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Monday, April 15, 2024

Tax Courtroom Guidelines on New Safe 2.0 Limits for IRA-Associated Penalties

What You Have to Know

  • Safe 2.0 established a six-year statute of limitations on the 6% extra IRA contribution penalty and a three-year SOL on penalties for missed RMDs.
  • A petitioner appealed an $8.4 million penalty he had racked up over 11 years after a rollover he made was decided to be ineligible.
  • The tax court docket discovered that the the brand new SOLs weren’t retroactive, leaving the petitioner on the hook for the complete quantity.

A latest tax court docket resolution discovered that the new six-year statute of limitations on the 6% extra IRA contribution penalty shouldn’t be retroactive, in line with Sarah Brenner, director of retirement training at Ed Slott & Co.

The time restrict, together with a three-year statute of limitations on penalties for missed required minimal distributions, have been established by the Setting Each Group Up for Retirement Enhancement (Safe) 2.0 Act, Brenner wrote Tuesday in a weblog submit.

In Couturier v. Commissioner, the tax court docket dominated on Feb. 28 “that the SOL for the surplus contribution penalty ought to NOT be utilized retroactively,” Brenner states, and thus the petiotioner was nonetheless on the hook for a multimillion-dollar penalty.

The case, Brenner said, “arose from a last-ditch attraction by Clair Couturier who had beforehand been discovered to have owed $8.4 million in extra contribution penalties after he tried to roll over $26 million in plan funds he obtained in a buyout package deal.”

A ‘Ton of Issues’

In separate feedback to ThinkAdvisor Wednesday, Brenner relayed that the Couturier case “concerned a big rollover from a plan that had a ton of issues.”

Finally, the IRS “decided that about $25 million in funds have been ineligible for rollover,” Brenner defined. “When ineligible {dollars} are rolled over to an IRA, that creates an extra contribution within the IRA. That is truly one of many extra frequent methods an extra contribution can occur and that surprises folks!”

Couturier, who did the rollover, “was subsequently hit with a 6% excise tax (penalty) for every of 11 years, leading to a complete excise tax of $8,476,705,” Brenner mentioned. “Yikes!”

IRS Kind 5329

Previous to Safe 2.0, the statute of limitations for each penalties “was not thought-about to begin to run” till IRS Kind 5329, Further Taxes on Certified Plans (together with IRAs) and Different Tax-Favored Accounts, was filed, Brenner explains.

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