It’s been reported that in 2006 and 2007, the IRS left nearly $300 million in uncollected tax dollars on the table because it failed to follow up on individuals’ retirement account withdrawal and contribution mistakes. But in the future, account holders may not be so lucky.
The IRS is expected to issue a report to the Treasury by Oct. 15 on how to crack down on IRA account holders who make contribution and withdrawal errors, reported The Wall Street Journal.
Some of the things the IRS may have in store for IRA owners:
- Additional paperwork that would need to be filed with tax returns, and
- Increased audits.
Two errors the IRS is expected to be on the lookout for:
- Failure to take a required minimum distribution, which is required for those 70 1/2 years old, as well as those who inherit an account, and
- Exceeding the contribution limits for traditional and Roth IRAs, which are $5,000 per person or $6,000 for those 50 or older (contributions also cannot exceed an individual’s taxable compensation for the year).
There is no statute of limitations on the penalties attached to these errors, but offenders can keep interest and penalties form piling up by filing a form to report a problem.
And the penalties can be pretty steep:
- Those failing to take a required minimum distribution can be forced to pay a penalty of 50% of the amount they should’ve withdrawn, and
- Those contributing too much can be made to payback 6% of the amount that wasn’t supposed to have been contributed.
The IRS hasn’t provided any other details on how it plans to go after offenders.