Avoid the Risk of Not Meeting IRA Withholding Notice Requirements
By Lisa Walker, CISP, CHSP
Income tax withholding has always posed challenges to those who are responsible for IRA compliance. And now, after the passage of the Further Consolidated Appropriations Act (FCAA), 2020 at the end of 2019, even more so. A provision of the Setting Every Community Up for Retirement Enhancement (SECURE) Act contained within FCAA has raised the stakes for IRA trustees and custodians that fail to timely provide withholding notices to their IRA clients. Now instead of a $10 penalty per failure, your organization could face $100 per failure beginning with notices that are required to be provided after December 31, 2019. That’s right, one hundred dollars. Per failure.
In other words, by not satisfying the IRA withholding notice requirements, your organization could be obligated to pay the IRS $100 for every IRA that it did not fulfill withholding notice requirements for. This can quickly turn into a sizeable penalty if you end up with numerous failures throughout the year (and the years after that). For example, if your organization failed to satisfy the notice requirements for 250 IRAs, it could be stuck paying the IRS up to $50,000 in penalties—the maximum amount allowed—if those IRA owners or beneficiaries required more than one notice per year.
Because there tends to be much confusion about fulfilling withholding requirements, numerous errors can occur or requirements may be neglected altogether, putting your organization at risk for noncompliance, and, as a result, undue stress and costly IRS penalties.
In addition, if your organization does not withhold the right amount or does not withhold at all, it may be stuck footing the bill for the amounts that should have been withheld and remitted to the IRS. Even failing to maintain the necessary records for reporting withholding to the IRS could cost you $50 per IRA.
It’s easy to see how meeting IRA withholding requirements can be a daunting concern for your organization. And perhaps no one person at your organization is overseeing these duties, making it difficult to ensure that they are consistently being met. It might be time for a simpler, more reliable way to carry out your withholding notice obligations and, thereby, limit the risk of noncompliance—without a huge expenditure of time and money.
Ascensus' IRA Withholding Notice Mailing Service may be the answer. When your organization participates in this service, Ascensus will mail an IRA Withholding Notice and Election form twice per year to your account owners and beneficiaries who are receiving scheduled annual payments. The form serves as both a withholding notice and election form. As such, this one simple document explains why your IRA owners and beneficiaries are receiving the notice, provides the IRS-required notice information, and allows them to review and change their withholding elections.
If your organization happens to be a Fully-Administered Program client, call 800-356-9140, or select "IRA Withholding Notice Mailing" from the Maintenance Tools section on the IRAdirect® homepage to enroll.
