The financial crisis, coupled with possible changes in the estate tax law, make now a good time to review you...Read more
IRS to Crack Down on IRA Tax Rules
- January 27th, 2015
(Article originally written 2012)
If you have an individual retirement account (IRA), now is the time to make sure you have been complying with tax rules. The Internal Revenue Service (IRS) is going to start cracking down on individual retirement accounts in an effort to collect penalties from taxpayers who do not follow rules regarding maximum contributions and minimum distributions. According to a June 22, 2012, article in the Wall Street Journal, the crackdown is part of an attempt to collect millions of dollars in previously uncollected penalties.
Local Elder Law Attorneys in Ashburn, VA
Ron M. Landsman, P.A.
Ron M. Landsman has been practicing elder law since 1983, before it was known as elder law, originally with Landsman and Laster, Washington, D.C., then Landsman, Eakes and Laster, also in Arlington, VA, and since 1990 in his own practice in Montgomery County, Maryland. He has been among the most active members of the...
Margaret A. O'Reilly, PC
Margaret A. O’Reilly is an estate planning and elder law attorney with over thirty-five years of legal experience. Attorney O’Reilly graduated from Duke University with a degree in psychology, and received her law degree from Northeastern University School of Law in Boston, Massachusetts. For over 15 y...
Needham Mitnick & Pollack, PLC
Judith Mtinick is well known for acting as a guardian, conservator, trustee or agent on behalf of clients or by court appointment. This experience gives her a wide perspective and extensive practical knowledge that she uses when advising clients in drafting their planning documents. Her experience, as a court appointed...
Individuals are only allowed to contribute a certain amount to regular and Roth IRAs each year. For 2014 and 2015, you can contribute the lesser of $5,500 or your taxable compensation for the year, plus an addition $1,000 if you are over age 50. If you contributed more than is allowed, you may have to pay a penalty of 6 percent of the excess amount. In addition, once you reach age 70½, you are required to start taking distributions from your IRA. If you don't take the required minimum distribution, you can be subject to a 50 percent penalty on the amount you should have withdrawn. The same penalty applies to inherited IRAs. There is no statute of limitations on the penalties, so if errors are made over subsequent years, the penalties can add up quickly.
It is unclear how the IRS will step up enforcement of the penalties. The IRS will report to the Treasury Department on October 15th on its strategies, which could include more paperwork and audits. According to the Wall Street Journal, in 2006 and 2007, the IRS failed to collect $286 million in penalties for missed withdrawals and contributions.
Individuals and financial planners need to look over their IRAs to make sure contributions and withdrawals have been made properly. If you have any errors, you should correct them immediately because delaying further only increases penalty and interest charges.
For more information from the Wall Street Journal, click here.
Last Modified: 01/27/2015