Unclaimed Retirement Accounts in Pennsylvania
By Andrew Perrine
Tax-deferred savings accounts such as IRAs are different than most other forms of unclaimed property because their raison d’être is to be saved for decades, until the owner is ready to retire. For this reason almost all jurisdictions have laws requiring that retirement accounts not be reported until the owner has reached the age at which distributions are required to avoid a tax penalty. For a traditional IRA, the IRS has set this age at seventy and a half. (The April 1st following the year the owner reaches age seventy and a half, to be precise.)
Except for Pennsylvania.
In 2016, Pennsylvania adopted a new unclaimed property law that, to the confusion of all, neglected to include any mention of the seventy-and-a-half rule. As written, the law treats retirement accounts the same way it treats any other piece of unclaimed property—if the holder hasn’t had contact with the owner for three years, the holder must report that property to the state.
The Pennsylvania Treasury quickly issued a Policy Guidance document in that was designed in part to prevent any tax penalties as a result of the premature escheatment of retirement related assets. Still, there was much confusion as to how long this policy would remain in effect, even among the Treasury staff we communicated with.
Thankfully, Brian Munley, the director of unclaimed property, wrote a letter to stakeholders clarifying what is expected of retirement account holders for the upcoming filing season. In brief, the seventy-and-a-half rule should be used as usual until further notice:
The Treasury will neither demand nor accept any retirement account that is presumed abandoned and unclaimed, except as follows:
- An individual retirement account (including a retirement plan for self-employed individuals) of which the beneficiary cannot be located for a period of three (3) years following the death of the owner and that is not subject to a mandatory distribution requirement; or
- An individual retirement account (including a retirement plan for self-employed individuals) of which the owner has attained seventy and one-half years of age and is not subject to a mandatory distribution requirement.
Brian Munley proceeded to explain that even thought Pennsylvania law omits the normal retirement account rules, the Treasury is using its authority to refuse the acceptance of certain types of unclaimed property that derives from 72 P.S. §1301.17.
So, for now, everything is back to normal, but we will obviously be monitoring the situation.