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February 23, 2009

Excise Tax

Your Guide

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Definition

Also referred to by retirement plan practitioners as ‘penalty’.

An excise tax is a penalty tax assessed by the IRS on certain transactions or upon the occurrence of certain events. Examples of excise tax assessed on retirement plans include the following:

  • 6 % excise tax on excess contributions to IRAs that are not removed timely
  • 10% excise tax ( early distribution penalty) on distributions that occur from a retirement account before the owner reaches age 59 ½. Exceptions apply
  • 50% excess accumulation penalty on required minimum distribution (RMD) amounts that are not distributed from the retirement account by the applicable deadline
  • Excise tax of $100 per day to an employer, for failure for providing a 204(h) notice to an employee
  • 50% reversion tax for plan assets reverted to an employer

Referring Cite

IRS § 4973, 408A(d)(6), IRC § 4980(d), IRC §. 4980F

Additional Helpful Information

Some excise taxes can be waived or reduced. For instance, the excess accumulation tax can be waived, if the taxpayer submits an explanation and waiver-request to the IRS and the IRS approves the request.

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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