The IRS is about to begin a new initiative to go after taxpayers who make excess contributions to their Individual Retirement Arrangement (IRA) account or do not begin to withdraw funds from their traditional IRA account when they reach age 70.
Excess Contributions
Generally, an excess contribution is any amount made to a traditional IRA that exceeds $5,000 ($6,000 if 50 or older) per year. However, a taxpayer’s maximum IRA contribution may be less than this amount because a taxpayer cannot contribute more than their earned income.
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Required Withdrawals from Traditional IRA
Taxpayers with traditional IRAs must begin making withdrawals by April 1 of the year they reach 70. Failure to do so may result in a penalty of 50% on the required distribution.
According to the Treasury Inspector General for Tax Administration, there were approximately 255,000 taxpayers who failed to comply with the withdrawal requirements in 2006 and 2007 – costing the government approximately $174 million.
Click here to read the entire CrossLink Tax Update that includes further information on increased IRS scrutiny for IRA rules compliance.
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