2019 IRA Deadlines Are Approaching
Here is what you need to know.
April may be associated with taxes, but we should also associate April with important IRA deadlines.
April 1, 2020 is the deadline to take your Required Minimum Distribution (RMD) from certain individual retirement accounts.
April 15, 2020 is the deadline for making annual contributions to a traditional IRA, Roth IRA, and certain other retirement accounts.1
Withdrawals from traditional, SIMPLE, and SEPIRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.
If you turned 70½ in 2019, and if you didn’t take your first Required Minimum Distribution from your traditional IRA in 2019, you can postpone it until as late as April 1, 2020. Then you will have to take two RMDs, one by April 1, 2020 and another by December 31, 2020. For subsequent years, your annual RMD deadline will be December 31. The investment firm that is the custodian of hosting your IRA should have already notified you of this consequence as well as the RMD amount(s) – in fact, they have probably calculated the RMD(s) for you.6
Withdrawals from Roth IRAs are tax-free and penalty-free if they meet a five-year holding requirement and occur after age 59½, or if the owner dies, for example. The original Roth IRA owner is not required to take minimum annual withdrawals.
Contributions: The earlier you make your annual IRA contribution, the better. You can make a yearly IRA contribution any time between January 1 of the current year and April 15 of the next year. So the contribution window for 2019 started on January 1, 2019 and ends on April 15, 2020. You can make your 2020 IRA contribution any time from January 1, 2020 to April 15, 2021.2
If you make a 2019 IRA contribution in early 2020, be careful. You must tell the investment company hosting the IRA account which year the contribution is for. Otherwise, the custodian firm may assume it is for the current year (and note exactly that to the I.R.S.).4
So write “2020 IRA contribution” or “2019 IRA contribution,” as applicable, in the memo area of your check, along with your account number. If you make your contribution electronically, double-check that these details are communicated.
If you are the original owner of a traditional IRA, you are no longer able to contribute to it starting in the year you turn 70½. If you are the original owner of a Roth IRA, you can contribute to it as long as you live, provided you have taxable compensation and MAGI below a certain level (see below).1,3
How much can you put into an IRA this year? You can contribute up to $6,000 to a Roth or traditional IRA for the 2020 tax year; $7,000, if you will be 50 or older this year. (The same applies for the 2019 tax year). Should you make an IRA contribution exceeding these limits, you have until the following April 15 to correct the contribution with the help of an I.R.S. form. If you don’t, the amount of the excess contribution will be taxed at 6% each year the correction is avoided.1,4
The maximum contribution to a Roth IRA may be reduced because of Modified Adjusted Gross Income phaseouts, which kick in as follows.
Single/head of household:
$122,000 - $137,000 for 2019 Tax Year4
$124,000 - $139,000 for 2020 Tax Year5
Married filing jointly:
$193,000 - $203,000 for 2019 Tax Year4
$196,000 - $206,000 for 2020 Tax Year5
The I.R.S. has other rules for other income brackets.
If your MAGI falls within the applicable phaseout range, you may be eligible to make a partial contribution.3
Tax deductions: You may help manage your income tax bill if you are eligible to contribute to a traditional IRA. To get the full tax deduction for your 2019 traditional IRA contribution, you have to meet one or more of these financial conditions:
*You aren’t eligible to participate in a workplace retirement plan.
*You are eligible to participate in a workplace retirement plan, but you are a single filer or head of household with Modified Adjusted Gross Income (MAGI) of $64,000 or less. (Or if you file jointly with your spouse, your combined MAGI is $103,000 or less.)3
*You aren’t eligible to participate in a workplace retirement plan, but your spouse is eligible and your combined 2019 gross income is $193,000 or less.4
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate; however, we make no representation as to its completeness or accuracy. Please note: investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting, or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax, or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
1. irs.gov/retirement-plans/ira-year-end-reminders [11/08/2019]
2. irs.gov/retirement-plans/traditional-and-roth-iras [12/04/2019]
3. irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits [12/04/2019]
4. irs.gov/retirement-plans/amount-of-roth-ira-contributions-that-you-can-make-for-2019 [11/18/2019]
5. irs.gov/retirement-plans/plan-participant-employee/amount-of-roth-ira-contributions-that-you-can-make-for-2020 [11/08/2019]
6. irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds [10/25/2019]
Moneywise is hosted by Rajesh Jyotishi with Shalin Financial Services, Inc.
Rajesh Jyotishi is a registered representative of Dempsey Lord Smith, LLC, which is a registered broker-dealer and a member of FINRA/SIPC. Advisory Services are offered through Dempsey Lord Smith, LLC.
Rajesh has been a resident of Atlanta since 1975 and in the financial services industry since 1991. For questions, he can be reached at 770-884-8175 or at RJ@shalinfinancial.com.
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