By Andy Ives, CFP®, AIF®
The deadline for filing your 2021 tax return is this Monday, April 18. It is extended through the weekend because IRS offices in Washington DC are closed on Friday, April 15, in observance of the locally recognized Emancipation Day. As such, this buys all of us a couple of extra days to complete our returns. For procrastinators, or for those who simply had time get away from them, there is still sand in the hourglass to complete certain IRA transactions. However, not all options are available. Here are some important IRA deadlines and answers to common IRA tax-filing-deadline questions.
Prior-Year Traditional and Roth IRA Contributions. There is still time to make a traditional and/or Roth IRA contribution for 2021. The deadline is April 18. This deadline does NOT include extensions. So, even if you file for an extension, that does not allow prior-year IRA contributions beyond the 18th. Note that if you do make a timely prior-year Roth IRA contribution, and if that is your first foray into the world of Roth IRAs, congratulations! You just shaved 15 months off your Roth 5-year clock and earned a January 1, 2021 start date.
SEP Contributions. Business owners with a SEP IRA plan can make 2021 contributions up to the business’s tax filing deadline INCLUDING extensions. This runs counter to the IRA deadline mentioned above and is a source of some confusion.
Backdoor and “Regular” Roth IRA Conversions. While we know that Congress is targeting the Backdoor Roth IRA strategy, it is still alive and well as of this writing. For those taxpayers who cannot contribute directly to a Roth IRA due to the income limits, the Backdoor Roth strategy allows them to make a non-deductible traditional IRA contribution, and then (minding the pro-rata rule) immediately convert it to a Roth IRA. As mentioned, while a prior-year 2021 contribution can be made up to the tax filing deadline, any conversion done in 2022– either a Backdoor or “regular” conversion – will count for 2022. There is no such thing as a “prior-year conversion” – the deadline for a 2021 conversion was December 31 of last year.
Fixing an Excess IRA Contribution. Anyone who erroneously contributed to a traditional or Roth IRA in 2021 – either by contributing too much or maybe simply changing one’s mind – can still correct the situation. And you may have more time than you think. The deadline for correcting an excess, either by removal without the 6% penalty or recharacterization, is the extended tax filing deadline – whether you actually go on extension or not. So, for 2021, you still have the potential to make the fix until October 18, 2022.
QCDs (Qualified Charitable Distributions). QCDs allow IRA owners who are 70 ½ and older to send money directly from an IRA to a qualified charity. The donation is removed from income and is typically used to offset all or a portion of a required minimum distribution. The deadline for completing a 2021 QCD was December 31 of last year. As with Roth conversions, there is no such thing as a “prior-year QCD.” While your tax software may inquire about any charitable giving you did, know that any QCDs done during 2022 will only count for this calendar year.
As we race toward the tax finish line, be sure to understand which IRA transactions can still be done in the next few days (and possibly months), and recognize those that cannot.