The Internal Revenue Service of the USA has given a special gift to all the retirees who have some retirement benefits saving. It has allowed them a chance to explain why they didn’t stick to the 60-day deadline while moving their money from one IRA to another or from a 401(k) to an IRA. Earlier, the retirees just had to pay tax for missing the deadline and they didn’t get a chance to explain the situation. Experts are still advising to make the money transfer online.
IRS reduced the Worry of Retirement Benefits Savers
IRS has considerably made the life of a retiree easier as the rule of moving retirement benefits funds from one IRA to another and from a 401(k) to another within just 60 days cost a lot of money to the retirees earlier and harmed their nest eggs. When a retiree failed to move the funds in time, he or she had to pay taxes for the full amount. If the person moving the funds was 59 and a half years of age, he or she had to pay an additional penalty.
Avoiding the Risk
In order to avoid the risk of paying extra tax, the financial experts advised the retirees to do an online transfer of their funds. Not only it’s very convenient but it’s quicker too. It ensures that the funds are transferred smoothly within a few days.
Some retirees had to pay extra tax because they had a misconception that the account they have moved their funds to a qualified retirement account while it was not the case. Some even made the mistake of losing the distribution check.
The founder of IRAhelp.com and a certified public accountant, Ed Slott says that this move of IRS is a big deal and it will help a lot of people. He says that when people had to pay full taxes due to a small mistake, they lost their tax-advantaged status.
Slott adds that people who didn’t submit the funds on time usually did it inadvertently rather than trying to pull something over on the IRS. He also said that there was a costly appeals process so only a few offenders pursued it. He concluded by saying that online transfer is still the best practice.
IRS has announced that the new rule would be effective immediately and has shared a list of circumstances that allow a person to be excused for not submitting the retirement benefits savings in a new account on time. Some of these circumstances are severe damage to the residence of the taxpayer, death in the family of the taxpayer, serious illness of a family member, a postal error, etc. In such circumstances, the taxpayer must immediately provide a written self-certification explaining why or she missed the window.