Now is the time to ensure your individual retirement accounts (IRAs) are in compliance with the Internal Revenue Service. An estate attorney can review your investments as part of estate and tax planning and detect any problems with contribution and distribution activities. The rules are tricky, so don’t go it alone. IRA owners are required to withdraw money from their retirement accounts by April 1 of the year after they reach 70 ½ years old. The IRS calculates those withdrawal amounts by diving the total balance in the retirement account as of December 31 of the year before the owner turns 70 ½ by life expectancy, listed in a table in IRS Publication 590. With the multitude of rules like these to follow, it’s critical that you review your retirement accounts with a professional estate attorney to determine that you are in compliance to avoid getting hit with huge penalties on money you’ve worked so hard to earn.
According to a June 22, 2012 Wall Street Journal article, the federal government is cracking down on taxpayers out of compliance with their retirement account activities. In the past the federal government let millions of dollars in tax penalties on IRAs go uncollected each year. But now, current enforcement could include additional paperwork that IRA owners need to file with their tax returns, and increased audits, requiring investors to match up their IRA distribution documents to their tax returns.
What’s At Stake?
According to a June 22, 2012 Wall Street Journal article, the IRS announced it would begin cracking down on investors with IRAs who don’t comply with minimal distributions and the maximum contributions rules that guide these accounts. It will report to the Treasury Department by October 15 this year on how to go after investors who make contribution and withdrawal errors.
Tax penalties can be steep. For example, penalties for failing to take a required minimum distribution, which usually begins at age 70 ½, are assessed at 50 percent of the amount that should’ve been withdrawn. The IRS may go after taxpayers who fail to withdraw the required minimal amounts from inherited IRAs, including inherited Roth accounts.
The Value of Regular Reviews of Your Estate and Tax Plan With an Estate Attorney
Now is the time to schedule an appointment with your estate attorney if you suspect you have contributed too much or taken too little from your IRA. It’s always smart to review your retirement accounts before enforcement measurements like these ensue. In a nutshell, the following rules are currently in place, but other issues can arise with asset transfers and the time they take to process. The 2012 contribution rules for traditional and Roth IRA allow up to $5,000 per individual, or $6,000 if you’re over 50 years old. The IRS also evaluates income qualifications to allow Roth contributions. If you’ve contributed more than the limits defined by the IRS you could be penalized 6 percent of the excess you deposited.