LEGAL ALERTJuly 7, 2010
June 16, 2010, the Internal Revenue Service (IRS) updated its Listings of
Required Modification (LRMs) for Traditional
IRAs, and SIMPLE
IRAs. The IRS provides the LRMs as
model language to assist sponsors in drafting IRA trust and custodial
agreements and annuity contract endorsements.
Though slightly revised in 2007 to reflect changes under the Pension
Protection Act of 2006 (PPA), the LRMs have remained largely the same since the
last substantial update in 2002 for the Economic Growth and Tax Relief
Reconciliation Act of 2001 (EGTRRA).
newly revised LRMs include a number of substantive additions meant to
incorporate applicable provisions of the Worker, Retiree, and Employer Recovery
Act of 2008 and the Heroes Earnings Assistance and Relief Tax Act of 2008. The most significant additions are listed
below. As noted, some of these changes
apply to all IRAs, while others are specific to certain types of IRAs.
the application of the required minimum distribution (RMD) rules to inherited
IRAs and Roth IRAs
stating that regular contributions cannot be made to inherited IRAs.
IRAs and Roth IRAs
that the beneficiary of an inherited IRA cannot take RMDs from other IRAs
owned by the beneficiary, except as noted immediately below.
IRAs and SIMPLE IRAs
that the beneficiary of an inherited IRA can take RMDs from other IRAs owned
by the beneficiary if the other IRAs were originally established by the same
IRAs, Roth IRAs, and SIMPLE IRAs
the definition of "compensation" to include differential wage payments.
contributions in excess of the normal limits in the case of repayments of
distributions made on account of a federally declared disaster.
The IRS has not yet indicated whether these changes
are required to be made to IRA documents and whether there is a time frame in
which the changes must be made. The IRS
has also not announced whether prototype IRA documents with existing opinion
letters must be resubmitted for new opinion letters if they are amended to
incorporate the changes. When the IRS
made changes to the IRA LRMs in 2002 to reflect most of the EGTRRA provisions,
the IRS required sponsors to amend documents and file for new prototype opinion
letters. On the other hand, when the IRS
revised the Roth IRA LRMs in 2007 for rollovers of Roth contributions permitted
under EGTRRA, it required sponsors to amend documents but did
not require sponsors to resubmit for new opinion letters. It is not clear which approach the IRS will
take with regard to certain LRM changes made in 2007 for PPA and the most
recent changes, but the IRS has said informally that it plans to provide further
have any questions about this Legal Alert, please feel free to contact the
attorneys listed below or the Sutherland attorney with whom you regularly work.
Daniel M. Buchner
Adam B. Cohen
Jamey A. Medlin
Joanna G. Myers
Robert J. Neis
Vanessa A. Scott
W. Mark Smith
William J. Walderman
Carol A. Weiser
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