In February 2017, the IRS posted to their website new Forms 5305 with a revision date of October 2016. It became clear pretty quickly that many of their forms were incorrect.
- The Forms 5305 and 5305A had language altered in Article I that contained the following language: “…accept only cash contributions up to $X,XXX per year for tax year 2010. For individuals who have reached the age of 50 before the close of the tax year, the contribution limit is increased to $X,XXX per year for tax year 2010…“ This was apparently a draft from 2009 that was used to update the form.
- Forms 5305-S and 5305-SA were combined into one form that contained the first page from the 5305-SA and the second page from 5305-S. Therefore combining custodian/trustee definitions into one document.
- All of the forms removed the box at the top where the “identifying number” was inserted. But in the instructions the explanation of that box remained. These revisions were done solely to honor the IRS’s SSN Elimination and Reduction program, which was a response to a 2007 directive from OMB on helping to prevent identity theft. Of course many of your financial institutions use an Adoption Agreement format so that this change is a moot point.
On the SIMPLE IRA models, similar errors occurred but the change for rollovers was not made!
Moral of the Story — Just like fake news, do not update your forms for these changes. The IRS is aware of these errors and is in the process of correcting and updating the forms. When the “real” forms are reposted, they should also contain a sentence in the IRS instructions that indicate whether your institution:
- will need to mass mail these new updated documents;
- will only need to use these on a going forward basis; or
- will not have to do anything, if the changes are merely to accommodate minor changes that do not affect the technical provisions of the form.
Remember that if you do start to use the new updated form language (when released), make sure you document in your IRA file when you switch over to the new IRA language and form for IRS audit purposes. For IRS audit purposes, your firm should have a “Master File” on hand that includes all of your current IRA documents and administrative forms and documentation of when those forms were amended, including your internal procedures of who updates were sent to participants.
NTSA will update this article, when the new 5305s are issued with the correct information. At that time we anticipate that the SIMPLE-IRA will be updated to reflect the acceptance of the rollover contributions from other retirement plans that was a change under the PATH Act of 2015.
Susan D. Diehl, CPC, QPA, ERPA, is President, PenServ Plan Services, Inc. and Chair of the NTSA Communications Committee.
Opinions expressed are those of the author, and do not necessarily reflect the views of NTSA or its members.