Tax Advantaged Accounts
ComplianceTax & AccountingAugust 19, 2022

Individual Retirement Accounts: Mandatory amendment deadline moved back

Overview

The Internal Revenue Service (IRS) recently provided a long-anticipated update as it relates to the deadline by which existing individual retirement accounts (IRAs) must be amended. The updated information was provided in Notice 2022-33 which essentially acts as a modification to earlier Notices 2020-68 and 2020-86. In the Notice, the IRS indicates the deadline to amend existing IRAs as the result of changes made by the SECURE Act is “… December 31, 2025, or such later date as the Secretary prescribes in guidance.” Additionally, as the result of changes made by the CARES Act the IRS states in the Notice, “the deadline for amending a retirement plan that is not a governmental plan is December 31, 2025.”

IRS Form 5305 series model documents

Though there have been several legislative events affecting IRA rules in recent years, with the most significant being the SECURE Act, the IRS has not updated the Form 5305 series model documents used to establish IRAs since April 2017. The IRS has, however, indicated for several years it will update the model documents to reflect recent changes but at the time of this writing has not yet done so. An important point to keep in mind is that the language in Article VIII of the traditional IRA and Article IX of the Roth IRA model documents (trust and custodial) is written by the IRA custodian or trustee, or by its form’s provider. When considering this, even though the existing 5305 series documents do not accurately reflect all current IRA rules, the IRA disclosure, which must be provided to an individual upon establishing an IRA, must reflect then current rules. For this reason, it is important to make a distinction between establishing new IRAs vs. amending existing IRAs.

IRA disclosure and establishing new IRA plans

The Wolters Kluwer IRA disclosures, part of the Wolters Kluwer IRA Organizers and IRA Booklets (i.e., Wolters Kluwer IRA establishment documents), are updated each year to incorporate annual cost-of-living adjustments (COLAs). When updating the disclosures to incorporate COLA changes recent legislative and/or regulatory changes are also written into the document unless changes necessitate an earlier update. For this reason, Wolters Kluwer forms users can be confident that the disclosure provided to an individual upon establishment of a new IRA is generally reflective of ‘then current’ rules.

Amending existing IRAs

When IRA rules change, it may or may not be necessary to amend existing IRA plans. The IRS Form 5305 series model documents and the Wolters Kluwer IRA disclosures are written in a manner to ‘absorb’ certain changes. However, more significant legislative or regulatory events may result in a financial organization’s forms provider to encourage amending existing IRA plans. This is frequently the case with legislative or regulatory changes, most recently the SECURE Act, as Wolters Kluwer has recommended amendments to its existing IRA plan documents. When amending existing IRA plans, an IRA custodian or trustee provides an updated disclosure and will generally provide a copy of the current Form 5305 model document.

Conclusion

There is no doubt that staying on top of the IRA rules can be challenging. Furthermore, determining which changes your IRA owners should be made aware of can also be confusing. An IRA custodian or trustee’s current IRA forms provider is the best source from which to get the necessary direction. We are currently in a unique situation as recent legislative and regulatory changes have been significant enough for IRA custodians and trustees to provide existing IRA owners with an amendment to their IRA’s disclosure. However, per Notice 2022-33 we must also look forward to a mandatory amendment by “December 31, 2025, or such later date as the Secretary prescribes in guidance” as the IRS Form 5305 series model documents will most certainly then be reflective of ‘then current’ rules.

For an opportunity to learn more about IRAs and other tax-advantaged accounts, including Health Savings Accounts and Coverdell Education Savings Accounts, consider the Wolters Kluwer IRA Library or on-demand video training offered on a variety of topics. Go here to learn more about training opportunities available to you or call us at 1-800-552-9408.
Mike Schiller
Manager, Specialized Consulting, Tax Advantaged Accounts
With more than 25 years of experience, Mike has worked closely with hundreds of financial organizations to help them create, implement, and maintain their tax-advantaged accounts program.
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