IRA Model Documents Updated and Posted by IRS | Wolters Kluwer
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  • IRA Model Documents Updated and Posted by IRS

    Karl Leslie

    by Karl Leslie, Principal Attorney

    Published September 11, 2017

     

     

    What Does This Mean For Your Financial Organization?

    Overview

    On September 6, 2017, the Internal Revenue Service (IRS) posted to its website updated traditional, Roth, and Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) Individual Retirement Account (IRA) Trust and Custodial model agreements (i.e., 5305 series documents). An IRS Form 5305 is used to establish one of the IRA types listed above and is a primary component of Wolters Kluwer’s IRA Organizers, Booklets, and Amendments. Significantly, the last update the IRS made to the IRA model agreements occurred in 2002. The new IRA 5305 series agreements have an April 2017 revision date. 

    What Are the Changes?

    • Traditional IRA 5305s: Financial organizations will now collect an “account number” rather than the account owner’s social security number. The removal of the account owner’s social security number, even though it is still collected on the IRA application, is designed to help reduce identity theft. Additionally, Article I of the document was updated to reflect the 2017 maximum contribution limits and Article VIII was modified to clarify that a financial organization cannot imply that any provisions added to that article have been reviewed or preapproved by the IRS, an important addition as the IRS now expressly prohibits implying that the IRS reviewed or approved all of the articles of the 5305. Last, the General Instructions on the form have been updated to reflect these changes. The instructions also now list IRS Publications 590-A, Contributions to Individual Retirement Arrangements (IRAs) and 590-B, Distributions from Individual Retirement Arrangements (IRAs), as an additional source of information.
    • Roth IRA 5305s: In addition to the same or equivalent changes made to the traditional IRA 5305s, the IRS amended Article I to update the modified adjusted gross income (MAGI) limits that determine Roth IRA regular contribution eligibility. The IRS also removed from Article II language that limited Roth IRA conversion contributions. The General Instructions on the form have been updated accordingly.
    • SIMPLE IRA 5305s: In addition to changes made to the traditional IRA 5305s relating to collecting an account number in place of the account owner’s social security number the IRS added language clarifying when transfers and rollovers from an eligible retirement plan can be accepted into a SIMPLE IRA. The IRS also modified Article VIII to clarify that a financial organization cannot imply that any provisions added to that article have been reviewed or preapproved by the IRS. The General Instructions on the form have been updated accordingly.

    HSA and CESA Model Documents

    In February 2017, the IRS posted to its website updated Health Savings Account (HSA) and Coverdell Education Savings Account (CESA) Trust and Custodial model documents. The updated HSA and CESA 5305s all have an October 2016 revision date. The previous HSA 5305 documents had a December 2011 revision date while the CESA 5305 documents had an October 2010 revision date.

    What Are the Changes? 

    • HSA 5305s: The only change the IRS made to the HSA 5305 was to remove the account owner’s identifying number from the form. However, please note that the instruction stating that the account owner’s social security number will act as their identifying number was left on the form.
    • CESA 5305s: The only change the IRS made was to remove the account owner’s and designated beneficiary’s identifying numbers from the form. However, please note that the instruction stating that the account owner’s and designated beneficiary’s social security numbers will act as their identifying numbers was left on the form.

    COLA Updates

    The IRA publishes cost-of-living adjustments (COLAs) annually for both IRAs and HSAs. Contribution limits are a common example of a dollar amount that gets reviewed every year and adjusted if required by the annual COLA calculations. The HSA COLAs were announced in May. The IRA COLAs are expected to be announced in late October. Wolters Kluwer updates the Disclosure Statement section of its Organizers, Booklets, and Amendments on an annual basis to reflect the current dollar amounts once the latest COLAs are available. The Disclosure Statement section is a required component when establishing a new IRA and is designed to provide a plain language explanation of the 5305 contract to the IRA, HSA, or CESA owner. This year, the updates to the Organizers, Booklets, and Amendments will include the new 5305s and updated COLA information.

    Please note that the IRS may release an announcement regarding the updated Forms 5305 series agreements, thus some of the information provided may change. Wolters Kluwer will keep you posted on further developments on this matter.

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    To learn more about IRAs and other tax advantaged accounts, including Health Savings Accounts and Coverdell Education Savings Accounts, consider joining us for one of our Live Streaming events offered on a variety of topics. Learn more on training opportunities available to you, or call us at 1-800-552-9408.


     



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