How does the IRS Know?
When an individual is required to take minimum distributions from a 401(k) how does the IRS know if the taxpayer took the correct amount? Does the custodian provide an account balance to the IRS? I know for IRAs form 5498 is used, is there a similar form for retirement plans? Thank you.
Permalink Submitted by Alan - IRA critic on Fri, 2017-02-03 17:09
Form 5498 reports IRA contributions, not distributions. The IRS requires qualified plans to meet the RMD requirements under Sec 401(a)(9) or the plan can be disqualified. Given that plan administrators are far more likely to be knowledgeable and comply than an individual, there is a much higher level of RMD compliance from employer plans than from IRAs. Of course, a solo 401k under the owner’s management has some of the same issues as IRAs, and perhaps you were referring to a solo K. A solo K custodian does not report year end account balances to the IRS, but if the balance is over 250k the plan owner must file Form 5500 EZ annually. https://www.irs.gov/pub/irs-pdf/f5500ez.pdf