At IRALOGIX, we recognize that Individual Retirement Accounts (IRAs) are indispensable tools for securing a stable financial future. However, the effectiveness of an IRA program extends beyond selecting the right investments and features; it also involves compliance with an ever-changing regulatory landscape.
For financial institutions, maintaining a compliant IRA program is essential for meeting legal obligations and protecting clients’ financial futures. It is also critical for recognizing new opportunities. This requires a proactive approach to understanding and implementing rule changes affecting IRAs.
Financial advisors, too, must stay informed about rule updates and even potential future changes to be able to guide their clients effectively. By keeping abreast of the latest compliance requirements and tax law changes, advisors can help clients make informed decisions about their retirement savings and tax strategies.
IRALOGIX is committed to assisting both financial institutions and advisors navigate the complexities of IRA compliance and opportunities, helping to ensure a more secure financial future for their clients.
Regulatory Shifts: Stay on Top of IRA Rules
The regulatory environment surrounding IRAs is constantly in flux, in part because it is tied to the tax code. Congress enacts new laws to enhance retirement savings opportunities for more workers but also can change the rules to offset the tax “cost” of these enhancements or other law changes. Regulatory agencies, like the IRS, create operational requirements to help institutions implement the changes and to enforce the rules. To provide high-quality services and avoid penalties, financial institutions and advisors must understand the changes affecting IRAs and integrate them into their forms, procedures, technology, client communications, and staff education.
Overview of Recent Regulatory Changes
Recent law and regulatory changes affecting IRAs have introduced new requirements and options that impact clients’ savings and tax strategies. Here is a partial list of changes that took effect recently and coming up:
Effective beginning in 2023
- Increased RMD age (age 73)
- Withdrawals and repayments for the terminally ill
- Roth contributions for SEP and SIMPLE IRA plans (IRS guidance needed)
- Withdrawals and repayments for qualified disaster victims
- Withholding rules and new Form W-4R required
Effective beginning in 2024
- Increased dollar amount for automatic rollovers ($7,000)
- Rollovers of 529 assets to Roth IRAs
- Additional nonelective contributions allowed for SIMPLE IRA plans
- IRA catch-up contributions subject to COLAs
- Automatic increases to employee contribution limits for SIMPLE IRA plan employers with 25 or fewer employees
- Optional increases to employee and employer contribution limits for SIMPLE IRA plan employers with 26-100 employees
- Withdrawals and repayments for domestic violence victims
- Withdrawals and repayments for personal emergency expenses
Coming in 2025
- New RMD and beneficiary regulations in effect
- Increased catch-up contributions for SIMPLE IRA plan employees ages 60–63
Coming in 2026
- IRA amendments/restatements (pending new IRS documents and guidance)
Coming in 2027
- IRS Saver’s Match deposits to IRAs
These changes are in addition to the annual updates the IRS makes, which also must be incorporated into all aspects of IRA administration:
- Increased contribution limits and income thresholds for IRA tax benefits and IRA-based retirement plans (COLAs)
- Updates to withholding form and taxpayer information
- Changes to Form 1099-R and 5498 reporting
Implications for Financial Institutions
Financial institutions managing their own IRA programs face the ongoing challenges of staying compliant with evolving laws and regulations. In addition to implementing updates and changes into their operations, institutions must also accurately field questions from account holders to avoid miscommunication that could lead to unexpected taxes and penalties. Ongoing efforts to make system updates and train staff can be a significant burden. But noncompliance can lead to steep penalties for financial institutions.
Implications for Financial Advisors and Their Clients
Regulatory shifts and tax updates significantly impact how financial advisors guide retirement savers and wealth management clients, too. Advisors must stay informed to maintain credibility and provide effective retirement strategies. For example, the changes in contribution limits, Roth options, and RMDs can directly affect the strategies advisors recommend to clients. Non-compliance can lead to penalties and unexpected taxes for clients, undermining their financial stability. Moreover, it could harm an advisor’s reputation. Advisors may want to re-evaluate client strategies each year specifically considering IRA rule changes.
Maintain IRA Compliance with IRALOGIX
Incorporating technology into compliance management in the right way is essential in today’s regulatory environment. With an IRA program on IRALOGIX’s platform, financial institutions can offload the burden of ensuring that law and regulatory changes are seamlessly implemented along with annual updates. By taking on the compliance responsibilities of recordkeeping and administering IRA programs, IRALOGIX enables our Partner institutions to focus on growing their businesses and serving their clients. Contact us for more information on our IRA platform and compliance capabilities.
To help our Partner institutions and advisors stay informed about developments in the retirement savings market and understand how those changes can best be positioned for program growth, we provide updates, insights, and tips. We also post articles on legislative and regulatory developments on our website and LinkedIn page.