Each year seems to fly by faster than the year before. Important dates and deadlines can swoosh past with little warning. To help you manage your self-directed IRA in 2020, we’ve compiled a list of deadlines you might want to be aware of before they arrive.
January 31 – Review IRA reports
You will receive some important statements from your IRA custodian in January.
• Fair Market Value Statement – IRA custodians must inform the IRA owner of the December 31 fair market value of the IRA. This report must include valuations for alternative investments that don’t have a readily attainable fair market value. IRA owners with investments in these types of assets must provide a valuation of the investments to the IRA custodian each year. There is no prescribed format required for this statement, so IRA custodians may combine this report with other statements provided in January.
• IRS Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. – This form reports all distributions from the IRA in 2019 including the gross amount (or value) distributed, any tax withheld and remitted to the IRS, and the reason code for the distribution. If you are younger than age 59½, you may be subject to a 10% early distribution tax on taxable IRA distributions unless you meet an exception. Review your Form 1099-R to confirm the information is accurate. The IRS will receive a copy of this form and will compare it against the information you include on your income tax returns for the year.
• Required Minimum Distribution Notice – IRA custodians must inform Traditional, SEP & SIMPLE IRA owners if they are required to take an RMD for the year. IRA custodians may choose to send a separate RMD notice or they may include the RMD information in the Fair Market Value Statement or on IRS Form 5498.
February/March – Calculate your IRA contributions for 2019
For 2019, you can contribute up to the lesser of 100% of your income or $6,500 to your Traditional and Roth IRAs ($7,000 if you’re age 50 or older). If you haven’t yet maxed out your contributions, you may want to consider doing so now. You have until April 15, 2020, to make an IRA contribution for 2019. Be sure to include instructions with your deposit if you want your IRA custodian to code the contribution for 2019.
April 15 – Prepare for your tax return deadline
April 15 is the tax return deadline for most individuals, although you may obtain an extension to file by October 15. Even if you obtain a filing extension, April 15 is still the deadline for making contributions for 2019.
Update – As of March 20, 2020, the tax filing and IRA contribution deadline has been extended to July 15, 2020, in response to the COVID-19 pandemic. Read more here.
May 31 – Review IRS Form 5498 information
IRA custodians must file Form 5498, IRA Contribution Information, with the IRS each year in addition to providing a copy to IRA owners. Form 5498 reports all contributions made to your IRA for the year, including annual traditional and Roth IRA contributions, rollovers, conversions, recharacterizations, and SEP and SIMPLE plan contributions. Form 5498 also reports the fair market value of the IRA and includes a checkbox to alert the IRS to those individuals who are required to take an RMD for the year.
June/July/August – Review your IRA investments
This may be a good time to review your IRA investments and determine whether your IRA is meeting your investment objectives, or whether your risk tolerance or goals have changed. A self-directed IRA provides you the freedom to invest your IRA assets in a wide array of alternative investments, such as real estate and private equities. These types of investments can help you achieve multiple investment objectives. Make an appointment to talk to your financial advisor if you need more information about the risk/return potential of your existing investments or you want to explore new investment opportunities.
September – Review your beneficiary designations
A complete and accurate beneficiary designation will help ensure that legal rights to your IRA assets will be automatically transferred to your beneficiary upon your death—outside of probate. Confirm that your beneficiary designations contain up-to-date contact information. You may also want to reconsider your beneficiary designations if circumstances changed this year, such as a divorce or the birth of a child.
October/November – Take your required distributions and consider conversions
• If you are age 70½ or older and own a Traditional, SEP or SIMPLE IRA, you are required to take a required minimum distribution (RMD) each year, generally by December 31. Make arrangements with your IRA custodian to process any investment sales or title transfers in time to meet the December 31 distribution deadline.
• Roth IRAs are not subject to the RMD requirements while you’re alive, and all Roth IRA distributions can be tax-free. If you’re interested in creating a tax-free income stream in retirement or for your heirs, talk to your IRA custodian or financial advisor about converting some of your pre-tax retirement assets to an after-tax Roth IRA.
December 31 – Deadline to distribute RMDs, beneficiary payments, and make conversions.
Arrange to take your RMD or withdraw your annual beneficiary payment, if applicable, by December 31. If an IRA owner or beneficiary fails to take a required payment, they are subject to a 50% excess accumulation tax on the portion of the amount that should have been distributed but remained in the IRA. December 31 is also the deadline to complete a conversion to a Roth IRA if you want the tax liability to be assessed for 2019.
For More Information
If you have any questions about your IRA or any of the deadlines, please contact us at Service@StrataTrust.com.