IRA/CESA News

Most Recent IRA/CESA Compliance Points

Individuals who have Economic Stimulus Act payments made by direct deposit to their individual retirement accounts (IRAs), Coverdell education savings accounts (CESAs), or health savings accounts (HSAs) may remove the payments without incurring any adverse tax consequences.

Under IRS Announcement 2008-44, an individual may withdraw an amount no greater than the amount of the directly deposited Economic Stimulus Payment. Withdrawals occuring no later than the taxpayer’s income tax return due date for 2008, plus extensions (for a CESA, the later of May 31, 2009, or the taxpayer’s income tax return due date for 2008, plus extensions), will not be subject to federal income tax nor to any penalty tax.

Financial organizations should report the deposits and distributions in the usual manner. Taxpayers will address the taxation of such distributions on their federal income tax returns.

IRS Notice 2008-30 provides Pension Protection Act (PPA) of 2006 guidance for provisions effective in 2008. The notice addresses PPA sections 824 (relating to rollovers from eligible retirement plans to Roth IRAs); 1004 (relating to additional survivor annuity options); and 302 (relating to interest rate assumptions for lump sum distributions).

Significant new rules will affect Roth IRAs, including recharacterizations, rollovers by nonspouse beneficiaries, and required minimum death distributions from Roth IRAs.

Note: IRS Notice 2007-7 provided guidance with respect to certain provisions of PPA that were primarily related to distributions and that were effective beginning in 2007 or earlier.

Among the changes:  The Form 1099-R and 5498 reporting instructions for 2008 indicate that IRA custodians/trustees should report qualified rollover contributions from eligible retirement plans (other than an IRA) to a Roth IRA as rollovers in Box 2 of Form 5498. This transaction is a provision of the Pension Protection Act of 2006, effective January 1, 2008. 

Most Recent IRA/CESA Compliance Articles

Most Recent IRA/CESA Question

An IRA owner died in 2007 before taking his required minimum distribution (RMD) for the year. His three nonspouse beneficiaries did not take the distribution either, saying they wanted everything to go through the estate. Will there be a penalty?