October 1, 2021

October 15 Deadlines Approaching

As October begins, most of us are probably looking forward to beautiful fall foliage and pumpkin spice food and drinks. However, keep in mind that time is running out for several important IRA transactions. October 15, 2021, is the deadline to both make and also correct some 2020 contributions.

 

Making Contributions

 

While the deadline for making a 2020 Traditional or Roth IRA contribution has long passed (May 17, 2021, delayed deadline due to the COVID-19 pandemic), some 2020 IRA contributions are still permitted until October 15, 2021. For SEP IRA plans, employers have until the deadline for filing the business’s tax return, including extensions, to establish a SEP plan and make SEP contributions. In addition, for SIMPLE IRA plans, employer contributions (either matching or nonelective) must be made by the employer’s tax-filing deadline, including extensions. Therefore, October 15, 2021, may be the SEP or SIMPLE IRA contribution deadline for some employers.

 

Correcting Contributions

 

Traditional and Roth IRA contributions made for 2020 may generally be corrected without the IRS 6% excess contribution penalty by October 15, 2021. Although the statutory deadline is the tax-filing deadline, including extensions, the IRS has indicated that the applicable deadline for taxpayers who file a timely federal income tax return or timely filed for an extension is October 15 of the year following the year for which the contribution is made. Contributions may be corrected by the deadline because they are excess (i.e., ineligible) contributions or because they are simply unwanted. Traditional and Roth IRA contributions may be corrected by withdrawing the contribution, or by recharacterizing the contribution. In both cases, the net income attributable (NIA) to the contribution must also be calculated. If returning an excess contribution to the IRA owner, the NIA is also removed from the IRA along with the contribution amount. For a recharacterization, the NIA follows the contribution amount to the receiving IRA.