Pub. 5 2015-2016 Issue 1

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 July • August 2015 11 Plan Agreement Procedures for amending IRAplan agreements for law chang- es differ depending upon whether an IRS model form or proto- type plan agreement is being used. IRS model plan agreements (e.g., Form 5305 series documents) need only be amended after the IRS releases a new version of these forms and specifically requires amendments. Sometimes the IRS issues new forms but does not require amendments. If the IRS requires amendments, it provides a specific deadline to amend. Prototype plan agreements generally must be amended after each major law change that affects IRAs. IR annuity endorse- ments generally require amending as indicated for IRA prototype plans. Prototype documents primarily are based on sample language provided by the IRS through its Listing of Required Modifications (LRMs). The IRS periodically updates the LRMs, often accompanied with amendment guidance, for major law changes or after a series of changes affecting IRAs has occurred. Treasury regulations require plan agreement amendments to be completed no later than 30 days after the date the plan agreement amendment is adopted or 30 days after the date the amendment becomes effective, whichever is later. Disclosure Statement A financial organization is required to provide a current disclosure statement reflecting the current rules to individuals opening IRAs. Disclosure statements cannot contain language that creates false or misleading information. Further, disclosure statement amendments are required when a plan agreement is amended if the changes to the plan agreement materially affect information in the disclosure state- ment. If the IRS requires that plan agreements be amended, dis- closure statements generally must be amended at the same time. Unless the IRS provides guidance for a specific amendment event, disclosure statement amendments must be completed 30 days after the later of the date the plan agreement amendment is adopted or the date it becomes effective. Regulations are not clear on when to amend disclosure statements for law changes if a plan agreement amendment is not required. In this case, a financial organization should provide disclosure statement amendments as soon as administratively feasible after the changes become effective. How to Amend Most financial organizations can obtain the amendments from their forms provider. Financial organizations that draft their own amendments should consult with their attorneys for recommendations. Once a financial organization has the amend- ments, it should follow these procedures. 1. Mail each IRA owner a copy to the individual’s last known address. If any amendments are undeliverable and are returned, the financial organization should keep the undelivered amendment in the IRA owner’s file. Note that the amendment can be includedwith othermaterials to save postage. It also is a good idea to enclose a cover letter explaining the amendment. 2. Document that the amendment was sent by placing a copy in each IRA owner’s file or creating a master file. A master file should contain a copy of each amendment, a dated cover letter, and a list of mailing recipients. Amendments for tax law changes often do not require a sig- nature or consent from the IRA owner. But depending on the type of document, amendment, and state laws, amendmentsmay require the IRA owner’s consent (i.e., a fully signed amendment by both parties). Financial organizations should consult with their legal counsel for direction. Failure to Amend If a financial organization fails to amend when required or does not amend timely, it faces potential penalties. A financial organization that does not provide a required plan agreement and disclosure statement amendment to an IRA owner could be penalized as much as $100 per IRA ($50 per document). In addition, a financial organization that does not amend puts itself and its clients at risk for errors and negative tax consequences because of noncompliant documents and outdated information. Fortunately, if a financial organization uses a document provider, like Ascensus, that keeps a continuous watch on leg- islative changes and other governmental guidance, it may be able to minimize—or avoid—any costly amendment failures. A trusted document provider can do much in the way of guiding a financial organization throughout the amendment process.  *This article originally appeared in Ascensus' newsletter, The Link, in April 2015. Contact us today at 303.860.0242 or refer a small business anytime at coloradoenterprisefund.org Knotty Tie Company Offering loans up to $500K including SBA Community Advantage loans up to $250K Lisa Walker is a copy writer at Ascensus. She writes and reviews articles about various topics related to IRAs, ESAs, and HSAs. Her work also includes editing Ascensus’ online and printed publica- tions, educationmaterials, and client communications. Lisa started with Ascensus in 2005. She has earned the Certified IRA Services Professional (CISP) designation from the Institute of Certified Bank- ers and holds a Bachelor of Arts degree in English.