Post by unlawflcombatnt on Jun 30, 2012 16:26:55 GMT -6
from the Wall Street Journal via Patrick.net
IRA Rules Get Trickier
By KELLY GREENE
"Uncle Sam is about to get a lot tougher on individual retirement account mistakes—and that could trip up investors who aren't careful.
The government lets millions of dollars in tax penalties on IRAs go uncollected each year—$286 million in 2006 and 2007 alone for missed withdrawals and contributions that break the rules. The reasons range from bureaucratic hurdles to tax forms that don't provide enough information, according to a report by the Treasury Inspector General for Tax Administration, the federal tax watchdog.
Matt Collins
Now the Internal Revenue Service, which has been cracking down on secret foreign accounts and beefing up audits of high earners in recent years, is turning its attention to IRA snafus.
Some 46 million U.S. households, or 2 out of 5, hold a combined $4.9 trillion in IRA assets, according to the Investment Company Institute. The more-aggressive enforcement means those investors need to make sure their accounts are in order—quickly.
The agency will report to the Treasury Department by Oct. 15 on how to go after taxpayers who make contribution or withdrawal errors, according to spokesman Eric Smith, who declined to provide details. The possibilities include additional paperwork that IRA owners would have to file with their tax returns and stepped-up audits, mainly matching up distribution reports from IRA custodians to individuals' tax returns.
"It's a wake-up call for anyone who has an IRA," says Martin Censor, a manager at the American Institute of Certified Public Accountants. "The government needs money.…This is low-hanging fruit."
The tax penalties for running afoul of IRA rules are tough. People who fail to take a "required minimum distribution," usually starting at age 70½, can be hit with a penalty of 50% of the amount they should have withdrawn. The same levy applies to required withdrawals from an inherited IRA, including inherited Roth accounts. (Contributions to Roth IRAs aren't deductible, but withdrawals are tax-free after holding requirements are met.)
The IRS also is keeping a close eye on contributions to make sure taxpayers aren't secretly socking away extra money in an attempt to rack up tax-free earnings. The 2012 contribution limits for traditional and Roth IRAs are $5,000 per person, or $6,000 for people 50 or older. There are income limits for qualifying to make Roth contributions as well.
Making an "excess contribution"—meaning you contributed more than the annual limit to a traditional IRA or made a Roth contribution when your income was too high—can cost you 6% of the amount that wasn't allowed in the account. This can add up fast in cases where an excess contribution went undetected for many years. Sometimes, excess contributions also result when a transfer of assets from one IRA to another doesn't get done in the time allowed...."
IRA Rules Get Trickier
By KELLY GREENE
"Uncle Sam is about to get a lot tougher on individual retirement account mistakes—and that could trip up investors who aren't careful.
The government lets millions of dollars in tax penalties on IRAs go uncollected each year—$286 million in 2006 and 2007 alone for missed withdrawals and contributions that break the rules. The reasons range from bureaucratic hurdles to tax forms that don't provide enough information, according to a report by the Treasury Inspector General for Tax Administration, the federal tax watchdog.
Matt Collins
Now the Internal Revenue Service, which has been cracking down on secret foreign accounts and beefing up audits of high earners in recent years, is turning its attention to IRA snafus.
Some 46 million U.S. households, or 2 out of 5, hold a combined $4.9 trillion in IRA assets, according to the Investment Company Institute. The more-aggressive enforcement means those investors need to make sure their accounts are in order—quickly.
The agency will report to the Treasury Department by Oct. 15 on how to go after taxpayers who make contribution or withdrawal errors, according to spokesman Eric Smith, who declined to provide details. The possibilities include additional paperwork that IRA owners would have to file with their tax returns and stepped-up audits, mainly matching up distribution reports from IRA custodians to individuals' tax returns.
"It's a wake-up call for anyone who has an IRA," says Martin Censor, a manager at the American Institute of Certified Public Accountants. "The government needs money.…This is low-hanging fruit."
The tax penalties for running afoul of IRA rules are tough. People who fail to take a "required minimum distribution," usually starting at age 70½, can be hit with a penalty of 50% of the amount they should have withdrawn. The same levy applies to required withdrawals from an inherited IRA, including inherited Roth accounts. (Contributions to Roth IRAs aren't deductible, but withdrawals are tax-free after holding requirements are met.)
The IRS also is keeping a close eye on contributions to make sure taxpayers aren't secretly socking away extra money in an attempt to rack up tax-free earnings. The 2012 contribution limits for traditional and Roth IRAs are $5,000 per person, or $6,000 for people 50 or older. There are income limits for qualifying to make Roth contributions as well.
Making an "excess contribution"—meaning you contributed more than the annual limit to a traditional IRA or made a Roth contribution when your income was too high—can cost you 6% of the amount that wasn't allowed in the account. This can add up fast in cases where an excess contribution went undetected for many years. Sometimes, excess contributions also result when a transfer of assets from one IRA to another doesn't get done in the time allowed...."