New Filing Rules for Keogh Plans
QUESTION: I just found out that I have to file a five-page tax form on my Keogh retirement account by July 31. It is so complicated I can’t possibly do it myself and will have to spend about $200 to have it done. I’m even angrier because the form states that the information is open to public inspection. I may as well just open up my books to my competitors. Why are we little Keogh holders suddenly being put through this? And is anyone pushing to get this silly new requirement stopped?--S. B.
ANSWER: Congressmen and IRS offices nationwide have been inundated with calls from thousands of angry owners of these tax-deferred retirement accounts. But no organized drive to repeal this rule has yet emerged. And because the non-compliance penalties are quite stiff, you would be better off to go ahead and file the return--or at least file for an extension--while you are pushing for repeal. (The IRS has the right to fine you $25 a day per Keogh account if you are late or otherwise fail to comply with the new disclosure rule.)
As you know, self-employed persons with Keogh accounts didn’t have to file annual reports in the past if the Keogh covered only one individual or partners who owned 10% or more of their business. But in an effort to bring into parity the reporting requirements of corporate and non-corporate Keogh plans, Congress rewrote the rules as part of the 1982 tax law. The new requirement is effective this year, with July 31 as the deadline. No Keogh owner is exempt--even those individuals who haven’t contributed to their plans in years.
If you can wade through the jargon and the obvious errors on the five-page Form 5500-C, you might find that it isn’t as complicated as you first thought. If someone else set up your plan several years ago and you don’t know which among the types listed yours is, it is about time you found out anyway since that can be critical information when it comes time to withdraw your money.
If you need more time--or if you are holding out hope that the public outcry will force Congress to repeal the new law--you need only request a 2 1/2-month extension. To do that, file IRS Form 5558, a truly simple form, before July 31.
In the opinion of some tax specialists, you have already filed for an extension of the July 31 deadline if you filed for an extension of the April 15 deadline for your federal income tax return. But to be safe, file a separate extension request for the Keogh filing.
As for the errors on the form, there are three. Line 16P incorrectly makes a reference to Line 15K. The correct reference is to Line 15L. Question 21A should be omitted because it duplicates question 21B. And question 20A makes an incorrect reference to a part of line 15C. The correct reference is 15CV or VI.
If you are still stumped, you can call the IRS toll-free at (800) 424-1040.
If you are still so annoyed by all of this that you just want to wash your hands of it and turn it over to a professional, you will probably have to pay at least $150 for the service. On a brighter note, if you rely on a certified public accountant or other tax specialist to prepare your tax returns, this filing will from next year on just be one more form that he or she handles for you. So you should have to pay only a modest fee, if any at all, on top of your normal return preparation fee after this year.
Although Form 5500-C is required only every third year after the first filing, you will be required to file a shorter form, 5500-R, in each of the off years.
Your interpretation that your competitors are free to look at this filing also is correct. Again, Congress wanted to bring small Keoghs and corporate retirement plans under the same rules.
Q: Since auctions and sales of new notes and bonds by the Treasury Department sometimes affect the trend of market interest rates, I would be interested in knowing what offerings the Treasury plans and when. Is such a schedule available?--S. S. S.
A: If you have a lot of patience, you can get some of the information you are seeking by periodically calling a recording at the Bureau of the Public Debt. The recorded message will give you a schedule of offerings and the results of the most recent auction. Call (202) 287-4100.
