DOL Re-Proposes Rule on Definition of a Fiduciary for IRAs and Pension Plans

Posted by James M. Carlson
Apr 30 2015

On April 20, 2015 the DOL finally issued its long awaited revised definition of who is a fiduciary. The DOL in 1975 issued a regulation defining a fiduciary. The current DOL does not like this definition and wants to change it.

The DOL’s proposal is very complicated and time will tell to what extent this proposal will be implemented. There is going to be substantial negative response to this proposal. One would hope Congress will take an active role in this matter because the DOL is essentially making new law without instruction from Congress to do so.

In October of 2010 the DOL proposed a new definition of who is a fiduciary for pension and IRA purposes. In September of 2011 after receiving substantial negative comments from powerful politicians from both parties the DOL stated it would be withdrawing the 2010 proposal.

The 2015 proposal would treat persons who provide investment advice or various recommendations to an IRA, the IRA owner, pension plan, plan fiduciary, the plan participant or a beneficiary as a fiduciary. The proposal contains certain exceptions when a person would not be considered to be a fiduciary,. but these exception rules are murky at best.

One of the primary goals of the DOL is to make any one serving an IRA or pension plan a fiduciary and then require such person to act in the best interest of the IRA owner or the pension plan participants. In theory this may seem very desirable, but it is unworkable in the real world. The DOL is well aware of the large amount of wealth being directly rolled over into IRAs from 401(k) plans and other retirement plans ($2 trillion over the next 5 years). The DOL believes that individuals who are non-fiduciaries may give imprudent and disloyal advice and then direct IRA owners to invest their IRA funds in investments based on their own interests rather than the best interest of the IRA owners (i.e. their clients). The DOL also believes most individuals are incapable of managing their own IRAs. The powers that be within the DOL do not really like that fact that most 401(k) plans are written to allow for participants to invest their own account balances. The DOL believes that professional money managers would do a better job.

In October of 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. One example, an investment representative selling an investment product to an IRA owner making a rollover contribution is not a fiduciary since he or she most likely is not performing services on a “regular basis”. So, the new rule has been proposed with the goal to make many more individuals fiduciaries.

The DOL’s proposal, if adopted, will radically change the definition of whom would be a fiduciary for IRA and pension purposes. We will will keep you informed. We expect Congress will furnish a response to the DOL’s proposal within the next 2-6 weeks. We would suggest a bank serving as an IRA custodian/ trustee will wish to inform its congressional representatives that this proposed regulation is too complicated and the DOL should be informed it should not be adopted and implemented.

Categories: Pension Alerts

SEPs - The Last Minute Retirement Plan and Tax Deduction

Posted by James M. Carlson
Mar 25 2015
Definitions

SEP — SEP is the acronym for Simplified Employee Pension plan. In order to have a SEP, two requirements must be met. First, an employer must sign a SEP plan document which may be: (1) the IRS model Form 5305-SEP; (2) a SEP prototype; or (3) a SEP plan as written specifically for that employer by an attorney. The employer maybe a gigantic corporation or a self employed person. Second, all eligible employees must establish (or have established for them) a SEP-IRA.

SEP-IRA —A SEP-IRA is a standard, traditional IRA established with a financial institution to which an employer has made a SEP-IRA contribution. The IRA custodian is required to report SEP-IRA contributions in box 8 on Form 5498. In all other respects, the standard, traditional IRA rules will apply to administering SEP-IRAs. Contributions to SEP-IRAs are always owned by the employee, once the funds have been contributed to the employee’s SEP-IRA.

Discussion

SEP plans may be established and funded by the normal tax deadline, plus extensions. A person may come into your institution in July of 2015, and make a SEP contribution of $52,000, for tax year 2014. If an individual has the proper extension(s) a SEP contribution may be made as late as October 15 of 2015, for tax year 2014.

The Contribution Rules Applying to SEPs are Very Favorable

1. The maximum contribution for 2014 is the lesser of $52,000, or 25% of a person’s compensation. The limit for 2015 is $53,000.

2. The age 70½ eligibility rule that applies to traditional IRAs does not apply to SEP-IRAs. A farmer, age 74 and still farming and has net income, may still make contributions to their SEP-IRA. A corporation (and any other employer) is required to make a contribution for any employee age 70½ or older, as long as the employee has met the eligibility requirements. The age discrimination laws prohibit an employer from not making such contributions. An employee may not waive the contribution.

3. All contributions made to a SEP-IRA by an employer are employer contributions, and are reported in box8 of Form 5498. However, an individual is permitted to make his or her annual traditional IRA contribution to the same IRA to which a SEP contribution is made. Annual contributions are reported in box 1 on Form 5498. Such annual contributions mayor may not be deductible.

4. An employer is not required to make SEP IRA contributions each year. Contributions are also discretionary as to amount.

5. The contributions that an employer makes for its employees are deductible by the business entity on its tax return. A corporation will claim the deduction on Form 1120. A partnership will claim the deduction on Form 1065, and partners will be informed of their respective shares on Schedule K-1. A sole proprietor may deduct SEP contributions on his or her Schedule C for Form 1040.

6. Contributions by the employer to a person’s SEP-IRA are not taxed for income tax purposes, withholding purposes, social security income tax purposes, Medicare tax purposes, or federal unemployment income tax purposes.

7. There are special contribution rules for self-employed individuals. A self-employed individual does “deduct” his or her contribution amount to a SEP-IRA on Form 1040. That is, the amount contributed to the SEP-IRA is not excluded from income, as occurs for corporate employers. Since the maximum contribution is the lesser of 25% of compensation, or $51,000 for 2013, one must calculate the “compensation” for a self-employed individual. Compensation for a self-employed person is his or her net earnings from self-employment, as decreased by (1) the amount contributed to their SEP-IRA, and (2) 50% of his or her self-employment tax (the IRS has a special chart and formula to be used for this calculation).

8. An employer is required to provide each employee with an annual statement indicating the amount contributed to the employee’s SEP-IRA for the year. A self-employed person is not required to prepare a statement for himself.

Categories:

Establishing a SEP for 2014

Posted by James M. Carlson
Mar 25 2015

As with any tax procedure, there are certain actions that must be taken in order for any business, including a one person business, to establish a Simplified Employee Pension Plan (SEP). If not properly established, the expected tax benefits will not be realized.

What must be done by the business? First, there must be written plan agreement. Most businesses will choose to complete and execute the IRA model Form 5305-SEP, Simplified Employee Pension–Individual Retirement Accounts contribution Agreement.

A business may set up its SEP for a year (e.g. 2014) as late as the due date including extensions for the tax year. So, a business may establish a SEP for 2014 on October 15, 2015, if it has an extension for its 2014 tax return.

The maximum contribution for 2014 is the lesser of: 25% of a person’s qualifying compensation or $52,000.

The business must provide certain information to each employee, if any. If no employees, then this information is not furnished. If there are employees, in general, they will be furnished a copy of the Form 5305-SEP and its instructions.

What must be done by each individual?

Each eligible employee, including the individual who is the sole proprietor or sole shareholder, must establish a SEP-IRA. A SEP-IRA is a standard traditional IRA to which a SEP contribution has been or will be made. The tax laws do not require a person who has an existing traditional IRA to set up a new SEP-IRA. Some financial institutions choose for administrative reasons to require a separate IRA, but the tax laws do not require it. If any employee would fail to have a SEP-IRA so the business did not make a SEP contribution for such employee, there would be no SEP and the expected tax benefits would not apply for the sponsoring business and other employees.

In summary, establishing a SEP is easy as long as the two steps above are completed for a one person business and the three steps are completed for a business with employees.

Categories:

Seeking IRA Contributions by April 15, 2015

Posted by James M. Carlson
Mar 25 2015

U.S. taxpayers are not taking advantage of IRAs as one would expect and hope. Many younger individuals have not grown up with IRAs being common. Many individuals do not understand that a person is able to contribute to both a traditional IRA and the 401(k) plan at work.

The IRS has recently released their tax data for tax year 2012. April 15th and the end of the 2014 tax year is close at hand. This is the deadline for contributions to a traditional IRA and a Roth IRA for 2014.The deadline for SEP-IRAs and SIMPLE-IRAs may be extended if a tax extension is in effect.

These 2012 IRA statistics show there is a substantial balance in IRAs (5.4 trillion dollars), with 86% of it (4.6 trillion) with-in traditional IRAs. This is primarily due to rollovers from 401(k) and other pension plans. These statistics also shows there should be larger "annual" IRA contributions. There were 198.6 million taxpayers for tax year 2012. 65.8 million individuals were covered by a pension plan and so they were active participants for IRA deduction purposes. There were 146.2 million taxpayers who were eligible to make either a traditional and/or Roth IRA contribution. Some individuals were only eligible to make non-deductible contributors. 80.4 million taxpayers were eligible to make deductible contributions as they had compensation and they were not covered by an employer sponsored pension plan. 11.3 million taxpayers made contributions to the four types of IRA assets set forth in Chart #1. $50.7 billion was contributed with 17.6 billion to Roth IRAs, 14.1 billion to traditional IRAs, 11.4 billion to SEP IRAs and 7.5 billion to SIMPLE IRAs. 135 million taxpayers were eligible to make an IRA contribution, but they chose not to do so. This number is much larger than it should be. The tax benefits of IRAs are substantial, but not so substantial that a large percentage of individuals make an IRA contribution.

As you would expect, the percentage of those individuals with higher incomes who make an IRA contribution is higher than the percentage applying to those with lesser incomes. But it is not as high as one would expect. For individuals who have adjusted gross incomes of $1 million or more, 413,157 out of a total of 718,895 are eligible to make a IRA contribution. Only 99,076 or 24% do so. In this day and age of financial planners one does wonder why the other 76% do not see the benefit to make an IRA contribution. For individuals who have adjusted gross incomes of $100,000 - $200,000, 21.7 million out of a total of 28.5 million are eligible to make a IRA contribution. Only 3.3 million or 15% do so. For individuals who have adjusted gross incomes of $50,000 - $75,000, 21.4 million out of a total of 28.7million are eligible to make a IRA contribution. Only 1.9million or 9% do so. It is 7.6% for those individuals with incomes between $40,000 - $50,000. It is 5.7% for those individuals with incomes between $30,000-$40,000. For individuals who have adjusted gross incomes of less than $30,000, 56.0 million out of a total of 78.0 million are eligible to make a IRA contribution. Only 1.3 million or 0.2% do so. Of the 11.3 million taxpayers who had IRA contributions, only 3.5 million were made by individuals who claimed a tax deduction on their personal tax return. Remember that the 5.5 million Roth IRA contributions are unable to claim a tax deduction for their contributions. A total of 1.6 million taxpayers had a SIMPLE IRA contribution. Only 97,000 taxpayers claimed a deduction on their tax returns. This means that 1.5 million contributions are made by a business on behalf of its employees. A total of .98 million taxpayers had a SEP-IRA contribution. 383.6 thousand taxpayers did claim a deduction on their tax return. This indicates that many one-person businesses have a SEP. However, small employers also will sponsor a SEP for their employees as the statistics show contributions being made for 600,000 employees. All IRA custodians want to service those individuals rolling over funds from 401(k) plans and other IRAs. Rollover contributions totaled 300 billion in 2012. The average rollover was $74,800. The average rollover into a Roth IRA was $18,000. Only 1.4% of rollovers went into a Roth IRA. This will certainly increase dramatically in future years as the law now permits individuals to rollover 401(k) funds directly into a Roth IRA. See the newsletter for an article discussing new IRS rules making it easier to rolling over basis into a Roth IRA. And individuals are increasing their Roth IRA conversions as 415,243 did a conversion which averaged $38,344. Under existing tax laws a person wants to maximize the amount he or she has in a Roth IRA. More people should be making IRA contributions than do. An excellent planning tool is not be used to the degree it should be. It is never too late to start making IRA contributions. Individuals should be making 401(k) contributions and IRA contributions and not just 401(k) contributions. During the next 45-75 days a financial institution should be seeking IRA/SEP/SIMPLE-IRA contributions and Roth IRA contributions.

The maximum IRA contribution limits for 2014 and 2015 is $5,500 if under age 50 and $6,500 if age 50 or older. The maximum SEP contribution for 2014 is $52,000 and $53,000 for 2015.

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Tax Law Proposals Will Cut by 50% the Pre-Tax Elective Deferral Limit

Posted by James M. Carlson
Dec 23 2014

Many people in Congress believe the federal government needs additional tax revenues and Congress is considering changes to accomplish this goal. This article discusses the proposed law changes for 401(k), 403(b) and governmental section 457(b) plans. An adjacent article discusses the proposed IRA changes. Except as stated otherwise, the new laws, if enacted, would be effective for the 2015 tax year. Time will tell if these or similar changes will be enacted.

Proposed change #1. Reduce the 2014 annual maximum 401(k) limit from $17,500/$23,000 to $8,750/$11,500 for Pre-Tax Elective Deferrals.

The $17,500 limit applies to those individuals younger than age 50 and the $23,000 limit applies to those individuals age 50 or older. Under existing law a participant may make both pre-tax elective deferrals and post-tax elective deferrals totaling $17,500/$23,000. Post-tax elective deferrals are called designated Roth contributions.

The right to make pre-tax deferrals would be reduced 50%. As under existing law, an employer would not be required to write its 401(k) plan to give the participants the right to make designated Roth contributions. But there would now be large tax incentive to do so. The only way for a person to make the maximum elective deferrals of $17,500 and $23,000 is for an employer to have a 401(k) plan authorizing designated Roth elective deferrals. In fact, an employer could restrict its 401(k) plan so that the only type of elective deferral which could be made by plan participants would be Designated Roth contributions.

The federal government at least on a short term basis will immediately realize more tax revenues from this change. Remember that a pre-tax elective deferral reduces a person’s income subject to federal taxation. For example, a 51 year old person earning $100,000 and deferring $23,000 would see his/her taxable income increase to $88,500 from $77,000 and thus he/she will pay income taxes on the additional $13,500. An individual would be able to make Designated Roth elective deferrals assuming the employer’s 401(k) plan authorizes such contributions.

This change would be effective for 2015 and such limits would not be changed until 2023. That is, the cost-of living adjustments would be suspended.

Proposed change #2. Under existing law the amount of compensation used to determine a person’s maximum pension contribution is $210,000 with a maximum contribution amount of $52,000. This limit is to be adjusted by a cost-of-living adjustment, but only if the adjustment is $1,000 or any multiple of $1,000. For example, the maximum contribution for 2015 will be $53,000 if this proposed change is not adopted. This annual adjustment would be suspended until 2023. Again, this change will raise revenue.

Proposed change #3. Beneficiaries of pension plans would become subject to the new RMDs rules very similar to those discussed within the IRA article. Again, this change would raise revenue.

Proposed change #4. In a limited situation there is a loophole in the RMD rules applying to a person who becomes a 5% owner after the year he or she attained age 70½, but he or she is still working. Must this person take an RMD now that he/she has become a 5% owner. The law does not clearly require such a distribution. Under existing law, a plan participant who is not a 5% may have a required beginning date of the April 1 of the year following the year he/she separates from service if such year is later than the year he/she attains age 70½. That is, he/she is not subject to the general rule that a person’s required beginning date is April 1 of the year following the year he/she attains age 70½. However, a participant who is a 5% in the year he/she attains age 70½, then such person has a required beginning date of April 1 following the year he/she attained age 70½.

Under the proposal, this person’s required beginning date is defined the April 1 of the year following the year he or she became a 5% owner regardless that the person has not yet retired.

Proposed change #5 will reduce the age for allowable in-service distributions to age 59½ for all plans – profit sharing, pension, 403(b) and governmental 457(b) plans. An employer may write its plan to provide for in-service distributions, but it is not required to do so. Under current law the earliest a pension plan may be written to allow an in-service distribution is age 62.

Proposed change #6 will repeal the requirement that a participant is prohibited from making elective deferrals for 6 months once he/she receives a hardship distribution of his/her elective deferrals. A participant receiving a hardship distribution would not be prevented from making subsequent elective deferrals for any period of time.

Proposed change #7 would revise the rollover rules applying to a distribution which has been reduced by a loan offset. It would not change existing law that a deemed distribution arising from a loan default is ineligible to be rolled over even though the participant must include such amount is his/her income and pay the 10% additional tax, if applicable. In the case of a loan offset, the participant is eligible to roll over the amount of the loan offset, but he/she must comply with the 60-day rule. For example, Jane Marple has a 401(k) account balance of $49,000 of which $8,000 is a loan made to herself. She instructs to directly rollover the non-loan amount of $41,000 to a traditional IRA. She is eligible to rollover such $8,000 but she must come up with the $8,000 and do so within the 60-day limit. If she does not do so, she will be required to include the $8,000 in her income, pay tax on it plus the 10% tax if applicable.

A new law would apply a new deadline to a participant in Jane Marple’s situation to roll over the $8,000 or some portion thereof. The new law would be very generous, she would have until her tax filing deadline (including extensions) for filing the federal income tax return for the tax year during which the plan loan offset occurs. For example, if Jane Marple directly rollover her $41,000 on January 30, 2015, she would have until April 15, 2016 to make a rollover contribution of $8,000 and such deadline could be extended to October 31, 2016 if she had a tax extension.

Proposed change #8 would revise the rules applying to contributions to 401(k), 403(b) and governmental 457(b) plans to coordinate such rules. Presently contributions to a governmental 457(b) plan are not coordinated. In addition, there would be repeal of the rules allowing special catch-up and additional contributions to 403(b) and governmental 457(b) plans at certain times. And there would be repeal of the special rules allowing employer contributions to section 403(b) plans for up to 5 years after termination of employment and the special rules for church employees and missionaries.

Proposed change #9. A distribution from a governmental section 457(b) to an individual not yet age 59½ would become subject to the 10% additional tax. Present law does not impose this tax.

The primary purpose of most of the proposed law changes is to raise additional revenue. Lowering the maximum limit of pre-tax elective deferrals will accomplish this goal as will imposing the 5-year on most inheriting beneficiaries. The 5-year rule seems very harsh when it is more likely that relatively large balances will be within 401(k), 403(b) or section 457(b) plan. Time will tell if these proposed changes will be enacted into law.

Categories:

Will 2014 be the last year for Traditional IRA Contributions

Posted by James M. Carlson
Dec 23 2014

We hope not, but time will tell. A recently introduced tax bill, the Tax Reform Act of 2014 would make some drastic changes to IRA laws and pension laws.

One Congress is soon ending and another Congress will soon be starting. The current chairmen of the Tax and Ways Committee is Mr. David Camp. He has proposed many major tax, law changes in a proposed tax bill, the Tax Reform Act of 2014.

This article discusses these proposed IRA changes. The adjacent article will discusses the pension changes.

Not too many politicians are willing to expressly promote that major changes be made to social security, but it will be interesting to see whether they are willing to change the IRA and pension laws which have existed for 40 years. Individuals have relied on the tax laws in deciding to make contributions. Many of the tax laws require a mandatory increase in various IRA/pension limits to reflect the impact of inflation. These mandatory increases result in less revenue being available to the federal government.

As with any law, Congress and the President may always change a law, whether it be social security or IRAs or pensions. Congressional representatives are always looking for new or additional sources of revenue. This is as true today as it was in 1986 when the decision was made to take away the right of many taxpayers to make tax deductible contributions. Prior to 1987, individuals contributed 35 billion dollars of deductible contributions, but that amount has now deceased to around 12 billion per year. Many individual are contributing to their employer’s 401(k) plans and not making contributions to their traditional IRAs. Existing law allows a person to do both.

What are the IRA changes within the proposed Tax Reform Bill of 2014? Except as stated otherwise, the new laws would be effective for the 2015 tax year.

Proposed change #1. All taxpayers with compensation will be eligible to make an annual Roth IRA contribution. Under existing law, individuals who incomes are “too high” are ineligible to make an annual Roth IRA contribution.

Proposed change #2. The right to make annual traditional IRA contributions is repealed. This includes both deductible and nondeductible contributions.

Proposed change #3. The 2014 and 2015 IRA contribution limit is $5,500 if under age 50 and $6,500 if age 50 and older. This limit is to be adjusted by a cost-of-living adjustment of $500 when the accumulated change is $500. This adjustment would be suspended until 2023.

Proposed change #4. The special rules applying to the withdrawal of traditional IRA and Roth IRA funds if used for a first-time home purchase would be repealed. Withdrawing funds from a Roth IRA for a first-time home purchase would no longer be a qualified (tax-free) distribution. And taxable funds withdrawn from either a traditional, SEP, SIMPLE or Roth IRA by a person under age 59½ would be subject to the 10% additional tax.

Proposed change #5. The right for an employer to establish a new SEP-IRA plan is repealed as of December 31, 2014. However, an employer with a SEP as of December 31, 2014 is grandfathered and is allowed to continue its SEP plan as long as such plan meets the existing requirements for such plan year and every year thereafter.

Proposed change #6. The right for an employer to establish a new SIMPLE-IRA plan is repealed as of December 31, 2014. However, an employer with a SIMPLE- IRA plan as of December 31, 2014 is grandfathered and is allowed to continue its SIMPLE-IRA plan as long as such plan meets the existing requirements for such plan year and every year thereafter.

Proposed change #7. Under existing law the amount of compensation used to determine a person’s maximum SEP-IRA contribution is $210,000 with a maximum contribution amount of $52,000. This limit is to be adjusted by a cost-of-living adjustment, but only if the adjustment is $1,000 or any multiple of $1,000. For example, the maximum contribution for 2015 will be $53,000 if this proposed change is not adopted. This annual adjustment would be suspended until 2023.

Proposed change #8. Under existing law the maximum deferral amount for 2014 is $12,000 if a person is under age 50 and $14,500 if the person is age 50 or older. These limits are to be adjusted by a cost-of-living adjustment but only if the adjustment is $500 or any multiple of $500. For example, the maximum limits will be $12,500 and $15,000 for 2015 if this proposed change is not adopted. This annual adjustment would be suspended until 2023.

Proposed change #9. Current law permits a person to recharacterize an annual contribution and also to recharacterize a Roth IRA conversion contribution. In the case of annual contribution it allows a person who has made a traditional IRA contribution to switch it to be a Roth IRA contribution or vice versa. In the case of a Roth IRA conversion contribution it allows an individual to un-do it for any reason. The proposed law would repeal the law authorizing rechacterizations. Why?

When one recharacterizes a prior Roth IRA conversion, the federal government will not collect the tax revenues which would have been paid if the individual was unable to un-do the conversion. That is, a conversion once made would be irrevocable.

With respect to recharacterizing a current year contribution, the administrative work for IRA custodians and the individual are very labor/paper intensive and complex for all parties involved, including the IRS. In order to simplify IRA administration, the proposal is to revoke such rules. Being able to do a recharacterization can be quite beneficiary for an individual, so CWF would have a less extreme suggestion. Allow the IRA custodian to charge reasonable fees to process a recharacterization.

The recharacterization rules give an individual substantial flexibility in planning and executing various transactions. Some people feel the law is too generous and that individuals should not be granted such planning flexibility.

Proposed change #10. Current law allows a beneficiary to withdraw his/her required distributions over his/her life expectancy. For example, a beneficiary age 39 would be able to take RMDs over a 43 time period. The new law would define the new general RMD rule to be – the beneficiary must use the 5-year to determine his/her RMDs. That is, all funds within the inherited IRA must be distributed by December 31 of the fifth year following the year the IRA owner died. An individual will almost always pay larger tax bills than is the case under existing law. The federal government will be able to collect more taxes much sooner than under existing law.

Mr. Camp, as apparently many other representatives, has concluded that too much tax revenue is being deferred too long by allowing an inheriting IRA beneficiary to be able to stretch distributions over his/her life expectancy. Unless taxpayers inform their representatives that they will not tolerate this change, this type of change is coming. The representatives may be thinking that most beneficiaries are in their 30’s or 40’s. The reality is, most beneficiaries are in their 50’s, 60’s or 70’s and they will have a desire to use such funds for their retirement. More IRA accountholders are living into their 80’s and 90’s. Under current IRS rules, a beneficiary has his/her RMD calculated using the life distribution rule unless he/she is able to and does elect to the 5-year rule. Some beneficiaries called eligible beneficiaries will still be able to use the life distribution rule. For many beneficiaries, the use of the life distribution rule is repealed.

If a person meets any of the following requirements as of the IRA owner’s death, he/she is an eligible beneficiary:

  1. He/she is the surviving spouse;
  2. Disabled
  3. Chronically ill
  4. An individual who is not more than 10 years younger; or
  5. A child of the IRA owner who has not yet attained age 22.

As under existing law a spouse beneficiary who is the sole beneficiary is not required to take a distribution until December 31 of the year the deceased spouse would have attained age 70½. And if he/she dies before such date, the surviving spouse is treated as the IRA for the purpose of determining the required to be made to the beneficiaries of the surviving spouse.

A beneficiary who is the child of the IRA owner will generally not be an eligible beneficiary and will be required to deplete the inherited IRA using the 5-year rule. The exception is when the child beneficiary is not yet age 22. A child is no longer an eligible beneficiary once he/she attains age 22. The 5-year rule will then apply. The 5-year rule will always apply once an eligible beneficiary dies.

The new rules would apply to an IRA owner dying after December 31, 2014.

For those beneficiaries of an IRA owner who died or dies before January 1, 2015, the current RMD rules continue to apply. However, upon the death of such a beneficiary the 5-year rule will apply and the next beneficiary must withdraw his/her share by the end of the fifth year after the death of the beneficiary.

Of course, the insurance companies have been lobbying the law makers so that certain IRA annuities will not be subject to the 5-year rule and will be paid out over longer time periods. That is, once the IRA owner dies the beneficiary will not be required to close the IRA annuity under the 5-year rule.

In the case of an IRA owner who dies after December 31, 2014, the 5-year rule does not apply to any qualified annuity that is a binding annuity contract in effect on the date of enactment and all times thereafter. An annuity must meet three requirements to be a qualified annuity. First, it must be a commercial annuity. Secondly, it must provide annuity payments which are substantially equal periodic payments not less frequently than annually over the joint life expectancy of the IRA owner and the designated beneficiary according to RMD rules for annuities in effect on the date of enactment. Third, annuity payments must have commenced to the IRA owner before January 1, 2015 and the IRA owner must have irrevocably elected before January 1, 2015, the method and the amount of the annuity payments to the IRA owner or any designated beneficiary.

An IRA annuity which is not a qualified annuity solely because annuity payments have not started irrevocably before January 1, 2015, may still be a qualified annuity if the IRA owner had made an irrevocable election before the date of enactment as to the method and amount of the annuity payments to the IRA owner or any designated beneficiary.

IRA annuities which have already commenced distribution to an inheriting beneficiary will not be subject to the 5-year rule and will be able to stay in existence and be paid out according to the terms of the annuity.

The above proposals are just proposals. But when the chairman of the ways and means committee is supporting them they must be taken seriously. Although the federal government needs additional tax revenues, gaining such revenues by changing the rules so radically after 40 years with little or no public discussion or guidance is unwise and unfair. I

One will need to ask the politicians why they are so willing to radically change the rules applying to IRAs and pension plans. Most politicians would not dare to make similar changes to the social security laws. CWF suggests that individuals communicate to Congress and the President that the proposed changes are too radical. CWF’s suggestion: leave existing law alone or if a change is needed substitute a 15 or 20-year rule for the proposed 5-year rule.

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Additional IRS Guidance on the Once Per year Rollover Rule and the IRS Can't Be Serious About IRA Transfers

Posted by James M. Carlson
Nov 19 2014

The author of this article is an old tennis nut. John McEnroe’s 1981 tennis exclamation of the 1980’s that “you can not be serious” fits many situations.

The IRS has recently issued additional tax guidance on the once per year rollover rule which goes into effect on January 1, 2015. IRS NewsWire 2014-107 and Announcement 2014-32. This is the third or fourth time the IRS has issued guidance since the tax court’s decision (Bobrow) in January of 2014. The court ruled that a person is allowed to make only one distribution/rollover in a one-year period regardless of how many different IRA plan agreements a person has.

The initial IRS guidance maybe was not as comprehensive or clear as it should have been. One would hope the IRS wants to provide comprehensive guidance on tax subjects so that everyone involved can perform their tax duties.

The most recent guidance makes clear that a person who rolls funds from one Roth IRA to another Roth IRA is ineligible to rollover funds from his or her traditional IRA to another traditional IRA during the one-year period commencing on the withdrawal of the Roth IRA funds. And that any subsequent distributions by this person within the one-year time period from any or his or her IRAs will be ineligible to be rolled over tax free.

The IRS has still not yet commented (furnished guidance) whether an IRA trustee must or should inform existing IRA owners of this change in the once per year rollover year. An existing IRA regulation does require an amended disclosure statement be furnished, but the IRS has not explained why this regulation does not apply if they believe that such an amendment is not required.

The IRS portrays itself as being taxpayer friendly. If the IRS was so friendly, the IRS did not need to agree so quickly to follow the tax court decision. One tax court decision need not be the final decision. The IRS could have appealed the tax court’s decision or asked Congress to change the law to expressly authorize the continuance of the old rule allowing rollovers on a per plan agreement basis. One would think this would be a bipartisan topic.

The IRS is in the business of maximizing the tax revenues of the federal government. Limiting the number of rollovers a person is eligible to make will in some cases lead to more individuals having to pay incomes taxes they otherwise would not have had to pay or at least not as soon. Unlike with pension plans, the law and the IRS has not adopted any procedures allowing IRA mistakes to be corrected. The IRS likes IRA mistakes in the sense that additional taxes in many cases will be owed and paid. However, this conflicts with the fact that the more a person pays in taxes on account of his or her IRA mistakes means less funds for retirement. In some cases, the IRS doesn't’t care and the IRS wants to maximize its collection of tax dollars.

The IRS states in its guidance that it encourages IRA trustees to offer to its IRA owners a transfer distribution of funds rather than a distribution followed by a rollover contribution. A transfer is not subject to the once per year rule as there is no actual taxable distribution. Allowing transfers will lessen the impact of the new once per year rollover rule. The IRS understands that IRA trustees are not required by the tax laws to participate in a transfer. The two involved IRA plan agreements must authorize the transfer.

The IRS states, “IRA trustees can accomplish a trustee to trustee transfer by transferring amounts directly from one IRA to another or by providing the IRA owner with a check made payable to the receiving IRA trustee.”

The IRS does not give a comprehensive discussion (or any examples) on what it means by making “the check payable to the receiving IRA trustee.” Admittedly, the IRS is trying to give a keep it as simple as possible explanation. But sometimes an approach can be too simple and tax problems are sure to arise.

With the many law changes impacting transfers, some transfers are reportable and some are not. Reportable means one of the IRA trustees must report the transfer distribution on a Form 1099-R and the one of the trustees must report the contribution on the Form 5498 either as rollover, conversion, recharacterization or a qualified HSA funding distribution. In this rollover guidance the IRS offers no guidance as to how reportable transfers are to be handled by the two IRA trustees or by the IRA trustee and the HSA trustee.

Furnishing an IRA trustee or an HSA trustee with only a check will not assure the proper tax administration. In order to assure the correct administration of the transferred IRA funds, the receiving IRA trustee will in some cases need to be furnished certain historical information from the transmitting institution. The IRS does not discuss this topic in any detail. It appears the IRS may be allowing the individual to furnish this information and not require that the remitting institution furnish it. This is shortsighted and it is why this situation is a “you can’t be serious” situation. The IRS should furnish additional guidance.

The IRS seems to authorize the check may be made payable to “ABC Bank” and does not require additional information such as “ABC Bank as Roth IRA trustee fbo Jane Doe” or “ABC Bank as the inherited traditional IRA trustee fbo John Smith abo Mary Smith’s IRA” or “ABC Bank as the HSA trustee fbo of Maria Bell.”

Current IRS procedures provide that an IRA trustee is not to report a “non reportable” transfer on either the Form 1099-R or the Form 5498. CWF has received quite a few consulting calls indicating that some brokerage firms (some large ones) prepare the Form 1099-R for all transfers. This makes their life easier, but complicates the life of every departing IRA owner since he/she must explain on his/her tax return why the amount on the Form 1099-R is not taxable. The IRS apparently does not fine an IRA trustee which prepares a Form 1099-R not required to be prepared. The IRS needs to start imposing fines on such IRA trustees.

As a reminder there are certain distributions which are ignored for purposes of applying the once per year rule. Making a Roth IRA conversion contribution is not counted as a distribution/rollover. Making an HSA Funding distribution is not counted as a distribution/rollover. However, moving funds from an IRA to a 401(k) does count as a distribution/rollover.

Set forth are various examples illustrating why furnishing just a check will not allow for the proper tax administration. Hopefully, the IRS will again furnish additional guidance.

  1. Jane Doe instructs First Bank that she wishes to transfer $30,000 of her traditional IRA funds to Second Bank. She does not make clear into what type of account the $30,000 is to be reinvested. The check is made payable to Second Bank. No additional information is provided. Jane could instruct Second Bank that she wants the funds to go into a Roth IRA. She should include the $30,000 in her income. However, if both banks treat this transaction as a non-reportable transfer, the IRS will have no way short of a full audit to determine if Jane reports the transaction properly on her federal income tax return. She might escape including the $30,000 in her income. Presumably, the two IRA trustees could be fined for not preparing the Form 1099-R and the Form 5498 as is required when there is a Roth IRA conversion. Funds moving from a traditional IRA to a Roth IRA via transfer or rollover is a reportable transaction.
  2. John Hall instructs First Bank that he wishes to transfer $7,550 of his traditional IRA funds to Second Bank. He does not make clear into what type of account the $7,550 is to be reinvested. The check is made payable to Second Bank. No additional information is provided. John could instruct Second Bank that he wants the funds to go into his HSA. He would exclude the $7,550 from his income. However, if both banks treat this transaction as a non-reportable transfer, there will be noncompliance with the IRS reporting rules applying to an HSA Funding Distribution/Contribution
  3. Mary Long instructs First Bank that she wishes to transfer $45,000 of her inherited traditional IRA funds to Second Bank. Her mom had designated Mary as the beneficiary of her IRA. Mary does not make clear into what type of account the $45,000 is to be reinvested. The check is made payable to Second Bank. No additional information is provided. Mary could instruct Second Bank that she wants the funds to go into her own personal traditional IRA. The mistake could be intentional or unintentional. This means she no longer would have to comply with the required distributions rules. She would not be required to take an RMD until she would attain age 70½. If both banks treat this transaction as a non-reportable transfer, the IRS will have no way short of a full audit to determine that Jane made a non qualifying transfer.
  4. One last example. Jane withdrew $30,000 from IRA#1 on June 10, 2014 and she rolled it into IRA #4. She will be eligible to take a distribution from IRA #4 and roll it over only if she does so on or after June 10, 2015,and she has taken no other distribution from any of her other IRAs on or after January 1, 2015 which she rolled over. In conclusion, although the IRS states in recent guidance that all that is needed to transfer IRA funds is to issue a check to the other IRA trustee, CWF suggests that IRA transfer forms, IRA conversion forms and the form for an individual to certify the making a qualified HSA funding distribution still be used. The goal is to limit the mistakes made by individuals and IRA trustees.

Categories: Pension Alerts

IRA Contribution Limits for 2015 – Unchanged at $5,500 and $6,500; 401(k) Limits Increase

Posted by James M. Carlson
Oct 31 2014

Inflation was approximately 1.7% for the fiscal quarter ending September 30, 2014, so many of the IRA and pension limits as adjusted by the cost of living factor have not changed or the changes have been quite small.

The maximum IRA contribution limits for 2015 for traditional and Roth IRAs did not change – $5,500/$6,500.

The 2015 maximum contribution limit for SEP-IRAs is increased to $53,000 (or, 25% of compensation, if lesser) up from $52,000. The minimum SEP contribution limit used to determine if an employer must make a contribution for a part-time employee increases to $600 from $550.

The 2015 maximum contribution limits for SIMPLE-IRAs is increased to $12,500 if the individual is under age 50 and $15,500 if age 50 or older

The 2015 maximum elective deferral limit for 401(k) participants increases to $18,000 for participants under age 50 and to $24,000 for participants age 50 and older.

Contribution limits for a person Contributions limits for a person
who is not age 50 or older who is age 50 or older

Tax Year Amount Tax Year Amount
2008-12 $5,000 2008-12 $6,000
2013 $5,500 2013 $6,500
2014 $5,500 2014 $6,500
2015 $5,500 2015 $6,500

 

 

 

Categories: Pension Alerts

IRS Expands the Rules on Rolling Over After-Tax QP Funds to a Roth IRA and Other Plans

Posted by James M. Carlson
Sep 26 2014

On Thursday, September 18, 2014, the IRS adopted a new tax position for those individuals who have after-tax (basis or non-taxable funds) within an employer sponsored retirement plan. Under existing IRS rules, many individuals are unable to contribute only the after-tax amounts into a Roth IRA unless the individual uses the complicated approach discussed in the July, 2013, Pension Digest.

This change is very favorable to taxpayers and will be well received by taxpayers and their tax advisors. Taxpayers have been waiting for many years for the IRS to issue additional guidance on the topic of converting after-tax funds. Tax certainty for taxpayers has improved. With some limits, the IRS will apply the new rules retroactively.

The IRS issued Notice 2014-54 setting forth its new position on how a taxpayer is to allocate after-tax amounts (i.e. basis) when he or she receives a distribution from a 401(k) plan or other plan containing both taxable and nontaxable amounts and a portion of the distribution is to be directly rolled over to a traditional IRA and another portion is to directly rolled over to one or more other plans such as a 401(k) or a Roth IRA. As described, the IRS’ new position modifies the pro-rata taxation rule in a radical manner. It does not eliminate the pro-rata rule. The new rules will apply to distributions made on or after January 1, 2015. The IRS has also issued guidance as to what rules apply to distributions occurring before January 1, 2015. The IRS has stated it will modify the safe harbor rollover explanations for pension plan distributions it has previously furnished. An explanation of the new allocation rules will be set forth in the revised safe harbors.

In Notice 2009-68 the IRS had furnished guidance confirming that a pro-rata taxation rule must be applied when a person with both pre-tax and after-tax funds within a QP takes a distribution from a plan containing both types of funds. For example, a person who had $100,000 in her 401(k) comprised of $80,000 being taxable and $20,000 be nontaxable was NOT allowed to directly rollover only the $20,000 of nontaxable portion into her Roth IRA.

As result of this notice, the person described above will be able to directly rollover the $20,000 of non-taxable funds into her Roth IRA and the remaining taxable funds of $80,000 into her traditional IRA.

An individual will no longer be required to follow the complicated procedures as discussed in the July, 2013, Pension Digest in order to be contribute the $20,000 of after-tax dollars into her Roth IRA.

What are the new allocation rules?

Rule #1. A person will be treated as receiving a single distribution even if the funds are sent to multiple destinations such as a portion to a traditional IRA, a portion to a Roth IRA, or a portion to another 401(k) plan. This true even if multiple distributions from the same plan are considered made as of the same time. This is true even if there are actual differences due to administrative timing issues.

Rule #2. If the pre-tax amount is less than the amount which is directly rolled over to one or more eligible plans, then the entire pre-tax amount is assigned to the distribution amount which was directly rolled over and the participant may select how the pre-tax amount is allocated among the multiple plans. The participant must inform the plan administrator of the allocation prior to the time of the direct rollover(s).

Rule #3. If the pre-tax amount equals or exceeds the distribution amount directly rolled over to one or more eligible plans, the pre-tax amount is assigned to the portion which was directly rolled over up the amount of the direct rollovers. Each direct rollover would consist solely of pretax amounts. If there are any remaining pre-tax amounts, such amounts will be assigned to any standard rollover up to the amount of such standard rollovers. If there is a pre-tax amount remaining after all direct rollovers and standard rollovers, then any remaining pre-tax amount is to be included in the person’s income. A standard rollover is when the distribution has been made to the person who then complies with the standard rollover rules. If the remaining pre-tax amount is less than the amount rolled over in the standard rollovers, then the individual can select how to allocate the pre-tax amount among such plans. If the amount rolled over to an eligible retirement plan exceeds the portion of the pre-tax amount assigned to the plans, the excess must be an after-tax amount.

In order to discuss these new rules the IRS furnished the following examples as modified by CWF. Employee A participant in a 401(k) and she has balance of $250,000 of which $200,000 is pre-tax and $50,000 is after tax. The plan covering Employee A does not authorize any Designated Roth contributions.

Example #1. Employee A instructs the plan administrator that she wishes to withdraw $100,000 with $70,000 being directly rolled over to a traditional IRA and the remaining $30,000 paid to her. Under the new rules, the $70,000 directly rolled over to her traditional IRA arises solely from her pretax funds. This is so because the pre-tax amount ($80,000) exceeds the amount directly rolled over ($70,000) . The other $30,000 is paid to Employee A. $10,000 of this $30,000 is taxable and the other $20,000 is non-taxable. Employee A does have the right to rollover such distribution (or a portion) as long as the 60 day rule is met. If Employee A only rolled over $10,000, it would be comprised of the remaining pretax funds.

If Employee A chooses to roll over $12,000, $10,000 would be pre-tax and $2,000 would be after- tax. If Employee A chooses to roll over the distribution(s) which were not directly rolled over, then the participant will need to decide how the pre-tax amount is allocated if there are multiple destinations. The participant must inform the plan administrator of the allocation prior to the time of the direct rollover (s).

Example #2. The same facts apply as Example #I, except Employee A directly rollovers $82,000 and she is paid $18,000. She directly rolls over $50,000 to her new employer’s qualified plan and she directly rolls over $32,000 to her traditional IRA. She has directly rolled over more than her pre-tax amount being withdrawn of $80,000.The new qualified plan does separately account for after-tax amounts. Since the direct rollover amount of $82,000 exceeds the pre-tax amount of $80,000 she has directly rolled over $2,000 of after-tax dollars.

She will have the right to allocate the pre-tax amount of $80,000 between the new qualified plan and the IRA. Conversely, she has the right to allocate the aftertax amount of $2,000 between the new qualified plan and the IRA She must do this prior to the time the direct rollover are made.

Example #3. The same facts apply as Example #2, except the new qualified plan does not account for after-tax contributions. This means the $2,000 of aftertax contributions must be allocated to the traditional IRA. Thus, the $50,000 directly rolled over to the qualified plan must all be pre-tax. The $32,000 directly rolled over to the IRA would be comprised of $2,000 of after-tax and $30,000 of pretax funds.

Example #4. The facts are the same as in Example #I, except the individual directly rolls over the entire $100,000 by sending $80,000 to a traditional IRA and $20,000 to a Roth IRA. She is able to allocate the pretax amount of $80,000 to the traditional IRA and the after-tax amount of $20,000 to the Roth IRA. Effective date of new rules and IRS reporting duties. The new rules will apply to distributions occurring on or after January 1, 2015.

The IRS also discusses what rules will be applied for distributions occurring before January 1, 2015. For distributions occurring between September 18, 2004, and December 31, 2014, taxpayers may apply a reasonable interpretation of the “old” rule or the “new” rule. Without a doubt, individuals with after-tax funds within an employer plan have been extremely hesitant to move such funds into a Roth IRA or a designated Roth IRA account as the law has been murky. The IRShas removed much of the uncertainty.

For distributions occurring before September 18, 2004, taxpayers may generally apply the same reasonableness standard as now applies to the remainder of 2014. However, this standard does not apply to any distribution from a designated Roth Account. In such case, the allocation of the pretax amounts must conform to the rules set forth in 402A regulation in effect on the date of the distribution.

These new rules may or may not require the IRS to rewrite its instructions for completing the Form 1099-R (Distributions From Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs, Insurance Contracts, etc.) .

The IRS will be furnishing additional guidance. When a participant withdraws funds from an employer plan and such distribution includes a distribution of after-tax funds, box 5 must be completed to report such amount. It may be that each distribution may be reported on a separate Form 1099-R even though under the new rules multiple disbursements to different destinations are treated as a single distribution.

What About Designated Roth Funds?

Such funds arising from the individual’s elective deferrals are after-tax funds and are not taxable when withdrawn by the participant. The distribution of the related earnings, however, will be taxable unless the distribution is a qualified distribution. The Roth regulation provides that such funds are treated as a separate contract from other accounts within the employer plan when applying the taxation rules. In plan English this means, the designated Roth funds are not aggregated with other funds within the employer plan, including the earnings on such designated Roth funds.

A qualified distribution of the earnings related to the designated Roth funds is tax free (i.e. not includible in gross income). Currently, the Roth IRA regulations provide in part that “any amount paid in a direct rollover is treated as a separate distribution form any amount paid directly to the individual.”

Such regulation will be amended to adopt the new rule.

The IRS’ release of Notice 2014-54 was unexpected. Taxpayers and their advisors will start to use these new rules immediately. Others will wait until January 1, 2015. Such rules will certainly make it easier for an individual to move after-tax funds into a Roth IRA or a designated Roth account where that fantastic goal of tax free income may be realized.

CWF is proud of the fact that we had asked/suggested to the IRS in prior years to furnish additional guidance on some of these issues. CWF will be suggesting to the IRS that it change its section 402(f) rules and direct rollover rules to require that the plan administrator furnish both the individual and the traditional or Roth IRA custodian (or plan administrator) a copy of the completed form whereon the individual sets forth his or her instructions regarding the allocation of the after-tax and pretax amounts.

Without question these direct rollover plan transactions are becoming more complicated, and the IRS should adopt procedural changes so that all parties will be better informed

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SIMPLE-IRA Summary Description — IRA Custodian Must Furnish by October 2014 for 2015

Posted by James M. Carlson
Aug 18 2014

What are a financial institution’s duties if it is the custodian or trustee of SIMPLE IRA funds? After a SIMPLE IRA has been established at an institution, it is the institution’s duty to provide a Summary Description each year within a reasonable period of time before the employees’ 60-day election period. CWF believes that providing the Summary Description 30 days prior to the election period would be considered “reasonable.”

The actual IRS wording is that the Summary Description must be provided “early enough so that the employer can meet its notice obligation.” You will want to furnish the Summary Description to the employer in September or the first week of October. The employer is required to furnish the summary description before the employees’ 60-day election period.

IRS Notice 98-4 provides the rules and procedures for SIMPLEs. This notice is reproduced in CWF’s 2014 IRA Procedures Manual.

The Summary Description to be furnished by the SIMPLE IRA custodian/trustee to the sponsoring employer depends upon what form the employer used to establish the SIMPLE IRA plan.

As you are probably aware, the employer may complete either Form 5305-SIMPLE (where all employees’ SIMPLE IRAs are established at the same employer-designated financial institution) or Form 5304-SIMPLE (where the employer allows the employees to establish the SIMPLE IRA at the financial institution of his or her choice).

There will be one Summary Description if the employer has used the 5305-SIMPLE form. There will be another Summary Description if the employer has used the 5304-SIMPLE form. If you are a user of CWF forms, these forms will be Form 918-A and 918-B.

The general rule is that the SIMPLE IRA custodian/trustee is required to furnish the summary description to the employer. This Summary Description will only be partially completed. The employer will be required to complete it and then furnish it to his employees. The employer needs to indicate for the upcoming 2015 year the rate of its matching contribution or that it will be making the non-elective contribution equal to 2% of compensation.

However, in the situation where the employer has completed the Form 5304-SIMPLE, the IRS understands that many times the SIMPLE IRA custodian/trustee will have a minimal relationship with the employer. It may well be that only one employee of the employer establishes a SIMPLE IRA with a financial institution. In this situation, the IRS allows the financial institution to comply with the Summary Description rules by using an alternative method.

To comply with the alternative method, the SIMPLE IRA custodian/trustee is to furnish the individual SIMPLE IRA accountholder the following:

  • A current 5304-SIMPLE — this could be filled out by the employer, or it could be the blank form
  • Instructions for the 5304-SIMPL
  • Information for completing Article VI (Procedures for withdrawal) (You will need to provide a memo explaining these procedures.)
  • The financial institution’s name and address. Obviously, if an institution provides the employee with a blank form, he/she will need to have the employer complete it, and, the employee may well need to remind the employer that it needs to provide the form to all eligible employees.

CWF has created a form which covers the “alternative” approach of the Summary Description being provided directly to an employee. The penalty for not furnishing the Summary Description is $50 per day.

Special Rule for a “transfer” SIMPLE IRA.

There is also what is termed a “transfer” SIMPLE IRA.

If your institution has accepted a transfer SIMPLE IRA, and there have been no current employer contributions, then there is no duty to furnish the Summary Description. However, if there is the expectation that future contributions will be made to this transfer SIMPLE IRA, then the institution will have the duty to furnish the Summary Description.

Reminder of Additional Reporting Requirements The custodian/trustee must provide each SIMPLE IRA account holder with a statement by January 31, 2015, showing the account balance as of December 31, 2014, (this is the same as for the traditional IRA), and include the activity in the account during the calendar year (this is not required for a traditional IRA). There is a $50 per day fine for failure to furnish this statement (with a traditional IRA, it would be a flat $50 fee).

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