IRS Provides Guidance on Pre-Approved IRAs

The document includes guidance to drafters and users of prototype IRAs, including rules for when documents must be submitted to the Internal Revenue Service and new user fees for individual retirement annuities.  In addition, the IRS provides guidance to users of its model IRAs and describes the availability of new model individual retirement annuities.   

Specifically, the agency said a prototype IRA may, but need not, be amended to reflect a statutory change made since 2002, including provisions in the Heroes Earnings Assistance and Relief Act of 2008 (HEART) and the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA). Prototype IRAs may be amended, solely to incorporate the statutory changes, without affecting reliance on a favorable opinion letter.  

A Listing of Required Modifications (LRMs) that the Service finds acceptable for prototype IRAs is available at www.irs.gov, by searching for LRMs. In order to receive a favorable opinion letter, prototype documents must include language that addresses every issue addressed in the LRMs, unless clearly inapplicable.  

According to the Revenue Procedure, beginning with applications submitted after December 13, 2010, prototype sponsors of individual retirement annuities described in § 408(b) that use one IRA endorsement with one or more annuity contracts may submit only the IRA endorsement (and not the contracts) to the Service for approval. Sponsors that take advantage of this new procedure will be issued an opinion letter referencing the IRA endorsement, thereby reducing the number of opinion letters issued and, correspondingly, the applicable user fees.  

In addition, the IRS said model IRAs need not be amended in order for trustees to operate in accordance with the statutory provisions listed in the Revenue Procedure. The service will issue two model IRAs for use by issuers and annuitants to establish a traditional individual retirement annuity or a SIMPLE individual retirement annuity. The forms – Form 5305-B, Individual Retirement Annuity Endorsement; and Form 5305-SB, SIMPLE Individual Retirement Annuity Endorsement – are expected to be available shortly.  

The IRS said it recommends adoption of the latest model IRAs.