Pub. 5 2015-2016 Issue 2

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 September • October 2015 13 From time to time, IRA plan agreements and disclosure statements need to be amended. Financial organizations often fail to provide their IRA owners with updated, amended plan agreements and disclosure statements when required—usually when new laws or regulations affecting IRAs are enacted. This oversight can cost a financial organization $50 for each failure, per document. A $50 penalty may not seem like much, but if a financial organization administers 1,000 IRAs and, for example, fails to provide both plan agreement and disclosure statement amend- ments, it will be subject to $100,000 in penalties. Reporting Another problem area when it comes to IRA compliance is reporting—a big concern because it is the closest contact that a financial organization has with the IRS. Improper reporting not only leads to compliance errors, but it may lead to an IRS audit. Reporting errors happen in a number of ways. Perhaps the financial organization’s internal system is programmed incor- rectly so that the transaction code doesn’t report the proper IRS distribution code on IRS Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Or maybe the wrong transactions are being reported (e.g., a nonreportable transfer reported as a rollover) due to inadequate training. Whatever the reason, the IRS does not view lack of training or an erroneous computer system as a valid reason for incorrect reporting. Even if a fi- nancial organization contracts with a data processing firm, the financial organization ultimately is responsible for any incorrect reporting penalties. Withholding Noncompliance with federal withholding requirements is common—frequent mistakes include not withholding as the IRA owner directed, failing to give IRA owners the required withholding notices, or failing to retain the proper records to correctly report withholding. Each of these errors comes with its own penalty, from$10 per failure for not giving notice to $50 per IRA for which proper records were not kept. And the penalty for not withholding when required is the dollar amount that should have been withheld. These penalties can quickly add up. Financial organizations should review their procedures and check their IRA owners’ files to ensure that they are meeting the withholding requirements. Beneficiary Payouts IRA beneficiary payout options are complex, and correctly paying out to a beneficiary can be a challenge. All too often, death distributions are reported in the wrong name and tax identification number. Any IRA distributionmade after the IRA owner’s death must be reported on Form 1099-R in the benefi- ciary’s name and Social Security number. Although this type of error may be corrected, a large number of corrections may draw the IRS’ attention and trigger an audit. Take Action Compliance issues are a risk for any financial organization administering IRAs. And by the time an IRA program is audit- ed, it is usually too late. However, financial organizations can take a proactive approach. By investing in IRA training and regularly conducting internal audits, they can minimize their risk for errors. Whatever the course of action, a financial organization may find it helpful to work with an IRA services provider like Ascensus. In addition to offering a variety of IRA training, in- cluding on-site and distance learning options, Ascensus offers a compliance review and operational assessment, in which an experienced ERISA consultant from Ascensus evaluates a financial organization’s IRA program on site. Based on the findings, Ascensus will make recommendations that the finan- cial organization can use to update its procedures and bring its IRA program into compliance—before the IRS comes calling.  America’s Premier Community Banking School University of Colorado | Boulder, Colorado www.GSBColorado.org Now accepting applications for these upcoming programs: Executive Development Institute for Community Banks April 24-27, 2016 66th Annual School Session July 17-29, 2016 Knowledge | Networking | Success Trish Reilley is a Copy Writer in Ascensus’ Communication depart- ment and has worked for Ascensus for 11 years. She received the CIP designation in 2008 and the CISP designation in 2009. She enjoys writing on various IRA and HSA topics. Ascensus is the largest independent retirement and college savings services provider in the United States, helping over 6 million Americans save for the future. With more than 30 years of experience, the firm partners with financial institutions to offer tailored solutions that meet the needs of financial professionals, employers, and individuals. Ascensus specializes in recordkeeping, administrative, and program management services, supporting over 40,000 retirement plans and 3 million 529 college savings accounts. It also administers more than 1.5 million IRAs and health savings accounts. For more information, visit www.ascensus.com <http://www. ascensus.com or call 800-346-3860.