	$2,400	$2,400	$11,900	$12,100

The IRS announces this change in May each year so that employers and individuals will have sufficient time to settle on HDHP insurance coverage and HSA contributions for 2012.

Categories: Health Savings Accounts

Tammie A. Geier of the Office of the Associate Chief Counsel (Procedure and Administration).

Part III - Administrative, Procedural, and Miscellaneous

Truncating Social Security Numbers on Paper Payee Statements

Notice 2011-38

SECTION 1. PURPOSE

This notice announces an extension and modification of the pilot program announced in Notice 2009-93, 2009-51 I.R.B. 863, which authorized filers of certain information returns to truncate an individual payee’s nine-digit identifying number on specified paper payee statements furnished for calendar years 2009 and 2010, if the filers met certain requirements. This notice extends the pilot program as to paper payee statements furnished for calendar years 2011 and 2012, in order to allow more time for the IRS and taxpayers to evaluate the program. This notice also modifies the requirements announced in Notice 2009-93 by excluding Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, from the pilot program as it is an “acknowledgement” required by section 170(f)(12), rather than a payee statement. Therefore it is not included in the scope of this pilot program.

SECTION 2. BACKGROUND

An information return is a return, statement, form, or other document that must be filed with the IRS to report certain payments or distributions to a payee or amounts received from a payee in a calendar year. See section 6724(d)(1); Treas. Reg. § 301.6721-1(g)(1). A filer is any person required to file an information return. See Treas. Reg. § 301.6721-1(g)(6). A payee is any person who is required to receive a this notice are also included. See Rev. Proc. 2009-49, 2009-51 I.R.B. 879. 2 Treas. Reg. § 301.6721-1(g)(5). A filer generally must also furnish a payee statement to each payee that contains the same information as the information return for that payee. See section 6724(d)(2); Treas. Reg. § 301.6722-1(d)(2). Generally, filers are required to furnish payee statements to payees on or before January 31st of the year following the calendar year for which the information return is made. See, e.g., sections 6041(d) and 6042(c). Filers may be subject to penalties for failure to file correct information returns or furnish correct payee statements. See sections 6721 and 6722.

Regulations, forms, or instructions to forms typically require that the payee statement include the identifying number of the payee. The three types of identifying numbers applicable to individuals are social security numbers, IRS individual taxpayer identification numbers, and IRS adoption taxpayer identification numbers. All three of these identifying numbers are nine-digit numbers taking the form 000-00-0000. Treas. Reg. § 301.6109-1(a)(1)(i).

A person’s identifying number is sensitive personal information. A risk exists that this information could be misappropriated from a paper payee statement and misused in various ways, such as to facilitate identity theft.

SECTION 3. SCOPE

This notice applies only to paper payee statements in the Form 1098 series (excluding Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes), Form 1099 series, and Form 5498 series. Substitute and composite substitute statements (within the meaning of Treas. Reg. § 301.6722-1(a)(1)) that meet the requirements of (excluding Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes), Form 3 This notice does not apply to any information return filed with the IRS, any payee statement furnished electronically, or any payee statement not specified in this notice.

During this extended pilot program, truncation will be permitted only for individual identifying numbers on the paper payee statements specified in this section. Truncation of payee employer identification numbers (EINs) or filer identifying numbers is not permitted. Truncation of identifying numbers is not permitted on information returns filed with the IRS or on any payee statements furnished electronically.

SECTION 4. REQUIREMENTS

A filer must satisfy the requirements set forth in this section to be authorized to truncate identifying numbers for individuals on the paper payee statements for calendar years 2011 and 2012. The IRS will treat a filer as having satisfied any requirement in Treasury and IRS guidance, whether in a regulation, form, or form instructions, to include a payee’s identifying number on a paper payee statement if the following requirements are met:

.01 The identifying number is a social security number, IRS individual taxpayer identification number, or IRS adoption taxpayer identification number;

.02 The identifying number is truncated by replacing the first five digits of the nine-digit number with asterisks or Xs (for example, a social security number 123-45- 6789 would appear on the paper payee statement as ***-**-6789 or XXX-XX-6789); and

.03 The truncated identifying number appears on a paper payee statement (including substitute and composite substitute statements) in the Form 1098 series Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, N.W., 4 1099 series, or Form 5498 series for calendar years 2011 and 2012.

Truncation of an identifying number on a paper payee statement in the manner set forth in this Section 4 is authorized notwithstanding calendar year 2011 form instructions that state that the pilot program announced in Notice 2009-93 has expired.

SECTION 5. EFFECTIVE DATE

This notice is effective upon release.

SECTION 6. REQUEST FOR COMMENTS

The IRS invites the public to submit comments on this notice by July 29, 2011, and is particularly interested in comments from payors that furnished paper payee statements with truncated identifying numbers under the original pilot program as well as comments from payees that received paper payee statements with truncated identifying numbers for either calendar year 2009 or 2010. The IRS is interested in learning about issues encountered by payors and payees alike. The IRS also welcomes comments on whether payors should be allowed to truncate a payee’s EIN, whether truncation should be permitted on additional types of payee statements, and whether payors should be allowed to truncate a payee’s identifying number on electronically furnished payee statements.

Comments should be submitted to: Internal Revenue Service, CC:PA:LPD:PR (Notice 2011-38), Room 5203, P.O. Box 7604, Ben Franklin Station, N.W., Washington, D.C. 20044. Alternatively, comments may be hand delivered between the hours of 8:00 a.m. and 4:00 p.m., Monday through Friday, to CC:PA:LPD:PR (Notice 2011-38), 5 Washington, D.C. Comments may also be transmitted electronically via the following e- mail address: Notice.Comments@irscounsel.treas.gov. Please include “Notice 2011- 38” in the subject line of any electronic communications. All comments will be available for public inspection and copying.

SECTION 7. DRAFTING INFORMATION

The principal author of this notice is Tammie A. Geier of the Office of the Associate Chief Counsel (Procedure and Administration). For further information regarding this notice, please contact Tammie A. Geier at (202) 622-4940 (not a toll-free call).

Categories:

April 5, 2011

1. IRS Ends Pilot or Trial Truncation Program Effective for 2011 Forms. The 2011 Form 1099-R is required to be completed to show the recipient’s complete identifying number (SSN) on all copies of the forms
   
   
2. Box 7 has two boxes. In the first box, the IRA custodian will insert the reason code describing the distribution. The second box is to be checked if the distribution is from a traditional, SEP, or SIMPLE IRA.
   
   After receiving a suggestion from CWF, the IRS changed the last sentence to read, “Do not check the box for a distribution from a Roth IRA or for an IRA recharacterization.” Before it read, “it is not necessary to check the box for a distribution from a Roth IRA or for an IRA recharacterization.” The fact is – if this box was checked for a Roth IRA distribution, the IRS still sent a tax assessment letter asking why the recipient had not included Roth IRA distribution amount “as taxable”on their tax return.
   
   
3. The IRS has chosen to increase the discussion of prohibited transactions. This is an indication that the IRS expects IRA custodians to report prohibited transactions when they happen on account of the accountholder or the inheriting beneficiary. The new paragraph on page 2 reads, “Prohibited transactions. If an IRA tion with respect to an IRA, the assets of the IRA are treated as distributed on the first day of the tax year in which the prohibited transaction occurs. lRAs that include, or consist of, non-marketable securities and/or closely held investments, in which the IRA owner effectively controls the underlying assets of such securities or investments, have a greater potential for resulting in a prohibited transaction. Report the distribution as you normally would for the IRA that has engaged in the prohibited transaction. Enter Code 5 in box 7.
   
   
4. With the extension of Qualified Charitable Distributions for 2010 and 2011, the 2011 1099-R instructions again state the reporting rule that there is no special reporting by the IRA custodian for qualified charitable distributions or for qualified HSA funding distributions.
   
   
5. A new paragraph has been added discussing special distributions arising from distributions under the Employee Plans Compliance Resolution System(EPCRS). In some situations. the IRS has ruled that it will be permissible for an IRA custodian to return certain excess employer contributions (but not elective deferrals), and the earnings on them, under SEP, SAR-SEP or SIMPLE-IRA plans to the employer. In such case, the gross distribution is to be entered in box 1, 0 in box 2a and enter Code E in box 7.
   
   
6. Added a new paragraph for payments to covered expatriates (i.e. individuals who have given up U.S. citizenship). The IRA custodian is to follow the guidance provided by Notice 2009-85.

If you have any questions please call us at 800.346.3961.

Categories: Governmental Reporting

2010/2011 HSA Law Changes and HSA Forms Changes

Date: December 2010

Subjects: (1) 2010/2011 HSA Law Changes and HSA Forms Changes
(2) 2010/2011 HSA Amendments

We revised our HSA plan agreement forms in May of 2010 to incorporate the HSA law changes made earlier in March of 2010. The IRS recently issued additional guidance, IRS news release 2010-95, Notice 2010-59 and Revenue Ruling 2010-23. We have again revised these forms.

An HSA custodian will want to use HSA plan agreement forms with a revision date of May 2010 or later for HSAs opened in 2011. If you have our HSA FormSystem, updated forms will be furnished by December 23, 2010. Although it appears the IRS will not be requiring an HSA custodian to furnish a 2010/2011 HSA amendment, we recommend you do so. HSA owners should be informed of the following law changes and that the 2011 HSA limits are the same as the 2010 HSA limits.

Section 9003 of the Patient Protection and Affordable Care Act was enacted on March 23, 2010. It revised the definition of medical expenses as it relates to over-the-counter drugs or medicines. It is generally effective as of January 1, 2011. An HSA distribution used to pay for a medicine or drug is a tax-free qualified medical expense only if (1) a prescription is required for the medicine or the drug, (2) a prescription is not required for a medicine or a drug since it is an over-the-counter drug or medicine, but an individual still obtains a prescription, or (3) it is insulin. However, an HSA distribution (i.e. a reimbursement) made with respect to over-the-counter drugs without a prescription, after December 31, 2010, will still qualify as a qualified medical expense, if the over-the-counter drugs or medicines were purchased or bought before January 1, 2011.

For purposes of meeting the requirement that an HSA owner must obtain a prescription for an over-the-counter drug, a“prescription means a written or electronic order for a medicine or drug that meets the legal requirements of a prescription in the state in which the medical expense is incurred and that is issued by an individual who is legally authorized to issue a prescription in that state.”

The requirement to obtain a prescription was not extended to medical items or equipment. This prescription requirement only applies to over-the-counter medicines or drugs. A withdrawal of HSA funds used to purchase equipment such as walkers and crutches, supplies such as bandages and braces, and diagnostic devices such as blood sugar test kits do not need a prescription in order to qualify as a qualified medical expense. Such medical items or equipment will qualify as medical care if the definition set forth in Code section 213(d)(1) is met. Such medical care includes expenses for the diagnosis, cure, treatment, mitigation, prevention of disease, or for the purpose of affecting any structure or function of the body. However, expenses for any item which is merely beneficial to a person’s general health are not medical care expenses.

Unless an individual is age 65 or older, is disabled, or is a beneficiary, the withdrawal of HSA funds after December 31,2010 for non-qualified medical reasons, will subject the recipient to a 20% excise tax. There is a 10% excise for such distributions occurring in 2010.

Categories: Pension Alerts

IRS Issues Additional Guidance on QCD's

January 17, 2011

The IRS has issued additional guidance on QCD's on January 12, 2011. This guidance will allow IRA custodians to prepare their tax reporting forms for 2010 and 2011 and allow IRA accountholders to prepare their federal income tax forms for 2010 and 2011. This relief can be found at http://irs.gov/retirement/article/0,,id=234258.00.html.

The IRS has ruled that it will not be granting any special rollover relief to individuals who had taken their RMD's for 2010 prior to extension of the QCD's laws.IRA accountholders who had received their 2010 RMDs will not be able to re-contribute those distributions and then have them redistributed to a charity as the QCDs rules require.

The IRS does not discuss whether or not it had the authority to issue this special relief. It simply explains that any distributions, including any RMDs, which the IRA accountholder actually receives cannot qualify as QCDs. This rule also applies to amounts deemed paid to or on account of the IRA accountholder. Therefore, if an IRA accountholder had income tax withheld with respect to his or her RMD distribution, such amount is also ineligible to be rolled over.

Form 1099-R Reporting by the IRA Custodian.

The IRA custodian is to use the standard procedures to prepare its Form 1099-Rs for 2010 and 2011. There is no special reporting for a QCD or RMD made in January of 2011 for 2010.

If the distribution occurs in 2010, it will he reported on the 2010 Form 1099-R.

If the distribution occurs in 2011, including any 2010 QCDs made on or before January 31,2011, is reported on the 2011 Form 1099-R.

Special Calculation For the 2011 RMD.

Although the IRS was unwilling to give the major relief of creating a special rollover rule for those who had already taken their 2010 RMD prior to the law change, it has created a special rule which provides some limited relief. Somewhat surprisingly, the RMD calculation formula for 2011 is modified by the special QCD rule. The balance as of January 31, 2010, is reduced by the full amount of the 2010 QCD/RMD made in January of 2011. The IRS does not offer any explanation for making this special rule. The general RMD as set forth in the governing regulation does not provide for this special rule. Under the RMD calculation rule as set forth in the regulation, an IRA accountholder who attains age 70½ in 2010 who elects to take his or her 2010 RMD from January 1 to April 1,2011, is not able to decrease the December 31, 2010 balance by the amount taken in 2011. This special rule now allows such an adjustment to be made. This special rule is restricted to the 2011 calculation.

IRA Accountholder Reporting on 2010 Tax Return For QCDs Made in 2010

The standard rules for an IRA accountholder to complete his or her tax return to properly reflect a 2010 QCD made in 2010 still apply. The IRA custodian prepares the Form 1099-R to show that the distribution is fully taxable. The individual has the task of completing his or her tax return to show the distribution is nontaxable since it was a QCD. If the distribution is a QCD,line 15a is to be completed with the total distribution, enter 0 on line 15b. There is no requirement in this situation to write QCD next to line 15b although it is a good idea to do so even if not required. The individual is to attach a note of explanation if there is more than one reason why the IRA distribution to be reported on lines 15a and 15b is not taxable (i.e.not includable in income). For example, the person has a QCD and also a rollover or a qualified HSA funding distribution: Line 25b:$3,000 QCD, $1,000 rollover and a HFD of $6,150.

IRA Accountholder Reporting on 2010 Tax Return For 2010 QCD Made In January of 2011.

The individual must report on his or her Form 1040 as follows. Line 15a is to be completed with the full amount of his or her QCD as made in January of 2011 for 2010. This is so even if such QCD exceeds $100,000. Then the individual is to leave line 15b blank (i.e. do not include any amount), but he or she is to write QCD next to line 15b.These IRS instructions will be set forth in the 2010 IRS Publication 590, Individual Retirement Arrangements (IRAs).Certain individuals will need to prepare their 2010 Form 8606 in a special manner. If an individual has basis with respect to his or her traditional IRAs, and received a distribution on 2010, other than the January 2011 QCD for 2010, the individual will need to adjust the amount to be reported on Form 806, line 6, by any 2010 QCD made in January of 2011.

CWF Summary/Planning For 2012

The IRS has chosen not give any special relief to individuals who took their RMDs prior to the law change. This is unfortunate, but the IRS is not the blame when Congress left the law change until the last moment as it did. The deadline for 2011 QCDs is December 31,2011. It is certainly possible that a new tax law applying for2012 and subsequent years will not be enacted by December 31,2012 and again it will be unclear if QCD's will apply for 2012. If 2010 RMD checks would have had the payee of the check be the charity rather than the individual, such distributions would have qualified as a QCDs since all of the QCD requirements would have been met. Even if there were no special QCD rules, it is permissible for an IRA custodian to issue an individual's RMD check directly to a third party as long as the IRA custodian reports on the Form 1099-R that the distribution was made to the individual. If this situation presents itself again in 2012, IRA custodians and IRA accountholders may wish to adopt the approach of having the payee of the check be the charity rather than the IRA accountholder.

Categories: Pension Alerts

April 18, 2011 Is Nonextended Tax Filing Deadline For 2010. October 17, is Extended Tax Filing Deadline

January 11, 2010

In News Release IR-2011-1 the IRS announced taxpayers will have until Monday, April 18 to file their 2010 federal income tax return. This also means traditional and Roth IRA accountholders, HSA owners and CESA accountholders have until April 18 to make their 2010 IRA contribution. Why? Under tax rules, District of Columbia holidays impact tax deadlines the same way that federal holidays do. In the District of Columbia, Emancipation day is a holiday and in 2011 it falls on a Friday. This means the tax deadline of April 15th, is extended to the following Monday, April 18th.

Taxpayers requesting an extension will have until October 17 to file their 2010 tax returns. In addition, October 17, 2010 is a deadline for making certain SEP and SIMPLE IRA contributions. It is also the deadline for making recharacterizations for 2010 or correcting excess contributions for 2010.

If you have any questions please call us at 800.346.3961.

Categories: Governmental Reporting, Pension Alerts

IRA Amendments for 2010/2011

January 11, 2011

We have written a comprehensive IRA amendment for 2010/2011. This amendment contains an updated IRA plan agreement and an updated IRA disclosure statement. The law changes from 2005-2010 are covered, including the most recent qualified charitable distribution rules, the RMD waiver rule for 2009 including the impact on an inherited IRA when the accountholder died prior to 2009, the 2010 and 2011 Roth conversion rules, the new rules covering rolling over inherited funds within a 401(k) by a nonspouse beneficiary into either an inherited traditional IRA or an inherited Roth IRA, the special tax rules applying to certain storm areas, and other law changes.

Categories: Amendments, Pension Alerts

Who will Benefit and Not Benefit From the Special QCD/RMD Rules for January 2011 ?

January 11, 2011

The new tax law expressly authorizes a person to make his or her QCD for 2010 by January 31, 2011. A special election must be made. Such QCD will count towards the person's RMD for 2010.

Not Benefiting.

If a person had already taken his or her RMD for 2010, the IRS has concluded per the Wall Street Journal that they will not grant any special relief to those individuals who had already taken their 2010 RMDs by allowing them to return the RMD funds to the IRA and then they would do a QCD. RMDs are ineligible to be rolled over.

Benefiting.

An individual attaining age 70½ in 2010 has a required beginning date of April 1, 2011. This is this person's deadline for taking his or her 2010 distribution. The deadline is not December 31, 2010. Although there will be some individuals who attain age 70½ in 2010 and who also take their RMD in 2010, there will be quite a few who wait to take their 2010 RMD in 2011. Such individuals who make a QCD and designate it for 2010 by January 31, 2011 will benefit.

There will also be living traditional IRA accountholders who attain age 70½ in a year before 2010, but who failed to take his or her RMD by December 31, 2010. On a tentative basis, such accountholders will owe the 50% excise tax for an excess accumulation. However, if these accountholders are willing to make a QCD for 2010 by January 31, 2011, such QCD will also count as his or her 2010 RMD. Thus the excess accumulation will be corrected retroactively.

The same type of situation may exist for an IRA beneficiary. For whatever reason, an IRA beneficiary may have failed to take his or her RMD by December 31, 2010. On a tentative basis, such beneficiary will owe the 50% excise tax for an excess accumulation. However, if this beneficiary is age 70½ and older and is willing to make a QCD for 2010 by January 31, 2011, such QCD will also count as his or her 2010 RMD. Thus the excess accumulation will be corrected retroactively.

If you have any questions please call us at 800.346.3961.

Categories: Pension Alerts