If you’ve been staying on top of stimulus bill talk over the past 10 months or so, then maybe you’ve heard the phrase Coronavirus Related Distribution (CRD) and are aware that they are penalty free distributions from your retirement accounts. I think I’ve mentioned them a few times in past blogposts as well. If you have been considering taking advantage of a CRD due to hard times, then you should do so as soon as possible. The deadline to take a CRD is December 30, 2020, which is a little less than two weeks away at this time. Now, I am not encouraging you to take a CRD as I am against taking money out of a retirement account early unless it is the absolute last resort. However, if you find yourself in certain situations that meet CRD requirements–such as being diagnosed with Coronavirus or having lost a job because of it–then you may want to consider a CRD to tide you over for just a short time. And remember, there’s only a couple weeks to do so, so you need to make that decision soon! If you do consider taking a CRD, I encourage you to read up about them or speak with a certified financial planner or wealth manager about it to make sure it’s really the best decision for you.
Have you made an IRA contribution for 2019 yet? Are you worried that you might not get the chance to? Well, there is good news. While you probably heard that the IRS extended the deadline for filing taxes to July 31, you probably did not know that the deadline for making a prior year contribution was pushed back to July 15. That’s three extra months! That might not seem like a big deal, but it could be for many Americans who didn’t get to make a contribution for 2019. If you didn’t get to make a contribution–and of course have the money to do so–you should strongly consider taking advantage of the extended deadline. If you already made your 2019 contribution, then no worries, just focus on your 2020 contribution. Of course, if you do take advantage of the extended contribution deadline, be sure to notify your IRA custodian of the year the contribution is for and to ensure that it is properly designated so that there are no issues with taxes or anything else that could open you to penalties. If you have questions about Roth or traditional IRA contributions, you should talk with a certified financial planner or wealth manager.
Did you make an IRA contribution only to later find out that your were not eligible to make that contribution? Or maybe you made a contribution and later decided that you wanted to use that money elsewhere? Whatever the reason, just know that you can essentially take back a Roth IRA or Traditional IRA contribution, provided you file the paperwork for doing so on time. The deadline for correcting an IRA contribution is October 15 of the year after you made the contribution. That might seem like a random deadline, but I can assure you it is not. It’s exactly six months after the deadline for filing your taxes, which is the amount of time you’d get after filing applicable extensions anyways. Thus, the deadline for correcting 2018 IRA contributions is October 15, 2019. Now, if you want to make a correction, you will have two options: withdraw the contribution or recharacterize it. If you are considering correcting an IRA contribution, you should speak with a certified financial planner or wealth manager to make sure you do so properly and on time. Remember, if you don’t make the correction on time, you could face a 6% penalty for an excessive contribution.
It can be easy to forget about required minimum distributions (RMDs), especially as you move into retirement or if you inherit an IRA. Now, forgetting to take an RMD isn’t the absolute end of the world, but it should not be taken lightly. The penalty to missing an RMD is half the amount that was to be distributed, which is quite harsh and can be a substantial amount of money depending on the size of your retirement savings. So, what should you do if you forgot to take an RMD or you learned that you needed to take one from an inherited RMD? First off, withdraw the RMD out of the account as soon as you realize you need to take it. Next you will need to report the mistake to the IRS on the Form 5329, which can be filed along with your annual tax returns. On the form, make sure to report the RMD that should have been distributed, the amount distributed before the deadline, any reasonable cause amounts you would like waived, the penalty amount, and a letter explaining the reason for missing the RMD. Finally, and this is very important, do not pay the penalty until you hear back from the IRS with a denial or approval of your reason for the mistake. If your reason is denied, the IRS will then ask for payment of the penalty. As with anything involving the IRS, unless you are absolutely certain you know what you are doing, you should consider either hiring a financial advisor or tax professional to fill out and file your From 5329 so as to make sure it is done correctly. If you don’t want to have them actually file for you, you may want to at least consider talking to them during the process so as to make sure you’re doing things right. Remember, the key thing is that you correct your mistake as soon as you realize it and that you be honest with the IRS. Chances are your excuse won’t be accepted, but you will only have to pay the RMD penalty and nothing more. Missing and RMD is no laughing matter, but it’s not something you need to have a meltdown over, either. Just stay calm and do what you need to do!
You may not realize it, but you still have time to make a contribution to your IRA and still have it count for 2018. Whether it’s a traditional IRA or a Roth IRA, you have until tax day to make a contribution for the previous year. Thus, you can make a contribution anytime before April 15, 2019, and have it count as though it was made in 2018. Many people don’t realize that such an opportunity exists. However, keep in mind that the April 15 deadline is a hard deadline, which means there is no ability to extend it, unlike your taxes. If you are considering making a contribution and want to have it count on your 2018 tax return, you have just over a month at this point to do so. If you have questions about your IRA contributions and what implications they may have on your taxes, you will want to speak with either a tax professional or a certified financial planner.
Along with being the deadline for filing your taxes, yesterday was the latest date in which you could make a 2017 IRA contribution. However, it was not the deadline for all 2017 IRA transactions. If you end up changing your mind regarding a 2017 IRA contribution, you can always recharacterize it–so long as you do so by October 15, 2018. Also, if you also made an unwanted IRA contribution, you can remove it (and it’s attributable earnings) by October 15, 2018. The same deadline applies for any excess contributions you may have made so as to avoid an excessive contribution penalty, which is usually about 6%. If any of these scenarios fit your current situation, you still have time to make a fix. Before making any recharacterizations or removing certain contributions, you will most likely want to talk with a financial planner, though so as to make sure you are definitely making the correct decision and following all the rules that need to be followed.
Did you know that you can still make contributions to your IRA right now and still have them count as a 2017 contribution? You have until April 17, 2018 to do so. The size of the contribution that you are allowed to make may vary based on your modified adjusted gross income (MAGI) that you report on your tax returns. Your reported MAGI may limit the maximum contribution to a Roth IRA or, if you have a traditional IRA, the allowable tax deduction. Based on all this, if you have yet to make a 2017 contribution, it may make sense to file your 2017 tax return early in tax season so that you can have a sense as to what your options might be and determine how to maximize your contribution options before that April 17 deadline. Your goal every year should be to maximize your IRA contributions so that you are saving as much as possible for retirement. If you have questions regarding your taxes, you should speak with a tax professional.
The tax reform legislation passed late last year included changes to retirement accounts and associated transactions. One of the biggest changes in the Tax Cuts and Jobs Act was that it got rid of the ability to recharacterize Roth IRA conversions, but kept the ability to recharacterize traditional IRA and Roth IRA contributions. This change took effect on January 1, 2018, but left one question remaining: What could be done regarding 2017 contributions that people may want to recharacterize at later date? Well, the IRS listened and has spoken. According to its website, a Roth IRA conversion made in 2017 may re recharacterized as a contribution to a traditional IRA if the recharacterization is made by October 15, 2018. There is no leniency for conversions made on or after January 1, 2018. Thus, if you did not have time to recharacterize before the end of the year, this is good news. If you are considering a recharacterization, it’s best that you decide to do so sooner rather than later. While you do have time, you don’t want to risk bumping up against that October 15, 2018, deadline.