Although October 15 may not stand out as the date of a historic event or a celebrity’s birthday, it is well-known by many as the last day for filing federal income tax returns. Those who had individual or business tax returns due by April 15 and who filed for an extension typically have a six-month extension, or until October 15, to file their tax returns. In 2020, the April 15, 2020, tax-filing deadline for 2019 tax returns was automatically extended to July 15, 2020, because of the COVID-19 pandemic. A six-month extension beyond this date is not available. If you applied for an extension to file your 2019 taxes, October 15, 2020, is your deadline (unless you meet a disaster exception, noted below).
October 15 is also the deadline to complete a number of other tax acts each year. If you file your 2019 tax return timely, you automatically have six months, or until October 15, 2020, to complete the following:
• Recharacterize a 2019 contribution: A recharacterization allows you to move an IRA contribution from one type of IRA to another type of IRA (Traditional IRA to Roth IRA or Roth IRA to Traditional IRA). Recharacterizations are typically made so the IRA owner can take advantage of the tax benefits provided by a different type of IRA, or to correct an excess contribution. For example, if you discover your 2019 Traditional IRA contribution will not be deductible on your tax return, you may choose to recharacterize the contribution to a Roth IRA, if you are eligible to make a Roth IRA contribution.
• Correct a 2019 excess contribution: If you contributed more than the statutory limit or more than you were eligible to contribute for 2019 based on your income, October 15 is the deadline to remove the excess, with the earnings attributable, and avoid the 6% excise tax assessed for excess IRA contributions. Excess contributions removed after this date will be subject to the additional 6% tax.
Extension of October 15 Deadlines for Certain Disaster Victims
The IRS has extended tax-related deadlines for victims of certain natural disasters in 2020. This includes the deadline for filing a 2019 tax return for those who had a valid extension to file by October 15, 2020. Note, however, that the extension to file a 2019 tax return does not apply to tax payments related to these returns; tax payments were due July 15, 2020.
• Victims of the derecho storm in Iowa have until December 15, 2020, to file individual and business tax returns and make certain tax payments with deadlines on or after August 10, 2020.
• Victims of the 2020 California wildfires have until December 15, 2020, to file individual and business tax returns and make certain tax payments with deadlines on or after August 14, 2020.
• Victims of Hurricane Laura have until December 31, 2020, to file individual and business tax returns and make certain tax payments with deadlines on or after August 22, 2020.
A current list of localities eligible for deadline extensions is always available on the disaster relief page on IRS.gov.
Other IRA-Related Action to Take in October
• Review your IRA investments: Now may be a good time to review your self-directed IRA investments and determine whether they are meeting your investment objectives, or whether your risk tolerance or goals have changed. Make an appointment to talk to your financial advisor if you need more information about the risk/return potential in the current market or you want to explore new investment opportunities like real estate.
• Request in-kind transfers: If you want to move an investment to another IRA this year or you want to take personal ownership of an asset without liquidating (generally a taxable event), you’ll want to submit your request to your IRA custodian as soon as possible to ensure the title will be re-registered and other transaction documents completed by the end of the tax year.
• Review your beneficiary designations: A complete and accurate beneficiary designation will help ensure that legal rights to your IRA assets will be properly 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.
• Consider 2021 RMDs or a conversion: Although required minimum distributions (RMDs) are not required for 2020, you may want to talk to your financial advisor about any investment liquidations or title transfers that will need to be made in 2021 to satisfy an RMD and discuss the best timing to accomplish that. Additionally, you may want to explore converting some of your Traditional, SEP and SIMPLE IRA assets to a Roth IRA in 2020 to avoid RMDs in the future and create a tax-free income stream in retirement or for your heirs. (Conversions are generally taxable events.)
Disclaimer: The information provided herein does not, and is not intended to, constitute personalized financial or legal advice. The contents of the article are for general informational purposes only and should not be relied or acted upon without specific professional legal or financial advice, based upon an individual’s situation.