The Internal Revenue Service oversees strict rules to prevent abuse of IRA tax benefits, imposing penalties for noncompliance (whether it’s due to cheating or error). However, millions of dollars in IRA tax penalties have gone uncollected. The Internal Revenue Service is now stepping up its audits of tax returns for IRA discrepancies.
Here are some basic IRA requirements worth checking.
A traditional IRA contribution can’t exceed $5,000 per year, or $6,000 if you’re over age 50. Roth IRAs have an income cap, so if your salary has increased, it’s worth checking. If you find you have accidentally contributed too much, withdraw the excess and its interest by Oct. 15 of the following year, if possible.
Required Minimum Distributions
The year after you turn 70 ½, you must start taking withdrawals and paying the government its due. Be sure you know your Required Minimum Distribution (RMD). It’s calculated according to your IRA balance as of December 31st of the prior year and your life expectancy. Exceptions to these requirements exist, but be careful. The laws can be tricky.
If you’ve inherited an IRA, you could be responsible for withdrawing the annual RMD, and reporting it as regular income on your tax return. The key is to retitle the account as an Inherited IRA. Then payments will be distributed across your life expectancy, and the account’s earnings will be tax-deferred.
Have additional questions about IRA penalties? Consult a Horizon Bank team member for additional assistance.
Nicole Nalepa is a Trust Officer of Horizon Bank. For more information on Horizon’s Trust & Investment services contact Tracy Nalepa at 219-750-1113 or via email at NNalepa@accesshorizon.com