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Know Your Agencies #2: What parts of the government regulate retirement, and how they can help

Post 2 of 5: The Internal Revenue Service (IRS)

The Pension Rights Center is located in Washington, D.C., where people regularly joke about how the government is made of “alphabet soup” because it consists of so many different agencies that we refer to by different combinations of letters.  Sometimes figuring out which agency does what can be really daunting.  So, the Pension Rights Center has put together a “know your agency” blog post series to help workers and retirees know what agencies can help in case they run into problems involving their retirement benefits.

Private retirement plans

Responsibility for administering federal laws governing retirement benefits that people earned by working for companies, unions and non-profit organizations is divided between three different federal agencies: EBSA, the IRS, and the PBGC. This post focuses on the Internal Revenue Service, or IRS.

You are probably already familiar with the IRS, which is part of the U.S. Department of the Treasury, from doing your income taxes. But you may not know that the IRS also plays a major role in regulating retirement plans. That is because retirement plans receive special tax treatment: Individuals don’t pay taxes on money saved in retirement plans until they take that money out in retirement (unless they’re in a special type of retirement plan called a “Roth” plan).

The IRS decides whether retirement plans meet the requirements necessary to receive this special tax treatment. These qualification requirements include rules that say who must be allowed to participate in a retirement plan, how individuals earn benefits under a plan, and how and when benefits must be paid. For example, these rules make sure people don’t have to work more than a certain number of years before they can earn benefits.

If a retirement plan does not meet the tax qualification requirements it risks being disqualified by the IRS, which can have negative tax consequences for both the employer and employees.

Although the IRS focuses primarily on making sure that employers and plan officials follow the rules, these rules also can be relied on by individuals to show that plans have wrongly denied them benefits. In many of the cases the Pension Rights Center, the pension counseling projects, and private attorneys handle we are able to look to the rules to show that the plan’s provisions do not comply with the requirements of federal law. If you think that your retirement plan may not be recognizing your rights under IRS rules you should contact a pension counseling project or reach out to us at (202) 296-3776 for referral to a private attorney.

Employees and retirees are most likely to interact directly with the IRS when they do not follow the rules. This can happen if you take out a loan from your 401(k) and don’t pay it back on time or fail to begin taking required payments by age 70 ½. In these instances, you could end up owing a tax penalty.  If that happens, you may want to get in touch with the IRS Taxpayer Advocate Service to find out what your rights and obligations are.

Read the other posts in our Know Your Agencies series!

Post #1: Employee Benefits Security Administration

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