When clients face limits, phaseouts or required distributions, they rely on you for precise advice. Missteps such as excess contributions or missed RMDs can trigger penalties and create tax headaches. By understanding traditional and Roth IRA rules, you’ll help clients maximize savings, avoid costly errors and strategically time withdrawals for long-term financial security.

Below, you’ll find a few of the top questions from a recent webinar on the topic and their corresponding answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.   

Q: If a Roth IRA distribution is taken before the five-year holding period is met, are penalties applied to the contribution, the distribution or both? What is the penalty amount?

A: Contributions can be withdrawn tax-and penalty-free, but earnings withdrawn before age 59½ and before the five-year period are subject to income tax and a 10% penalty [§408A(d)(2)(B), §72(t)].

Q: I’ve observed many tax preparers allowing IRA contributions after April 15 if the return is on extension. Can you clarify whether an extension applies to the contribution deadline?

A: An IRA contribution must be made by the regular tax filing deadline (April 15), and a filing extension does not extend this deadline [§219(f)(3)].

Q: What is the difference between a nondeductible IRA and a brokerage account? They seem to function similarly in terms of basis.

A: A nondeductible IRA grows tax-deferred and has basis tracked on Form 8606, Nondeductible IRAs, while a brokerage account is taxed annually and tracks basis per asset.

Q: Can a small corporation maintain both a savings incentive match plan for employees (SIMPLE) IRA and a simplified employee pension (SEP) plan?

A: No, a business cannot maintain both a SIMPLE IRA and another qualified retirement plan like a SEP in the same year [§408(p)(2)(D)].

To learn more about understanding IRA basics, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial.

The 2025 filing season was a measured success for the IRS, but the agency has lingering weaknesses when it comes to assisting identity theft victims, according to the National Taxpayer Advocate’s Objectives Report to Congress for the 2026 fiscal year. The report also noted that the IRS’s staff has been reduced by 25% since the beginning of 2025, likely leading to reduced taxpayer services and enforcement.

National Taxpayer Advocate Erin Collins’s report found the IRS has rebounded from the COVID-19 pandemic disruptions to provide much-improved taxpayer services, and most taxpayers filed their returns, paid their taxes and received refunds without any direct intervention from the agency.

The report included updated statistics on the 2025 filing season:

• 140 million individual returns received
• 138 million individual returns processed
• Average refund amount: $2,942
• 81 million refunds issued by direct deposit

During processing the IRS suspended more than 13 million individual returns pending further review, with 2.1 million being suspended after the agency’s identity theft filters flagged them. The IRS sent notices to the affected taxpayers saying they must authenticate their identities or address other irregularities in their returns before the agency can continue processing them.

Weaknesses in assisting identity theft victims

The IRS’s performance in resolving identity theft victim assistance (IDTVA) cases is proceeding at a “glacial pace,” the report found. Generally, the IRS addresses two categories: returns flagged by processing filters as potentially fraudulent and cases where an identity thief has filed a return using the name and Social Security number of a legitimate taxpayer.

In cases where a return is flagged as potentially fraudulent, the taxpayer is usually required to verify their identity, and cases are usually resolved within several months. However, when a taxpayer’s information is used to file a fraudulent return, the IRS takes an average of about 20 months to resolve their cases. The report found the delays disproportionately affect vulnerable populations who depend on their refunds to meet basic living expenses.

IRS leadership has repeatedly assured Collins that reducing the time for resolving IDTVA cases is a high priority, but the time it takes to resolve them remains unacceptably long, Collins notes in her report.

Question: Edna and Stacy, who own Counting Cowgirls, LLC, purchased a 2025 Subaru Forester and “wrapped” it with a vinyl graphic to promote their accounting business. The question arose as to whether having the advertising on the vehicle makes business use of the vehicle 100%. Is 100% of the mileage for the wrapped vehicle deductible now that it is essentially a mobile billboard?

Answer: No, 100% of the mileage is not deductible just because of the vinyl graphic on the vehicle. Substantiation of business versus personal use must still be tracked even if the vehicle is fully wrapped with advertising. That means Edna and Stacy should track business use with one of several methods, including contemporaneous mileage logs, appointment books or delivery records, or a mileage application on the user’s smartphone. In other words, the advertising function does not convert all use of the vehicle to 100% deductible. However, a benefit still exists to the owners in that they may deduct the wrapping costs as a legitimate advertising expense under §162 in the year such costs were paid or incurred. Deduction costs can include the design, production and installation costs of the wrap as well as any replacement or removal costs due to wear.

If the vehicle is used 100% for business purposes with zero personal use, 100% of the car expenses may be deducted, regardless of the advertising graphic.