IRS to Issue New Report on IRA Account Mistakes
With the IRS allegedly having left almost $300 million in IRA-related tax dollars uncollected due to failure to following up on account-holder mistakes, the federal branch is expected to release a new report by mid-October discussing how it expects contribution and withdrawal errors to be handled in the future. Expected changes to IRA procedures are expected to include additional paperwork with tax returns and an increased number of audits.
Two of the primary errors the IRS is particularly interested in rooting out are the failure of account holders to take a necessary minimum distribution (required for individuals over 70.5 years old or those who inherit such an account) and the exceeding of contribution limits for Roth and traditional IRAs; limits are $5,000 per person or $6,000 for account holders over the age of 50. Additionally, contributions are not allowed to exceed an individual’s annual taxable compensation.
While there is no statute of limitations on penalties caused by these errors, individuals discovering such errors can report the problem to avoid further interest and penalties from adding up, and the penalties can be quite steep. For individuals not reaching the required minimum distribution, the IRS can charge up to 50 percent of the amount that should have been withdrawn as a penalty. If an individual withdraws too much, that person can be forced to pay up to 6 percent of the excess withdrawal amount in penalties.
The IRS has currently not divulged any further details on enforcement efforts.