Financially, many of us associate April with taxes, but, we also should associate April with important IRA deadlines.
April 15 is the deadline to take your required minimum distribution (RMD) from certain individual retirement accounts.
Keep in mind that withdrawals from traditional, SIMPLE and SEP-IRAs are taxed as ordinary income, and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
To qualify for the tax-free and penalty-free withdrawal of earnings from a Roth IRA, your Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawals also can be taken under certain other circumstances, such as the owner’s death. The original Roth IRA owner is not required to take minimum annual withdrawals.
April 15 is the deadline for making annual contributions to a traditional IRA, Roth IRA, and certain other retirement accounts. (1)
Some people may not realize when they can make their IRA contribution. You can make a yearly IRA contribution between Jan. 1 of the current year and April 15 of the next year. Accordingly, you can make your IRA contribution for 2020 any time up to April 15, 2021. (2)
Thanks to the SECURE Act, both traditional and Roth IRA owners have the chance to contribute to their IRAs past age 72, as long as they have taxable compensation (and in the case of Roth IRAs, MAGI below a certain level; see below). (2)
If you are making a 2020 IRA contribution in early 2021, you must tell the investment company hosting the IRA account for which year you are contributing. If you fail to indicate the tax year that the contribution applies to, the custodian firm may make a default assumption that the contribution is for the current year (and note exactly that to the IRS).
So, write “2021 IRA contribution” or “2020 IRA contribution,” as applicable, in the memo area of your check, plainly and simply. Be sure to write your account number on the check. If you make your contribution electronically, double-check that these details are communicated.
By Don Akridge, a Marine Corps veteran who has earned multiple business degrees and several professional licenses. He started Citadel Professional Services in 1994.
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- irs.gov, November 23, 2020
- irs.gov, November 10, 2020