The Internal Revenue Service and Congress should work together to make the individual retirement account program less confusing for taxpayers, a congressional watchdog agency says.
Officials from the Government Accountability Office come to that conclusion in a new report that covers topics such as the complexity of the rules that govern IRAs and IRS data on IRA reporting problems.
To gather information for the report, GAO officials reviewed IRS documents and compliance data, and they interviewed representatives from financial services companies and advisor groups.
The GAO investigators found “taxpayers face challenges in figuring how much they can contribute, navigating the various distribution rules, and rolling over their IRAs between custodians,” Michael Brostek a GAO director, writes in a letter discussing the GAO’s findings.
“For example, eligibility to deduct (from taxable income) contributions to a traditional IRA and to contribute to a Roth IRA depends on taxpayer income and filing status, while coverage by an employer-sponsored retirement plan only affects eligibility for deductible contributions to a traditional IRA,” Brostek writes.
“Tax rules for distributions diverge for traditional and Roth IRAs, but both types are generally subject to a 10% early withdrawal penalty, with some exceptions,” Brostek writes.