By Sarah Brenner, JD
Director of Retirement Education
It may be hard to believe it but the countdown to the 2021 tax filing deadline is on. The deadline is April 18, 2022, for most filers. That is really only a few weeks away. Time is running out. Is your IRA ready?
Making a 2021 IRA Contribution
April 18, 2022 is the deadline for making a 2021 IRA contribution. This is true even if you have an extension to file your tax return. That does NOT give you extra time to make a traditional or Roth IRA contribution. So, if you are thinking about making that contribution you will need to move quickly.
The rules do allow IRA custodians to accept prior year 2021 contributions after the tax-filing deadline if they are mailed with a postmark of April 18 or earlier. This is true even if the contribution does not reach the custodian until after the deadline has passed. Be sure to follow your custodian’s procedures for making an IRA contribution and clearly indicate that your contribution is for the prior year (2021). If you fail to indicate that it is a prior year contribution, the custodian may report it for the current year (2022). That can cause a tax mess for you.
If you are making a 2021 traditional IRA contribution that is deductible, you will want to be sure to report it on your tax return to claim that deduction. If you are making a nondeductible contribution, be sure to file IRS Form 8606 with your tax return. That is how you will claim your basis in your IRA. This will be important down the road when you take distributions from your IRA to avoid taxation on your nondeductible contributions. What about your Roth IRA contribution? Well, Roth IRA contributions do not show up anywhere on your tax return, but you will want to track them yourself to avoid complications with future Roth IRA distributions.
Time is not running out for all 2021 IRA transactions. After April 18, 2022, there are a few transactions that can still be done.
- If you are looking to make a SEP IRA contribution, you may have more time. The deadline is different than it is for traditional or Roth IRA contributions. The deadline to establish and fund a SEP for 2021 is the business’ tax-filing deadline, including extensions.
- There is still time as well to remove an unwanted contribution. For example, if you made a contribution to your traditional IRA and later discovered it was nondeductible, you can remove it, plus earnings attributable, by October 15, 2022.
- October 15, 2022 is also the deadline to remove true excess IRA contributions and avoid the 6% excess contribution penalty. If you miss this deadline, you will be stuck paying the penalty and it will continue to accrue for each year the excess remains in the IRA.
If you are considering making a 2021 IRA contribution, do not delay. Waiting until the last minute is not a good plan. Mistakes can happen and life can get in the way. Get that 2021 IRA contribution done sooner rather than later!