Untitled Document

November 2023

Are IRA Amendments Required For 2023-2024?

The governing IRA regulation requires an IRA custodian/trustee to furnish an IRA amendment when the IRA plan agreement provisions are changed or when one or more of the topics discussed in the IRA disclosure statement is no longer correct and it needs to be revised or amended to set forth a current and correct explanation. Regulation 1.408-6(4)(ii)(C) requires that an IRA amendment be furnished no later than the 30th day after the amendment is adopted or becomes effective.

A cardinal rule of IRA and pension law is, the terms of the IRA plan agreement control and in order for a person to benefit from a law change the plan document must be revised to set forth the new law. Individuals have the right to be informed and understand current laws and the particulars of the specific IRA plan agreement. Many individuals and possibly many IRA custodians might wish the law to be, since federal tax law authorizes a certain tax benefit, then a person should be able to realize a tax benefit regardless of what the IRA plan agreement provides. The law does not adopt this approach. For example, in order for a person age 74 to make an IRA contribution in 2022 or subsequent years to his or her traditional IRA or Roth IRA, the IRA plan agreement must be revised to authorize the person to make such a contribution.

The IRS in Notice 2022-23 has extended the amendment deadline for IRAs from December 31, 2022 to December 31, 2025. A user of IRS Model forms is permitted to continue to use these forms until revised by the IRS. The IRS has not explained why it is not able to follow its own regulation. The IRS probably should revise its regulation but for whatever reason chooses not to do so. The IRS many times will issue less formal guidance.

A long time ago (1986/1987) the IRS acknowledged that there are times that even though the IRA plan agreement has not been changed, a disclosure statement amendment must still be furnished. The IRS stated there needed to be a disclosure statement amendment discussing or explaining the deductible/nondeductible rules.

There have certainly been important IRA changes affecting 2023 and 2024 of which an IRA accountholder or an IRA beneficiary should be informed. The maximum IRA contribution limit for a person whose filing status is single or head of household was $6,000 for 2022, is $6,500 for 2023 and will be $7,000 for 2024. The maximum IRA contribution limit for a person whose filing status is married filing jointly was $7,000 for 2022, is $7,500 for 2023 and will be $8,000 for 2024. The income limits applying to a person being able to claim a tax deduction for their contribution to a traditional IRA have increased substantially because of the high rate of inflation the last few years. The income limits applying to a person being eligible to make a Roth IRA contribution have increased substantially because of the high rate of inflation the last few years. An individual who takes a distribution prior to age 591/2 does not owe the 10% additional tax as long as the distribution is on account of a terminal illness, domestic abuse, or fiscal emergency. The rules applying to disaster situations changed substantially with respect to both distributions and contributions.

Each institution must make its own determination because one needs to understand when was the IRA agreement last amended and how is it being amended. A primary question is, “when is the last time the financial institution furnished an amendment?” What do the current IRA plan agreements provide? Are there some IRAs set up with one certain plan agreement and others with a different plan agreement?

In summary, answering a question whether or not an amendment is required is not simple. Each financial institution will need to make its own decision to furnish one or both amendments.

It is true that the IRS has not been very active in auditing whether or not IRA custodian/trustees are furnishing IRA amendments as required by the IRA regulation. We at CWF believe it is in the best interest of a financial institution to furnish the amendments. The governing IRA regulation provides that a $50 fine may be assessed an institution for each time it fails to furnish the IRA plan agreement and $50 each time it fails to furnish the IRA disclosure amendment.