By Sarah Brenner, JD
IRA Analyst

The countdown to the much delayed 2019 tax filing deadline is on. The deadline is July 15, 2020, which is only a couple of days away. Time is running out. Is your IRA ready?

Making Your 2019 IRA Contribution

Due to the COVID-19 pandemic the 2019 tax-filing deadline has been extended until July 15, 2020. This means that July 15, 2020 is also the deadline for making a 2019 IRA contribution. This is true even if you have an extension to file your tax return. An extension does NOT give you extra time to make a traditional or Roth IRA contribution. So, if you are thinking about making a 2019 contribution, the clock is ticking.

The rules do allow IRA custodians to accept prior-year 2019 contributions after the tax-filing deadline if they are mailed with a postmark of July 15 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 (2019).

If you are making a 2019 traditional IRA contribution that is deductible, 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 claim your basis in your IRA. That 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.

The rules allowing those age 70 ½ or over to make traditional IRA contributions under the SECURE Act do not apply to 2019 contributions. If that is your situation, you are out of luck when it comes to making an IRA contribution for 2019. The good news is starting for 2020 your age will not longer bar you from making an IRA contribution.

Still Time

Time is not running out for all 2019 IRA transactions. After July 15, 2020, there are a number of IRA 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 2019 is the business’ tax-filing deadline, including extensions.

There is also still time to change your mind about a 2019 IRA contribution. The deadline to recharacterize a 2019 IRA contribution is October 15, 2020. For example, if you made a Roth IRA contribution and later decide that a traditional IRA contribution would have been a better move for you, you could recharacterize that Roth IRA contribution to a traditional IRA, even after the July 15, 2020 deadline.

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, 2020.

October 15, 2020 is also the deadline to remove true excess 2019 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.