Wall Street Journal: IRA Rules Get Trickier

Monday, June 25, 2012

The Wall Street Journal’s weekend edition featured an article by Kelly Greene on how IRAs are about to get trickier due to Uncle Sam tightening his belt on individual retirement account mistakes. The agency will report to the Treasury Department on how to recoup penalties from those who make IRA errors.

Investors better be careful.

As the article states:
 

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.

Now, however, the IRS is turning its attention to IRA mistakes. Nearly 46 million households, two out of every five, hold a combined $4.9 trillion in IRA assets. The more aggressive enforcements mean investors need to make sure their accounts are in order and that they are working with an educated financial advisor.

IRA rules are complicated and require specialized expertise. Is your advisor up to the task? Probably not.

Some, like Martin Censor (manager at the American Institute of Certified Public Accountants), are calling it a “wake-up call for anyone who has an IRA.”

Where is the IRS going to look? They are going to look at mistakes like missed required minimum distributions (the 50% penalty) and excess contributions (the 6% penalty), so be ready!

CLICK HERE to read the entire article, including case studies involving three members of Ed Slott’s Elite IRA Advisor Group.

Article Takeaways:

  • Be ready to take ownership of your IRA if you haven’t already and make sure you aren’t making mistakes that could cost you a lot of money in penalties
  • The mistakes the IRS could be focusing on: missed required minimum distributions (50% penalty) and excess contributions (6% penalty).
  • IRA rules are complicated and required specialized expertise. Make sure your financial advisor is up to task.

 

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