Are You Prepared? Don’t Fumble With These January Administration Tasks

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IRA, health savings account (HSA), and education savings account (ESA) administration tasks not only can cause headaches, but sometimes result in compliance errors that cause hefty financial penalties. Here are three important compliance responsibilities to be prepared for in January.


1. Inform Your IRA Owners About Their Required Minimum Distributions

More baby boomers are turning age 70½ every year, which means they must start taking money out of their Traditional IRAs. If a required minimum distribution (RMD) is required for the year, the financial organization holding the IRA on December 31 of the prior year must provide a statement to the IRA owners in January. The statement deadline is January 31 of the year for which the distribution is required. But if it falls on a Saturday, Sunday, or legal holiday, the deadline is extended to the following business day.

The RMD statement may be combined with the account statement or fair market value (FMV) statement, which share the January 31 deadline. These statements inform IRA owners of their contribution activity and the IRA’s December 31 value.

An RMD statement must inform the IRA owner

  • that a minimum distribution is required for the calendar year;
  • the date by which such RMD must be distributed; and
  • the required minimum amount based on the Uniform Lifetime Table (ULT), or an offer to provide the RMD amount upon request.

The penalty for missing an RMD is 50 percent, so information and education is critical to help your IRA owners avoid an IRS penalty.

Ascensus® Fully-Administered Program: If you are enrolled in Ascensus’ Fully-Administered Program, Ascensus will mail your IRA owners a FMV/RMD statement that includes both the FMV and RMD amounts, if applicable. RMD amounts are calculated based on the FMV provided by your organization to Ascensus.

2. Send IRS Reports on Time to Avoid Late Reporting Penalties

Financial organizations are responsible for properly reporting IRA transactions and can be assessed IRS penalties for missed or incorrect reporting. Failure to send or correct FMV reporting to IRA owners is $50 per failure. The penalty is the same for account statement and FMV failures.

To meet IRS reporting requirements, you also must mail IRS Forms 1099-R, 1099-SA, and 1099-Q, which report IRA, HSA, and Coverdell ESA distributions to your account owners by January 31. These reports must be sent to the IRS by February 28 or by March 31 if filing electronically. The failure to send or correct Forms 1099-Q and 1099-SA can result in an IRS penalty of $50 per failure. Failure to send or correct the tax year 2017 IRS Forms 1099-R fall under a tiered penalty structure, shown below. Note, however, that the penalties for small businesses are reduced.

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Ascensus Fully-Administered Program: If you are enrolled in Ascensus’ Fully-Administered Program, Ascensus will complete your financial organization’s tax reporting and submit required information to the IRS on your behalf, easing any worry you may have about potential IRS penalties for late reporting.


3. Keep an Eye Out for New State Withholding Rules

Because state tax laws are subject to change, often without prior notice, financial organizations should check with their state department of revenue to determine if state withholding applies to IRAs that they administer.

Connecticut is the most recent state to update its withholding rules. Legislation signed into law earlier this year requires mandatory Connecticut withholding from taxable IRA distributions, effective January 1, 2018. Previously, Connecticut state withholding had been voluntary for IRA distributions.

Ascensus Fully-Administered Program: Ascensus will continue to monitor state withholding requirements for our clients and update Ascensus materials accordingly. Ascensus also provides downloadable Form 1099-R state copies or tax files for organizations to file for state reconciliation, if applicable, for our Fully-Administered Program clients.

For more information on how Ascensus can make January less stressful for the administration of your IRA program, please contact

Bryan Loomis