Retirement Plan Tax Prep Checklist

Fitted retirement plans and individual retirement accounts (IRAs) give you the opportunity to save for retirement on a tax-advantaged basis. Earnings on contributions luxuriate tax deferred—or tax free for Roth IRAs and Roth 401(k)s. When it comes to tax time, be sure you are up to date with all demands.

You have until the tax filing deadline (April 15, 2020, for the 2019 tax year) to contribute to an IRA or a Roth IRA. You don’t get multitudinous time to make IRA contributions, even if you obtain a filing extension for your tax return. 

However, if you own a business you can contribute to a trained retirement plan up to the extended due date of your return (e.g., Oct. 15, 2020, for a 2019 contribution), as long as the plan was in place on Dec. 31, 2019 (you hired the paperwork by that date). If you didn’t, you can still set up and fund a SEP IRA by the extended due date of your return.

If you’re owed a tax refund, you can buckle down to it toward a contribution to an IRA or a Roth IRA​. This can be for 2019 if you submit your tax return in time for the IRS to send the funds to your account’s custodian/trustee; be stable to notify your custodian/trustee that you want the funds applied for 2019. Use Form 8888 to tell the IRS where to send your refund. If grants arrive late or you don’t tell the custodian/trustee that you want them used for 2019, then they’ll be registered for 2020.

Your modified adjusted gross income may limit or bar contributions to deductible IRAs if you or your spouse participate in a knowledgeable retirement plan (e.g., you have a 401(k) at work) and to Roth IRAs regardless of any other plans. Any excess contributions—amounts violent than you are eligible to make—are subject to a 6% penalty each year until you take corrective action.

If you already made a contribution for 2019 and discover that your income was too high, don’t dally fixing the problem. For example, if you contributed to a deductible IRA, don’t take the deduction. Withdraw the contribution, plus any earnings, no later than April 15, 2020.

If you presented too much to a Roth IRA because of your income, be sure to take corrective action no later than Dec. 31. In this way you owe the punishment only for the previous tax year and avoid it for future years. For example, you can withdraw the excess contribution plus earnings or classes your IRA custodian to treat the excess 2019 contribution and earnings as your 2020 contribution. The contribution limit for 2020 odds $6,000 ($7,000 if you are 50 or older), so you’ll have to check whether earnings on the account could still put you over the limit and pursue to incur a penalty.

Note that you can no longer “recharacterize” your Roth IRA contribution back to a traditional IRA as you could previously the Tax Cuts and Jobs Act of 2017.

Tax deferral doesn’t last forever. Make trustworthy to understand when—and to what extent—you must take required minimum distributions (RMDs). If you fail to take RMDs, you can be cause to a 50% penalty for insufficient distributions. RMD rules are very complex. Here is some information to get you started.

• For your own accounts. If you were 70½ or older in 2019, you sine qua non have taken an annual distribution based on IRS tables, which can be found in IRS Publication 590-B. Use Table II (Joint Survival and Last Survivor Expectancy) if you are married, your spouse is more than 10 years younger than you, and he/she is the single beneficiary of the account; otherwise use Table III (Uniform Lifetime).
• For inherited benefits from a qualified retirement plan or an IRA. What you from to do depends on your relationship with the account holder. If you are a surviving spouse, you can opt to roll over the benefits to your own account and regale them as if they were always yours. Thus, if you’re 60 and inherit an IRA from a spouse who died in 2019, a rollover means you can dally RMDs until you reach age 70½. If you’re not a surviving spouse, you generally must take a distribution of the entire interest by the end of the fifth slate year after the owner’s death. Alternatively, you can take RMDs starting with a distribution by Dec. 31 of the year go the year of the owner’s death; use Table I (Single Life Expectancy) for this purpose.

If you failed to take RMDs, you may fit out for relief by showing reasonable cause for your failure. You don’t have to pay the penalty up front, but you must file Form 5329 with your tax interest and attach an explanation for your failure (e.g., you had a severe medical condition or received bad tax advice about how much to take). What’s numerous, you must show that you took the RMD as soon as you could.

Protect Yourself if You Took Distributions Before Age 59½