2014 Basic Tax Reporting / 2015 IRA Changes. Connect with the Experts

Transcription

1 2014 Basic Tax Reporting / 2015 IRA Changes Connect with the Experts

2 This manual is designed for use in conjunction with seminars conducted by Ascensus. Some areas are not intended to be covered fully, but only highlighted for presentation purposes. It is understood that the publisher is not engaged in rendering legal or accounting services. Every effort has been made to ensure the accuracy of the material presented during the seminar. But retirement plan forms, government regulatory positions and laws are subject to change, so we cannot guarantee the accuracy of the material. The material in this manual reflects the law and regulatory interpretations as of the publication date of October 2014 (v3). Much of the information contained in this manual is based on the operation of the financial organizations to which we provide services. Some of your procedures may vary if your organization is not a member organization served by us. Ascensus makes no representations regarding compliance of the seminar or guidebook with any state laws or state regulations or federal securities law. Copyright 2014 Ascensus, Inc. All Rights Reserved. No part of this manual or presentation may be reproduced in any form by audiotape, photocopy or any other means without written permission of copyright owner. Ascensus and the Ascensus logo are registered trademarks of Ascensus, Inc. IRAdirect is a registered trademark of Ascensus, Inc.

3 2014 Basic Tax Reporting / 2015 IRA Changes Table of Contents Learning Objectives... 1 Tax Reporting Timeline... 2 Reporting IRA Distributions... 3 Reporting RMDs... 6 Reporting IRA Contributions... 8 Reporting Review IRAs: What You Need to Know! Job Aids 2014 Ascensus, Inc. All Rights Reserved.

4 Learning Objective(s) After participating in this webinar, you will be able to identify the IRA tax forms required for contributions and distributions; explain the IRA tax form due dates to the account owner and IRS; analyze current tax year processes to assure accurate reporting and compliance; and highlight changes that will effect IRAs in Basic Tax Reporting / 2015 IRA Changes Ascensus, Inc. All Rights Reserved.

5 IRA Tax Reporting Timeline IRA Tax Reporting Timeline Distribution Occurred Regular Contribution Occurred for Tax Year Deadline to report IRA distributions and FMV/RMD to IRA account owners Deadline to electronically report IRA distributions to the IRS Deadline to make regular IRA contributions Deadline to report IRA contributions to account owners and IRS 2014 Basic Tax Reporting / 2015 IRA Changes Ascensus, Inc. All Rights Reserved.

6 Reporting IRA Distributions How is IRA distribution information reported? Traditional and Roth IRAs Financial organizations use IRS Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., to report IRA distributions to the account owner and to the IRS. 1. If distributions occur, Form 1099-R is sent to the account owner by January 31 of the following year and to the IRS by March 31, if filing electronically. 2. This form includes the gross distribution, distribution reason code, and any amounts withheld for federal and state income taxes. 3. The distribution amount does not include financial organization fees or penalties Basic Tax Reporting / 2015 IRA Changes Ascensus, Inc. All Rights Reserved.

7 Reporting IRA Distributions 2014 IRS Form 1099-R 2014 Basic Tax Reporting / 2015 IRA Changes Ascensus, Inc. All Rights Reserved.

8 Reporting IRA Distributions Traditional IRA Distribution Type IRS Reason Code Early distribution (account owner under age 59½) 1 Conversion, federal tax levy, substantially equal periodic payments (account owner under age 59½) 2 Disability (account owner under age 59½) 3 Death (beneficiary distribution) 4 Normal (account owner age 59½ or over) 7 Roth IRA Distribution Type Early distribution (account owner under age 59½) IRS Reason Code J Federal tax levy (All account owners) 2 Substantially equal periodic payments Disability (account owner under age 59½) Death (beneficiary distribution) Normal (account owner age 59½ or older) T or J T or Q T or Q T or Q 2014 Basic Tax Reporting / 2015 IRA Changes Ascensus, Inc. All Rights Reserved.

9 Reporting RMDs Reporting the RMD to the Account Owner The financial organization must notify each Traditional IRA account owner age 70½ or older of the estimated RMD and the deadline for taking that RMD. An RMD statement must be sent by January 31 of each year to each IRA owner who will have an RMD due in the current year. The RMD statement must include the following information. 1. Notification that an RMD is required. 2. The date by which the RMD must be distributed. 3. Either the amount of the estimated RMD, or an offer to calculate the RMD upon request. NOTE: If Ascensus is printing the statement on behalf of the financial organization, the amount of estimated RMD will be included. 4. The language This information is being furnished to the IRS. Ascensus 2014 FMV and 2015 RMD Statement 2014 Basic Tax Reporting / 2015 IRA Changes Ascensus, Inc. All Rights Reserved.

10 Reporting RMDs Reporting the RMD to the IRS Financial organizations must identify to the IRS on Form 5498, IRA Contribution Information, each IRA for which an RMD is required. Financial organizations do not have to report the RMD amount. The reporting is done on the form for the preceding year. For example, financial organization report 2014 RMDs in Box 11 on the 2013 Form IRS Form 5498 (portion) 2014 Basic Tax Reporting / 2015 IRA Changes Ascensus, Inc. All Rights Reserved.

11 Reporting IRA Contributions Traditional and Roth IRAs IRA contributions are reported on Form Form 5498 is sent to the IRS by May 31. Form 5498 includes the total regular, rollover, SEP, conversion, and recharacterized contributions. The form does not include transfer contributions. Form 5498 also includes the fair market value (FMV), which is the IRA s balance as of December 31 of the prior year. Contributions are reported to the IRA owner annually on an account statement (or an acceptable substitute, such as Form 5498). If the account owner made contributions during the year, Form 5498 (or an account statement) is sent to the account owner by May 31. If the account owner did not make contributions, Form 5498 will only be sent to the IRS and not the owner. If May 31 falls on a Saturday, Sunday, or legal holiday, the due date is the next business day (for tax year 2013, the deadline is June 2, 2014) Basic Tax Reporting / 2015 IRA Changes Ascensus, Inc. All Rights Reserved.

12 Reporting IRA Contributions 2014 IRS Form Basic Tax Reporting / 2015 IRA Changes Ascensus, Inc. All Rights Reserved.

13 Reporting Review Traditional and Roth IRAs 1. IRA distributions are reported on IRS Form 1099-R. For a reportable distribution, Form 1099-R is sent to the account owner by January 31 of the following year and to the IRS by March Financial organizations must report the account balance as of the close of business on December 31 to IRA account owners by January 31 and to the IRS by May 31. This balance is known as the fair market value (FMV). The IRS does not require a formal document for reporting the FMV. The financial organization can use IRS Form 5498, the year-end financial organization statement, or it can create a separate FMV form. 3. Financial organizations must provide the required minimum distribution (RMD) amount due for the year or it must offer to calculate the RMD amount for each Traditional IRA account owner attaining age 70½ or older. The financial organization also must disclose the date by which the RMD for the year is due. The due date for this form is also January IRA contributions are reported to the account owner on an account statement (or an acceptable substitute form, such as IRS Form 5498). The financial organization must report IRA contributions to the IRS on Form Form 5498 (or an account statement) is sent to account owner by May 31 of the following year only if there is a reportable contribution for the year. Form 5498 is sent to the IRS by May 31 of the following year if there is an account balance at the end of the year Basic Tax Reporting / 2015 IRA Changes Ascensus, Inc. All Rights Reserved.

14 2015 IRAs: What You Need to Know! One-Per-12-Month Rule IRS Announcement An IRA owner is allowed one IRA-to-IRA rollover per 12-month period (IRC Sec. 408(d)(3)(B). The IRS announced in March 2014 that it is changing its interpretation of this requirement to follow a recent U.S. tax court ruling in Bobrow v. Commissioner. The IRS position for many years, as stated in proposed Treasury regulation (b)(4)(ii) and in IRS Publication 590, Individual Retirement Arrangements (IRAs), had been that a taxpayer is permitted to roll over one IRA distribution per 12-month period for every IRA that he owns. The tax court ruled in Bobrow v. Commissioner that a taxpayer is limited to only one IRA rollover per 12-month period, regardless of the number of IRAs he may have. The IRS released Announcement on March 24, 2014, stating that it will apply the tax court s interpretation going forward, but that it will not apply this new interpretation before January 1, The IRS has withdrawn the proposed regulations, and it intends to revise Publication 590 and to issue new proposed regulations that will provide that the IRA rollover limitation applies on an aggregate basis (per IRA owner). For 2014, therefore, IRA owners may roll over one distribution per IRA that they own during any 12-month period. The IRA assets that are rolled over may not be rolled over more than once during the 12-month period. The 12-month period begins on the day the IRA owner receives the distribution. When the IRS applies its new interpretation (presumably January 1, 2015), an IRA owner may complete only one IRA rollover in any 12-month period, regardless of how many IRAs she owns. In March 2014, the IRS released an article at its website that stated this rule would be applied separately for Traditional and Roth IRAs. This detail, however, was later removed from the article, and Ascensus contacted the IRS with questions. Based on follow-up communications, it now appears that the IRS has reconsidered that position, and believes that aggregating Traditional, Roth and SIMPLE IRAs into a combined one-rollover limitation better reflects Congress intended safeguards against abusive use of IRA assets as de facto lending instruments. As of this writing, the IRS had not yet released new proposed regulations. Note that the one-per-12-month rule does not apply to IRA transfers. It also does not apply to retirement plan rollovers to IRAs, nor to certain rollovers related to failed attempts to purchase a first-time home (IRC Sec. 72(t)(8)(E)) Basic Tax Reporting / 2015 IRA Changes Ascensus, Inc. All Rights Reserved.

15 2015 IRAs: What You Need to Know! QCDs A QCD is an otherwise taxable distribution from an IRA (other than an ongoing SEP or SIMPLE IRA) owned by an individual who is age 70½ or over that is paid directly from the IRA to a qualified charity. An IRA owner can exclude from gross income up to $100,000 of a QCD made for a year, and a QCD can be used to satisfy any IRA required minimum distributions (RMDs) for the year. Also, the amount of a QCD excluded from gross income is not taken into account in determining any deduction for charitable contributions. QCDs were created by the Pension Protection Act of When they first originated, they were effective from August 17, 2006 through the end of Congress then extended them through 2009 and then again through Last year, the American Taxpayer Relief Act of 2012 (ATRA), reinstated QCDs once again provided retroactive treatment for QCDs for 2012 and to extend them through The last day for making a QCD was December 31, 2013, for calendar-year taxpayers. Many IRA owners have asked if QCDs will be allowed for tax year 2014 or On July 17, 2014, the U.S. House of Representatives passed a charitable giving bill containing provisions that would make QCDs permanent. The bill also would extend the deadline for taking QCDs to April 15 of the year following the tax year for which the donation was intended. This is a change from the December 31 deadline previously required. At the time of this writing, identical legislation had not been passed by the Senate in order for this QCD legislation to be enacted. IRS Publication 590 After 2013, Publication 590 will be split into two separate publications: Publication 590-A and Publication 590-B. Publication 590-A Publication 590-A, will focus on contributions to traditional IRAs as well as Roth IRAs. This publication will include the rules for rollover and conversion contributions. Publication 590-B Publication 590-B, will focus on distributions from traditional IRAs as well as Roth IRAs. This publication will include the rules for required minimum distributions and IRA beneficiaries Basic Tax Reporting / 2015 IRA Changes Ascensus, Inc. All Rights Reserved.

16 2015 IRAs: What You Need to Know! End of Social Security Administration Letter-forwarding Program In April of 2014, the Social Security Administration (SSA) announced that its letter-forwarding program was ending. This program had been available to IRA custodians, trustees, and issuers, as well as to retirement plan sponsors, administrators, and the general public. The letterforwarding program has been used to locate missing retirement plan participants and beneficiaries when service providers or administrators lack current address information and are unable to locate missing individuals by conventional means. The SSA cited several alternative missing person locator services, including the Internet, as its rationale for discontinuing the option. The agency also stated that its decision is in line with the discontinuance of the IRS letter-forwarding program in The SSA letter-forwarding option ended in May of this year Basic Tax Reporting / 2015 IRA Changes Ascensus, Inc. All Rights Reserved.

17 2015 IRAs: What You Need to Know! 2015 COLAs MAGI Limits for Roth IRA Contributions Filing Status 2015 MAGI Limits for Roth IRA Contributions* MAGI for MAGI for Partial Full contribution Contribution Ineligible for Roth Contribution Single Up to $116,000 $116,000 up to $131,000 Over $131,000 Married, filing jointly Married, filing separately** Up to $183,000 $183,000 up to $193,000 Over $193,000 N/A $0 up to $10,000 Over $10,000 Regular Contribution Limit Year Maximum individual amount (regular/spousal contribution) Maximum catch up contribution amount 2014 $5,500 $1, $5,500 $1, Basic Tax Reporting / 2015 IRA Changes Ascensus, Inc. All Rights Reserved.

18 Job Aids Traditional IRA Distribution Type IRS Reason Code Early distribution (account owner under age 59½) 1 Conversion, federal tax levy, substantially equal periodic payments (account owner under age 59½) 2 Disability (account owner under age 59½) 3 Death (beneficiary distribution) 4 Normal (account owner age 59½ or over) 7 Roth IRA Distribution Type Early distribution (account owner under age 59½) IRS Reason Code J Federal tax levy (all account owners) 2 Disability (account owner under age 59½) Death (beneficiary distribution) Normal (account owner age 59½ or older) T or Q T or Q T or Q 2014 Ascensus, Inc. All Rights Reserved.

19 Job Aids 2014 Ascensus, Inc. All Rights Reserved.