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Form 5305-SIMPLE West Valley City Utah: What You Should Know

If the employee withdraws from retirement earlier than the full 10% tax-free rollover amount, the employer pays a 10% penalty on the balance of the IRA contribution or rollover until the balance is settled. This tax-free rollover amount is computed using the actual account balance at the time of the distribution. The 10% penalty will decrease with age and then begin to increase. The penalty is reduced by the portion of the 10% rollover distribution that is subject to the 10% penalty. The IRS is also exploring options for implementing employer penalties for failures to provide an IRA custodian or an IRA custodian to carry out the IRR when the employer fails to provide the IRR when needed by the employee. In some situations, a custodian must be provided at the time of the employee's first withdrawal from the IRA. For example, if an employee wants to transfer funds prior to the annual deadline for distributions for the next taxation year, the employee must provide and the custodian be provided an IRA custodian as soon as practicable. If the custodian is not provided prior to the employee's last day to withdraw before the end of the year, the custodian must be provided by the end of the month following the month in which the IRA was opened. In addition, the custodian in the event of the IRA owner's death must be provided at the time of death (before the owner's first retirement date). The IRA owner's first retirement date for purposes of this requirement is the earliest month in which the retirement is occurring. In other situations, the custodian must be provided at the time of the IRA owner's last date to retire. This can occur within 6 months of the IRA owner's last withdrawal. When the employee completes the Form 5304, it will indicate whether the custodian for the IRA has been provided and whether the custodian is expected to be provided by the end of the month that follows the month in which the IRA is opened. For example, if the employee begins the year with a balance of just under 10,000 in the account when the plan is established, that amount will not be subject to the 10% penalty for not providing an IRA custodian and the employee will have the ability to withdraw early for his or her last day of retirement and pay no tax-free rollover contribution or IRR for the year. There will also be no IRA custodian required for the subsequent year.

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