Personal Finance

Don’t Be an April Fool – Remember Your IRA

Many of us associate April with taxes. We should also associate it with IRAs, for April is the month with the deadlines for IRA contributions and mandatory IRA withdrawals.

The deadline for your 2011 IRA contribution is April 17, 2012. Yes, April 17. This year, April 15 is a Sunday and April 16 falls on a holiday in the District of Columbia (Emancipation Day). So you get a little extra time to make your 2011 contribution if you (still) haven’t done so.

For tax years 2011 and 2012, you can contribute up to $5,000 to your Roth or traditional IRA. If you have multiple IRAs, you can contribute up to a total of $5,000 across the various accounts. (If you earn a lot of money, your maximum contribution to a Roth IRA may be reduced because of MAGI phase-outs.)

One exception: If you turned 50 in 2011, your Roth or traditional IRA contribution limit for 2011 is $6,000. If you will celebrate your 50th birthday during 2012, your 2012 contribution limit to your Roth or traditional IRA is $6,000.

You get 15½ months to make your IRA contribution for a given tax year. You can make your 2012 IRA contribution at any time until Monday, April 15, 2013.

Have you already made your IRA contributions for 2011 and/or 2012? Good for you. Hopefully, you contribute the maximum annually and make your contribution at the start of the year. The earlier that money is invested, the longer it can work for you.

Be sure to indicate the year of the IRA contribution on the check. This seems pretty basic, yet is too often overlooked. Write “2011 IRA contribution” or “2012 IRA contribution” or something equally simple and clear on your check (and include your account number on the check to help your IRA custodian). If you’re making your contribution electronically, be sure this gets communicated.

If you don’t tell your IRA custodian what year the contribution is for, it will be accepted as an IRA contribution for the current year per IRS guidelines.

Avoid racing against the clock. If you wait until the last minute, you may feel safe mailing your 2011 IRA contribution check to your IRA custodian with an April 17, 2012 postmark. That feeling might be unwarranted. Postmark deadlines for prior-year contributions vary among IRA custodians, and sometimes checks that arrive after the deadline count as current-year contributions regardless of postmark. Why not save yourself the risk and mail your 2011 contribution in with plenty of time to spare?

The recharacterization deadline for 2011 Roth IRA conversions is October 15. If you converted a traditional IRA to a Roth IRA last year and need to undo it for tax purposes, October 15 is the absolute deadline to “recharacterize” the Roth account. If you need to do this, please request a recharacterization with your IRA custodian well before October 15.

The RMD deadline is April 1. If you turned 70½ in 2011, you have until April 1 of this year to take your first Required Minimum Distribution from your traditional IRA – that is, your first mandatory income withdrawal. Your IRA custodian should have notified you of this deadline at the end of January, and many IRA custodians will typically calculate your annual RMD for you and offer to send you a check for the amount. (If not, many of them have online calculators or similar tools that will help you figure out your RMD amount.) If you have a Roth IRA, you are never required to take an RMD and you can still keep contributing to it after age 70½.

Keep the deadlines in mind – April will be here next week.

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Bill Losey, CFP®, America's Retirement Strategist®, coaches women and couples nationwide with their retirement planning and investment portfolios.  Bill is the author of Retire in a Weekend! The Baby Boomer’s Guide to Making Work Optional and he also publishes Retirement Intelligence®, a free weekly award-winning newsletter.
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