IRS Reinstates $6,900 HSA Contribution Limit for 2018

Posted by James M. Carlson
Apr 02 2018

The IRS issued guidance late Thursday, April 27, 2018, that the $6,900 HSA contribution limit was reinstated for 2018. This changes the IRS guidance of March 2, 2018. The IRS had reduced the maximum contribution limit for a person who had Family HDHP coverage from $6,900 to $6,850. The IRS took this action as the IRS’ initial conclusion was the law changes made by the Reconciliation Budget Act required this action. The Reconcilation Budget Act was to be effective for the U.S. government’s fiscal year ending September 30, 2018. The law was changed to reduce the inflationary adjustment formulas. As a result of this change the revised formula showed a maximum contribution of $6,850 rather than $6,900 for the person who had Family HDHP coverage. The reduction in the contribution limit for a person with Family HDHP coverage from $6,900 to $6,850 was discussed in CWF's email as furnished on March 9, 2018.

We at CWF apologize, but we did not think the IRS would change its position on the Family HSA contribution limit being reduced to $6,850 from $6,900 and so we thought it best that the HSA owners withdraw their $50 excess contributions.

There was substantial public comment to the IRS and to the U.S. Treasury Department of the hardships that would be incurred to implement this relatively small change of $50. Commentators rightfully informed the IRS that the costs associated with modifying software, revising forms and having everyone who had already contributed $6,900 withdraw the $50 as an excess contribution greatly exceeded the benefit arising from the tax revenues to be realized by reducing this contribution limit by $50.

The IRS begrudgingly acknowledged that Code section 223(g)(1) does require the IRS to publish by June 1 of the preceding year (2017) the HSA contribution limits for the upcoming year (2018). It appears the IRS either forgot this statutory requirement or concluded without explaining why that this statutory law was overridden by the new Budget Act.

Last Thursday (April 26, 2018), the IRS issued in Rev. Proc. 2018-27 the following guidance and relief because it is the best interest of sound and efficient tax administration.

  1. For 2018, taxpayers are permitted to use $6,900 as the maximum contribution for a person who has Family HDHP coverage.
  2. A taxpayer who has already withdrawn $50 plus earnings as an excess contribution is authorized to repay by April 15, 2019, into their HSA the $50 plus earnings. The person may treat this distribution as a mistaken distribution pursuant to Q & A - 37 of Notice 2004-50. The distribution is not included in the individual's gross income, is not subject to the 20% tax and the repayment is not counted as a contribution towards the annual limit.

    Such transactions are not to be reported by the HSA custodian on Form 1099-SA and Form 5498-SA and are not reported by the individual on Form 8889.

    An HSA custodian may accept such repayments, but itis not required to do so
  3. A taxpayer who has already withdrawn $50 plus earnings as an excess contribution is not required to repay the $50 plus earnings. The individual is allowed to continue to treat such withdrawal as the withdrawal of an excess HSA contribution. 4. The tax treatment discussed under paragraph 2 does not apply if it was the employer who contributed the excess $50 and the employer excludes from the employee's wages the $6,900. Such employer contributions could be a direct employer contribution or it could be made pursuant to a cafeteria plan election. In this situation, the withdrawal of the $50, unless used to pay a qualified medical expense, would need to be included in the person's income and would be subject to the 20% tax, if applicable. In summary, the IRS certainly complicated HSA administration by retroactively applying the cost of living adjustment to those HSA owners who had Family HDHP coverage for 2018. The public expressed their concerns and unhappiness, and so the IRS decided to change their position a second time. The IRS appears to want to make the public happier. The IRS many times does not have this attitude. The IRS most of the time wants to maximize the collection of tax revenues.


DOL Fiduciary Rule Vacated.

Posted by James M. Carlson
Mar 01 2018

On March 15, 2018, the U.S. Court of Appeals for the Fifth Circuit vacated the DOL's Fiduciary Rule.

The case is, Chamber of Commerce of the USA, et al v. U.S. Department of Labor, Case 17-10238, Document 00514388699.

This case is the first victory for opponents of the Fiduciary Rule who argued the DOL exceeded its authority in issuing its new regulation defining various IRA service providers to be a fiduciary investment adviser and any one participating in a rollover transaction to be a fiduciary. Other circuit courts have ruled the DOL had the authority to adopt the regulatory changes it made.

The DOL has announced it will be reviewing the Fifth Circuit's ruling. In the mean time it will not seek to enforce its Fiduciary regulation and related exemptions, including the Best Interest Contract exemption. The new definition of a fiduciary investment adviser had become effective on June 9, 2017. There are interim rules in effect with respect to the Best Interest Contract exemption and the other related exemptions.

The ruling of this case is not effective until May 7, 2018, because the ruling could be stayed if the case would be reheard by all of the judges of the Fifth Circuit. The DOL has 45 days from entry of the judgment to request a rehearing of the case before all of the Fifth Circuit judges. The DOL will need to decide if it will seek a rehearing or if it wil appeal the case to the U.S. Supreme Court. The DOL might decide to do neither and let the Fiduciary Rule cease to exist. When a rule is vacated, it means the regulation is treated as if it had never gone into effect. The 5-part 1975 regulation of a fiduciary investment adviser (a fiduciary) would again apply.

This fiduciary topic has been highly political since the Obama administration first proposed its change in 2010. We at CWF hope Congress will decide it should be the branch of government making such new laws and act accordingly. Why is the Department of Labor involved? Very few employers offer any type of employer sponsored IRA programs. IRAs are a tax subject and the IRS (and not the DOL) should be providing better administration. However, we will not be surprised if the DOL proposes some course of action which we would keep it involved with IRAs in addition to its continuing to issue individual prohibited transaction exemptions.

We suggest an IRA custodian/trustee continue with its current approach until more is learned. In general, this means an IRA custodian/trustee should not accept any compensation from third parties regarding its IRA products and services. Most financial institutions did not do so prior to the DOL Fiduciary Rule and most do not do so today. Most financial institutions charge reasonable fees as the law has always permitted. Rollover contributions should continue to be sought.


New 2018 IRA and Pension Tax Law Changes

Posted by James M. Carlson
Feb 01 2018

On Friday, February 9, President Trump signed into law the Bipartisan Budget Act of 2018. Although the primary purpose of the budget law was to establish the federal budget, there were many tax law changes including some IRA and pension tax law changes.

First, the special disaster related tax rules will apply to the victims of the California wildfires. Distributions entitled to the special tax relief are those made on or after October 8, 2017, through December 31, 2018. That is, the 10% penalty tax does not apply and the two special 3 year rules apply. A distribution may be taxed over the three tax years and a person has three years on which to repay/rollover a distribution.

The second change is with respect to the rollover rules. At times, in order to collect tax funds owed by a taxpayer the IRS will levy an individual's pension funds and/or the individual's IRA funds, including inherited funds. That is, a distribution occurs because the IRS requires the pension trustee or the IRA custodian to issue a check to the U.S. Treasury. Sometimes the IRS must return such funds. The new law treats the IRS' repayment of these wrongful levies as being eligible to be rolled over either into the pension plan or an IRA. The IRS has the duty to inform the individual that he or she is eligible to make this special rollover. This change applies to IRS payments made after December 31, 2017.

An IRA owner who is considered to have received an IRA distribution because the IRS wrongfully levied his or her IRA is authorized to return the withdrawn amount to their IRA (or inherited IRA). This special rollover must be made no later than the due date of the individual's tax return for the year the money is returned by the IRS, but not including an extension.

It appears a pension plan is not required to be written to accept such a rollover because such funds may be rolled over into an IRA. The amount eligible to be rolled over is the amount paid to the IRS which is repaid plus any interest paid by the IRS.

This special rollover contribution is not to be counted for purposes of the once per 12 month rollover rule.

This is the first law change expressly authorizing a rollover of inherited IRA funds. Although this law change certainly benefits the affected taxpayers it does make the rollover rules more complex. There are other legislative proposals in the U.S. Congress which would allow an IRA beneficiary to roll over inherited funds distributed on an account of the IRA custodian's mistake. Time will tell if there will be an additional law change with respect to inherited IRA and rollover rights.

We will be revising our IRA forms, as applicable, to discuss these new laws.


Seek More IRA Contributions

Posted by James M. Carlson
Jan 08 2018

An IRA custodian wants to see its IRA deposits grow. Here are some suggestions.

  1. Seek SEP-IRA contributions. A person can establish and fund a SEP-IRA up through his or her tax filing deadline of April 17, 2018, plus tax extensions. The maximum contribution amount is $54,000 for 2017 and $55,000 for 2018.
  2. Seek more periodic contributions. In this day and age of web banking an IRA custodian should make it easy for a person to establish an automatic transfer from his or her checking account into either a traditional IRA or a Roth IRA. It should also be easy to stop this transfer, either temporarily or permanently. Inform the person that any contribution is made for the tax year in which the IRA custodian receives it
  3. Seek more Roth IRA contributions. As long as a person still has compensation (and not too much), a person can make a Roth IRA contribution. There is no age 70½ limit. There is no negative consequence to participating in a 401(k) plan. A person can contribute to both a 401(k) plan or a SEP-IRA and a Roth IRA
  4. Seek more traditional IRA contributions from high income clients. Now that any person with money in a traditional IRA is eligible to make a conversion contribution to a Roth IRA, more individuals will make nondeductible IRA contribution, if it is explained to them why they should make such contributions. Making a nondeductible contribution and then converting it (assumes no other funds within a traditional IRA) has the same effect as making a Roth IRA contribution. Income limits still make many individuals ineligible to make a direct Roth IRA contribution.


Major Tax Bill Signed Into Law by President On December 22, 2017

Posted by James M. Carlson
Dec 01 2017

President Trump signed a major tax bil into law on December 22, 2017. The law changes generally go into effect on January 1, 2018.

There are three changes impacting IRAs - two are direct and one is indirect.

In 2018 and subsequent years an IRA owner who makes a Roth IRA conversion contribution from a traditional IRA, SEP IRA or SIMPLE IRA is no longer eligible to reverse the conversion by recharacterizing it. The practical effect is - the individual will have to include the distribution in their taxable income and pay the associated tax liability. Conversions made in 2017 may still be recharacterized in 2018 as long as the standard conversion rules are met. Annual contributions to either a traditional IRA or a Roth IRA for 2018 or later years may still be recharacterized.

It is also possible that a person may convert non-Designated Roth funds within a 401(k) plan to a Roth IRA. This is a type of Roth IRA conversion. Your institution as a Roth IRA custodian might receive such contributions. The tax bill did not expressly amend the statutory pension plan provisions authorizing such conversions or the authority for recharacterizing such conversions. Most commentators believe Congressional intent was that no ROTH IRA conversions once made may be recharacterized. If this situation arises at your institution, further research will need to be done.

As discussed in the September newsletter special tax relief is granted to IRA owners and pension plan participants who were victims of hurricanes Harvey, Irma, or Maria. The new tax bill expands the tax relief. Rather than applying only to the victims of the three hurricanes, it applies to victims of any federally declared disaster occurring in 2016 or 2017.

The indirect law change impacting IRAs has to do with a change (i.e. expansion) in the rollover rules. There is a new rollover rule for certain 401(k) participants. Some 401(k) plans are written to allow participants to instruct to have loan made to themselves from their 401(k) account.

For example, Jane Doe has $40,000 in the 401(k) and she borrows $10,000. She quits her job and is to be distributed her 401(k) balance. She directly rolls over the $30,000 in her 401(k) account. She needs to repay the $10,000 loan. Under the old law she was considered to have been distributed the $10,000. She had 60 days to roll it over. If she couldn't, she had to include the $10,000 in her income.

The new law allows her to repay the $10,000 by her tax filing deadline rather than the standard 60 day period.


DOL Finalizes 18 Month Fiduciary Rules Extension

Posted by James M. Carlson
Nov 01 2017

On November 27, 2017 the U.S. Department of Labor announced an 18-month extension from January 1, 2018 to July 1, 2019, of the special transition period for the Fiduciary Rule’s Best Interest Contract Exemption, the Principal Transactions Exemption and of the applicability of certain amendments to the Prohibited Transaction Exemption 84-24.

On August 31, 2017 the EBSA/DOL had issued a proposed rule extending the transition period. Such rule is now final.

During this transition period the DOL will continue its review under the Presidential Memorandum of February 3, 2017, to review public comments, and decide whether to propose further changes. During this transition period, a fiduciary advisor who makes an investment recommendation has the duty to give advice that conforms to “impartial conduct standards.” There is no requirement that an IRA custodian or trustee must furnish an investment recommendation. An advisor must adhere to a best interest standard when making investment recommendations, charge no more than reasonable compensation and not make any misleading statements. The DOL has stated it is extending its temporary enforcement policy set forth in Field Assistance Bulletin 2017-02. The DOL will treat a fiduciary as being in compliance during this transition period as long as the fiduciary is working diligently and in good faith to comply with the transition rules. Unless modified, the exemptions’ remaining requirements will be come effective on July 1, 2019.

One of the main reasons to furnish 2017-2018 IRA Amendments is to discuss the Fiduciary rule and the transition rules.

Categories: Traditional IRAs

IRA Contribution Limits for 2018 – Unchanged at $5,500 and $6,500; 401(k) Limits Do Change

Posted by James M. Carlson
Oct 31 2017

Inflation was approximately 2.0% for the fiscal quarter ending September 30, 2017, 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.

Th e maximum IRA contribution limits for 2018 for traditional and Roth IRAs did not change – $5,500/$6,500.

The 2018 maximum contribution limit for SEP-IRAs is increased to $55,000 (or, 25% of compensation, if lesser) up from $54,000. The minimum SEP contribution limit used to determine if an employer must make a contribution for a part-time employee remains the same at $600. The 2018 maximum contribution limits for SIMPLE-IRAs are unchanged at $12,500 if the individual is under age 50 and $15,500 if age 50 or older.

The 2018 maximum elective deferral limit for 401(k) participants is changed to $18,500 for participants under age 50 and $24,500 for participants age 50 and older. The catch-up amount of $6,000 did not change.

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

Tax Year Amount

2008-12 $5,000

2013-18 $5,500

Contribution Limits for a person who is age 50 or older.

Tax Year Amount

2008-12 $6,000

2013-18 $6,500


IRS Revises IRA Model Forms - 5305 Series

Posted by James M. Carlson
Sep 29 2017

The IRS has updated their model IRA forms for traditional IRAs, Roth IRAs and SIMPLE IRAs. The IRS issued the revisions in April of 2017. The IRS has not issued any guidance as to when an IRA custodian or IRA trustee must use the April 2017 versions for either new IRA accountholders or existing IRA accountholders.

Traditional IRA Form Changes

The sole change to the traditional IRA Forms 5305 and 5305-A was to change Article I to set forth the 2017 IRA contribution limit so it reads as follows,

Article I

Except in the case of a rollover contribution described in section 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or 457(e)(16), an employer contribution to a simplified employee pension plan as described in section 408(k) or a recharacterized contribution described in section 408A(d)(6), the trustee will accept only cash contributions up to $5,500 per year for 2013 through 2017. For individuals who have reached the age of 50 by the end of the year, the contribution limit is increased to $6,500 per year for 2013 through 2017. For years after 2017, hese limits will be increased to reflect a cost-of-living adjustment, if any.

Roth IRA Form Changes

There are two changes to the Roth IRA Forms 5305-R and 5305-RA. First, Articles I and II have been changed to set forth the 2017 Roth IRA contribution and income limits. Secondly, prior forms had provisions not allowing a conversion contribution to be made in certain situations. Such laws were repealed effective for tax year 2010. The sentences in Article II discussing the old conversion rules have been deleted.

Article I

Except in the case of a qualified rollover contribution described in section 408A(e), or a recharacterized contribution described in section 408A(d)(6), the custodian will accept only cash contributions up to $5,500 per year for 2013 through 2017. For individuals who have reached the age of 50 by the end of the year, the contribution limit is increased to $6,500 per year for 2013 through 2017. For years after 2017, these limits will be increased to reflect a cost-of living adjustment, if any.

Article II

  1. The annual contribution limit described in Article I is gradually reduced to $0 for higher income level. For a grantor who is single or treated as single, the annual contributions is phased out between adjusted gross income (AGI) of $118,000 and $133,000; for a married grantor filing jointly, between AGI of $186,000 and $196,000; and for a married grantor filing separately, between AGI of $0 and $10,000. These phase-out ranges are for 2017. For years after 2017, the phase-out ranges, except for the $0 to $10,000 range, will be increased to reflect a cost-of-living adjustment, if any.
  2. In the case of a joint return, the AGI limits in the preceding paragraph apply to the combined AGI of the depositor and his or her spouse.

SIMPLE IRA Form Changes

The sole change to the SIMPLE IRA Forms 5305-S and 5305-SA was to change Article I to set forth the new rules allowing rollover contributions to be made with respect to distributions from other eligible employer plans and other eligible IRAs as long as the 2 year requirement has been met.

Article I

The trustee will accept cash contributions made on behalf of the participant by the participant's employer under the terms of a SIMPLE IRA plan described in section 408(p). In addition, the trustee will accept transfers or rollovers from other SIMPLE IRAs of the participant and, after the 2-year period of participation defined in section 72(t)(6), transfers or rollovers from any eligible retirement plan (as defined in section 402(c)(8)(B)) other than a Roth IRA or a designated Roth account. No other ontributions will be accepted by the trustee.

CWF Revisions

CWF will be issuing an IRA Form System update in December and the applicable forms will reflect the IRS versions of April 2017. Print versions shipped on or after October 23, 2017 will reflect these changes


7 Cardinal IRA Rollover Rules

Posted by James M. Carlson
Aug 31 2017

An individual who complies with the IRA rollover rules is not required to include an IRA distribution in their income, and if under age 59½, will not owe the 10% tax or the 25% tax as applicable. The general tax rule is, a person who receives an IRA distribution which is included in their income before age 59½ owes a 10% tax of the amount withdrawn unless an exception applies. However, there is a special rule for certain early SIMPLE-IRA distributions. The additional tax rate increases to 25% if a SIMPLE-IRA participant withdraws SIMPLE-IRA funds before he or she has satisfied a 2 year requirement unless an exception would apply.

There are seven (7) cardinal IRA rollover rules:

  1. An RMD is never eligible to be rolled over
  2. A person is authorized to rollover only one distribution within a 12 month period (365 days)
  3. The rollover must be completed within 60 days of the distribution
  4. If property is distributed (and not cash), such property must be rolled over. The property cannot be sold and the proceeds rolled over as is the case when property is distributed from a qualified plan
  5. SIMPLE IRA funds may be rolled over into a traditional IRA, SEP-IRA, or 401(k) plan or vice versa only if the individual has met the 2 year requirement
  6. A non-spouse beneficiary of an inherited IRA is never eligible to roll over a distribution from an inherited IRA; an
  7. Roth IRA funds can only be rolled over into the same or a different Roth IRA. When can the IRS grant relief if an individual fails to comply with any of these 7 rules?

The IRS’ position is, we can grant relief if the individual failed to comply with the 60 day requirement, but if the failure is for any of the other six (6) rules, we can’t grant relief.

The IRS has been granted the authority by a 2001 tax law to grant relief to someone who has missed the 60 day rule because he or she incurred some difficulty or hardship and it would be unjust or inequitable for the IRS to not waive the 60 day rule for the individual. Waive means the IRS creates a new 60 day period for the individual to complete the rollover.

The IRS' position is - it does not have the authority to grant rollover relief to a person who fails to comply with any of the other rollover rules.

The IRS can't grant relief to any person who has taken multiple IRA distributions during a twelve month and makes an ineligible rollover contribution.

The IRS can't grant relief to a non-spouse beneficiary who was paid an unrequested distribution by an IRA trustee.

The IRS can't grant relief and allow someone to roll over a required distribution.

The IRS can't grant relief if a person receives an in-kind distribution from his or her IRA, sells the asset, and then impermissibly rolls over the sales proceeds.

If a distribution is ineligible to be rolled over for any of the non-Roth IRA reasons, such distribution will need to be included in the individual's taxable income except to the extent any basis was distributed. If such distribution is impermissibly rollover over, it will be an excess contribution subject to the excess contribution rules until corrected by withdrawal.


SIMPLE-IRA Summary Description - IRA Custodian Must Furnish by October 2017 for 2018

Posted by James M. Carlson
Jul 03 2017

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 to its employees 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 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.

The employer may either complete 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 its employees. The employer needs to indicate for the upcoming 18 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 for
  • 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, 2018, showing the account balance as of December 31, 2017 (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).The purpose of this requirement is so that employees may determine their elective deferral contributions that are being contributed to their SIMPLE-IRA on a timely basis.