IRA Amendments Being Required
For 2016-2017

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/ nondeductible rules.

We at CWF have revised our IRA plan agreement forms and written the 2016-2017 IRA amendments to include the following revisions.

  1. 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)
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. Qualified Charitable Contributions/Distributions (QCDs) are now permanent under our federal income tax laws.
  7. 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 been met.
  8. 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.
  9. You should be aware that IRA distributions you take may disqualify you for the premium tax credit as authorized under the Affordable Care Act.
  10. 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.