Avoid IRA Reporting Nightmares and Sleep Easy with These Tips
We’ve all been there—lying awake at night, replaying the day’s mistakes in our heads. When you work with IRAs every day, sometimes the source of your sleepless nights is an IRA reporting blunder. Don’t worry—you’re not alone. And at Ascensus, we’ve got your back.
IRA tax reporting can feel complicated at times, but with a little guidance, it doesn’t have to feel so daunting. Here are some practical tips to keep you out of the hot seat (and in your bed, peacefully snoozing).
Get to Know Your Forms
There are two main IRS forms in the IRA reporting world, and they play a major role in every IRA program. Get comfortable with Form 5498, IRA Contribution Information, and Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Each of these forms has a specific purpose and they are your biggest allies. Treat these forms like old friends and it may make your life easier. Read the instructions for these forms and familiarize yourself with each form’s boxes and reporting requirements.
Form 5498: Reports IRA contributions, whether a required minimum distribution (RMD) is due, and the December 31 fair market value (FMV).
Form 1099-R: Reports IRA distributions and withheld amounts.
When account activity dictates, your organization must send these forms to your clients and to the IRS. If any errors are discovered after the forms have been sent, they will need to be corrected as soon as possible.
Stay Sharp on Deadlines
IRA reporting deadlines are scattered throughout the calendar year. You should know when each report is due, who is to receive the report, and what information is required to be reported. Mark your calendar and give yourself plenty of time to double-check your reporting. Filing accurately and on time not only keeps the IRS happy and protects your financial organization against costly penalties, but protects your reputation with clients, as well. Form 1099-R generally must be submitted to IRA owners and beneficiaries by January 31 and to the IRS by February 28 if filing on paper, or by March 31 if filing electronically.
Your financial organization must provide IRA owners and beneficiaries with 1) an account statement that reports the prior-year’s contribution activity, and 2) a statement of the prior December 31 FMV by January 31. Your organization must report this same information on Form 5498, which must be filed with the IRS by May 31.
In addition, financial organizations holding a non-Roth IRA on December 31 must provide a statement to the IRA owner by the following January 31 if an RMD is due.
When these deadlines fall on a Saturday, Sunday, or a legal holiday, the deadline is extended to the next business day.
Double-Check the Details
Mistakes happen—but they don’t have to! Create a system where key details are verified before filing, such as Social Security numbers, contribution limits, and distribution codes. Refreshing your knowledge of IRA rules, especially knowing what distribution codes to use in certain situations, can save you a lot of stress and hassle later on.
At Ascensus, we’ve heard horror stories. We assist many financial organizations in reducing the amount of tax season compliance errors that are discovered after they submit their information to us. If you’ve had to deal with filing corrections for multiple years, then you know the hassles involved. Each correction will involve filing one or two forms, depending on the type of correction involved. If it’s a prior-year form you’ll need to obtain a form for that tax year to properly file a correction the IRS won’t reject. Your core system provider might help you with corrections, but some don’t.
Don’t be afraid to lean on experts like Ascensus for support. The key to our accuracy and our success is two-fold. We have experts who keep us updated on new regulations and tax reporting changes. As a result, we’ve built the technology to match our compliance expertise, enabling us to find and mitigate tax reporting errors before they become problems for you or your clients. Our top priority is to ensure that your organization remains IRS compliant.
Embrace the Power of Technology
Use tools and systems, like those offered by Ascensus, designed to simplify reporting. Ascensus’ Fully-Administered Program takes the uncertainty and stress out of tax reporting not only for IRAs, but also for HSAs, and Coverdell ESAs.
Our clients use one of two methods to send us their information.
Option 1: Enter individual transactions into our secure online processing system, IRAdirect®. The built-in forms wizard’s logic will prevent you from entering incorrect information and will guide you on the right path to accurate transactions and reporting, so you can feel confident that you completed the form correctly.
Option 2: Send us a file with all annual transactions, and we’ll handle the rest.
With both methods, our compliance logic works behind the scenes to catch common errors—like using incorrect distribution codes or reporting a nonreportable transfer as distribution and rollover—that could otherwise slip through unnoticed. Plus, we can generate and mail tax forms to your account owners, the IRS, and any applicable state agencies.
Let us help you stay compliant, save time, and avoid costly mistakes. To learn more about Ascensus’ Fully-Administered Program, email us at salessupport@ascensus.com.
With Ascensus on your back-office team, you can focus on what matters most—without losing sleep over tax reporting mistakes.
