Take The Stress Out of Meeting Your IRA Withholding Notice Requirements
Meeting the annual responsibilities of maintaining a compliant IRA program can sometimes feel like you’re running a marathon. Just when you’ve sent off mandated tax forms for your clients—the finish line is in sight—then you spy another required mailing ahead of you.
Financial organizations must notify clients who take scheduled distributions of their right to make, renew, or revoke their withholding elections. These notifications must take place at different times of the year, depending on when your clients take distributions. If a client is taking distributions quarterly or more frequently, your financial organization must provide a withholding notice only once per year at a reasonable time before the first payment each year. If a client is taking distributions less frequently than quarterly, your organization must provide a withholding notice to the IRA owner no more than six months before each distribution. To meet these deadlines, financial organizations often send out semi-annual notices, usually in January and in June.
Your organization has probably already sent out the first withholding notice mailing in order to meet the notice requirements for clients who take distributions in the first half of the year. Now it’s time to prepare for the second round of mailings that generally take place in June. This mailing is geared for clients who take distributions during the second half of the year.
Unfortunately, IRA withholding notice requirements aren’t something that can be ignored. Withholding is a key area of IRA compliance and the penalties associated with failing to timely provide withholding notices to clients are costly. For example, the penalty for failing to timely provide a withholding notice is $100 per failure up to a maximum annual amount of $50,000. Ouch.
Besides meeting the deadlines, there are some form changes that you should know about before mailing out your withholding notices.
A New Withholding Form for 2023
Financial organizations are now required to use the new withholding form: Form W-4R, Withholding Certificate for Nonperiodic Payments and Eligible Rollover Distributions. This form is used to capture withholding elections for nonperiodic distributions (i.e., on-demand distributions) and eligible rollover distributions. Form W-4R allows those receiving nonperiodic distributions to withhold between 0 and 100 percent. Previously, IRA owners could have elected to waive withholding, or to withhold between 10 and 100 percent.
Financial organizations should use the revised Form W-4P, Withholding Certificate for Periodic Pension or Annuity Payments, to capture withholding elections for periodic distributions (i.e., annuity or similar periodic distributions).
Short-Staffed or Stressed Out? We Can Help
If your IRA department is short-staffed or if you aren’t sure you’re able to meet these withholding notice mailing requirements this year, Ascensus’ IRA Withholding Notice Mailing Service is available. Our service offers a simple solution to eliminate errors and the risk of noncompliance.
As part of this service, we will mail an IRA Withholding Notice and Election form twice per year to your IRA owners and beneficiaries who are receiving distributions. You won’t need to worry about any of the IRA withholding rule changes or form updates. We’ll take care of it for you.
Contact customersupport@ascensus.com to learn more about this mailing service.
If your organization is 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.
