IRA Amendments Being Required
The IRS last revised the model IRA Forms 5305, 5305-
A, 5305-R and 5305-RA in March of 2002. Since then
there have been numerous tax laws enacted with IRA
changes. The IRS has given no written explanation as to
why the IRA forms have not been amended. We have
asked a number of times when the IRS would be revising
their IRA forms, but to no avail. It is not a good thing
that the IRS has not updated their forms.
When is it necessary for an IRA custodian/trustee to
furnish an IRA amendment? Is it necessary or required
to furnish one in 2016?
Each institution must make its own determination
because one needs to understand when was the IRA
agreement last amended and how is it being amended.
A primary question is, “when is the last time the financial
institution furnished an amendment?” What do the
current IRA plan agreements provide? Are there some
IRAs set up with one certain plan agreement and others
with a different plan agreement?
One may learn a tax lesson the hard way, if he or she
adopts the position that an amendment is not required
because the IRS has not said one is required. One must
remember that the IRS has already stated in its governing
IRA regulation (1.408- 6 (d) (4) (ii) (C) ) when an IRA
amendment is required. The regulation must be followed
until the IRS revises it.
There are two types of amendments – one which
amends the IRA plan agreement and one which amends
the IRA disclosure statement. Regulation 1.408-
6(4)(ii)(C) requires that an IRA amendment be furnished
no later than the 30th day after the amendment is
adopted or becomes effective.
The general rule in the governing IRA regulation is - a
law change is enacted which impacts a provision found
in the IRA plan agreement; the provision will be amended
to implement the law change and the amendment
will need to be communicated to the IRA accountholder
or inheriting beneficiary.
When the IRS revises its model IRA forms, the amendment
is considered to be mandatory or required. When
a non-IRS change is made in the plan agreement by the
financial institution (or the IRA vendor), the change may
either be mandatory or not.
Mandatory changes deal with the tax code changes.
For example, CWF has amended the Roth IRA plan
agreement so that any person with funds in a traditional
IRA is eligible to convert some or all of these funds to a
traditional IRA even though he or she may have MAGI
of more than $100,000.
The IRS has not yet amended its model Roth IRAs
(Forms 5305-R and 5305-RA) to remove the $100,000
restriction. And the IRS has not given any guidance as
to whether or not a conversion done in 2010 or later
qualifies or doesn’t qualify since Form 5305-R and
5305-RA state that the custodian/ trustee may not
accept a conversion contribution if the person has a
MAGI greater than the $100,000.
The standard IRS rule for IRAs/pensions has always
been - the plan document must authorize the action.
For this reason, even though the IRS has not amended
the Roth IRA forms, CWF has.
A long time ago (1986/1987) the IRS acknowledged
that there are times that even though the IRA plan
agreement has not been changed, a disclosure statement
amendment must still be furnished. Example,
when the deductible/nondeductible rules were first
authorized in 1986/1987, such rules did not require the
IRA form to be rewritten because the IRA form discusses
the maximum contribution amount limit, but does not
discuss the deductible/nondeductible rules. The IRS
stated there needed to be a disclosure statement
amendment discussing or explaining the deductible/
We at CWF have revised our IRA plan agreement
forms and written the 2016-2017 IRA amendments to
include the following revisions.
The Internal Revenue Service (IRS) now authorizes you
or any other person who has missed the 60-day rollover
deadline to still make a rollover contribution as long as
you furnish the IRA custodian/trustee with a self-certification late rollover contribution form . See section 4.4F(1)
In 2016, the Department of Labor (DOL) revised its regulation covering prohibited transactions. The DOL has fur
nished a new defintion of “fiduciary.” This definition is
effective as of April 10, 2017. There is a transitional defi authorized some new prohibited transaction exemptions.
See section 1.17.
For 2016 and 2017, the maximum IRA contribution limit is
$5,500 if you are under age 50 as of December 31 of the
applicable year, and $6,500 if you are age 50 or older as
of the applicable December 31.
The income limits used to determine if you are eligible to
claim a tax deduction for your traditional IRA contribution
and minor changes. See pages 21-23 for the discussion.
The income limits used to determine if you are eligible to
claim or use the Retirement Savings contributions Credit
only had minor changes. See pages 24-25 for the discussion.
Qualified Charitable Contributions/Distributions (QCDs)
are now permanent under our federal income tax laws.
As of December 19, 2015, SIMPLE-IRAs may accept
rollover contributions arising from distributions from
401(k) plans, 403(b) plans, 457(b) plans and traditional
IRAs and SEP-IRAs. Such contribution can only be made
after the 2-year period described in section 72(t)(6) has
Effective January 1, 2015, a new rollover rule went into
effect. This change restricts an IRA accountholder to
rolling over only one distribution in a 12-month period
regardless of how many IRAs he or she maintains.
You should be aware that IRA distributions you take may
disqualify you for the premium tax credit as authorized
under the Affordable Care Act.
In 2016 there are new rules regarding an IRA custodian’s
duty to correct a Form 1099R containing errors. See
section 4.7 for a discussion.
In summary, answering a question whether or not an
amendment is required is not simple. Each financial
institution will need to make its own decision to furnish
one or both amendments.
It is true that the IRS has not been very active in auditing
whether or not IRA custodian/trustees are furnishing
IRA amendments as required by the IRA regulation. We
at CWF believe it is in the best interest of a financial
institution to furnish the amendments. The governing
IRA regulation provides that a $50 fine may be assessed
an institution for each time it fails to furnish the IRA
plan agreement and $50 each time it fails to furnish the
IRA disclosure amendment.