Mailing Service Can Help Fulfill Your IRA Withholding Notice Requirements
If your organization is an IRA trustee or custodian, it’s responsible for applying the federal tax withholding requirements on IRA distributions. This, of course, is in addition to the other requirements your organization must follow when maintaining IRAs. But withholding is a key area of IRA compliance. Neglecting the rules can be costly, especially after the Setting Every Community Up for Retirement Enhancement (SECURE) Act increased the penalty amount for failing to timely provide withholding notices to IRA clients. Instead of $10 per failure, effective after December 31, 2019, it’s $100 per failure.
That can quickly turn into a sizable 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 at least two notices per year.
It’s common for errors to occur when attempting to meet the withholding requirements. Many IRA trustees and custodians are not familiar with the rules or find them confusing. As a result, the requirements may be neglected altogether, resulting in noncompliance, costly IRS penalties, and undue stress. What’s more, if your organization does not withhold the right amount or does not withhold at all, it may end up paying 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.
If no one person at your organization is overseeing these duties, it’s 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. Limit your risk of noncompliance—without a huge expenditure of time and money.
Ascensus' IRA Withholding Notice Mailing Service can help. 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.
Contact customersupport@ascensus.com to learn more about this service.
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.
