Deadlines for Updating IRA Forms Set, but Model Forms MIA
by: Ken Golliher, BOL Guru BIO AND CONTACT INFO
The IRS indicates IRA custodians must update IRA agreements by December 31, 2002. However, it has yet to publish the model forms that vendors rely on for the specific language. (Most financial institutions buy IRA forms from vendors rather than establishing prototypes of their own.)
Changes made by the Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA"), had dramatic, positive effects on Individual Retirement Accounts. Those changes took effect January 1, 2002. On the same date, use of proposed IRS regulations regarding acceptable methods for calculating required minimum distributions (RMD's) from IRA's became mandatory. (The proposed regulations were published in January, 2001, but their use was optional in last year.) The effect of the new regulations was also positive; they lowered the RMD for many IRA holders.
It is the IRA custodian's responsibility to maintain the accuracy of the IRA plan. If a change in law or regulation alters plan terms, then it must distribute a revised plan to the consumer. If the change in the plan language also affects the required "plain language" disclosure, then a revised disclosure must also be provided. The custodian may provide new documents or amendments for existing documents.
IRA custodians have known for months that they would have to do a mass mailing to all IRA holders. However, until Rev. Proc. 2002-10 was published, they had no idea what the time frame would be… Some vendors were indicating that the need to purchase new forms was quite urgent. Yet, even though the time frame for using the new documents is now set, the IRS has yet to update the model forms in the 5305 series - there are no new documents.
In Rev. Proc. 2002-10, the IRS again indicates it expects to issue revised model IRAs "in early 2002." Existing models may be used to establish new IRA's through June 1, 2002. So, custodians may continue to use existing forms, switching to the new forms on a date of their choosing. For example, if a custodian begins using the new forms to open IRAs on April 10, it still has an obligation to do a mailing on the form revisions to all its IRA holders as of April 9. However, it could do that mailing any time during 2002.
Many custodians would have preferred for the IRS to act more promptly - they could have included the new documents in their required year-end mailings, reducing their postage expense. Now, IRA custodians can plan on a dedicated, single purpose mailing.
However, since the mailing is required and the changes are positive and may be an opportunity to draw consumer attention to the new provisions by including a cover letter or marketing materials explaining the changes.
Undoubtedly, vendors will notify custodians when the new forms are published. Those wishing to see the models then can find them at the IRS web site, under "Forms and Publications". We encourage custodians to begin using the new forms to open accounts and do the mailing to existing IRA holders as soon as the forms are available.
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