Pub. 2 2012-2013 Issue 3

10 O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S FEATURE ARTICLE “Compliance with the IRS withholding notice provisions is all in the timing and retention. This may be the best time to get withholding notices out to all of your clients who are scheduled for RMDs in December.” Notice the Time: IRA Withholding Notice and Election Requirements W ith many of your clients getting ready to take out their 2012 required mini- mum distributions (RMDs), now is the perfect time to brush up on the IRA withholding notice and election requirements. Withholding is an important compliance issue for IRAs. Like withholding from a paycheck, withholding from an IRA distribution is the prepayment of income taxes. Taxes withheld from IRA distributions are credited against an individual’s total tax liability for the year. So not only is withholding required by law, it is a valuable customer service that you provide your clients. Notice Requirement For annual IRA distributions of $200 or more, your bank must provide a withholding notice to allow the client (i.e., the IRA owner or beneficiary) to elect not to have withhold- ing apply, to designate a specific withholding amount or percentage, and to inform the client of the right to revoke the election. If your bank fails to give clients a withholding notice, the IRS could assess a $10 penalty for each failure. Frequency If distributions are taken less frequently than quarterly, you must provide a withhold- ing notice before each distribution, but no more than six months before each distribu- tion. If distributions are taken quarterly or JENNIFER BASSETT Writer/Editor RPS Communications