5 Important Year-End Retirement Saving Deadlines for 2013
By Emily Brandon
Certain types of retirement contributions must be made by the end of the calendar year to get a tax break, while you can wait to take advantage of others until you file your 2013 tax return. Pay attention to these important tax deadlines when making retirement account contributions and withdrawals.
Make 401(k) contributions. You generally have until the end of the calendar year to make 401(k) contributions. Workers can contribute up to $17,500 in 2013, plus an additional $5,500 if they are age 50 or older. "Look to see if you have maximized your contribution, and if you haven't, you have this last opportunity to do so," says Dirk Huybrechts, a certified financial planner for HFM Advisors in Los Angeles. "If you weren't able to make the full $17,500 contribution, you want to make sure that you contributed at least enough to get the employer match." Contributions to workplace retirement accounts often need to be made by Dec. 31 to qualify for a tax deduction on your 2013 return and to get any 401(k) match your employer is offering for 2013. "If you contribute to your 401(k) plan, it reduces the income tax liability on the money you put into the plan in the year in which you make it," Huybrechts says. "You get the immediate benefit of those dollars."
Take required minimum distributions. Investors over age 70½ must take required minimum distributions from their retirement accounts before the end of the calendar year (with the exception of the very first distribution). The amount that should be withdrawn is generally calculated by dividing your account balance by an IRS estimate of your life expectancy, but in some cases, a much younger spouse's age must also be factored in. Retirees who don't withdraw the correct amount must pay a 50 percent tax penalty on the amount that should have been withdrawn. "If you're supposed to take $10,000 out and you don't take anything out, the penalty is $5,000, plus you have to pay tax on the $10,000, so you definitely want to make sure you do that," says Brian Rezny, a certified financial planner and president of Rezny Wealth Management.
Donate your RMD to charity. Retirees generally need to pay income tax on the amount withdrawn from their traditional 401(k)s and IRAs. %VIRTUAL-article-sponsoredlinks%However, those age 70½ and older can satisfy the minimum distribution requirement and avoid income tax by donating up to $100,000 directly from their IRA to a qualified charity. "If you can afford it, you might consider making a charitable contribution with your RMD, in which case the money doesn't get added to your income," Huybrechts says. "The charity gets the benefits of your largess, and it might keep your income below the income limits for certain deductions."
There are also a few retirement savings deadlines for tax year 2013 that occur in 2014, but there can still be benefits to doing these things before the end of the calendar year:
Avoid two retirement account distributions in the same year. Your very first required minimum distribution can be delayed until April 1 of the year after you turn 70½. But all subsequent distributions are due by Dec. 31, so delaying your first withdrawal could result in two taxable distributions in the same year. People who are employed after age 70½ can also delay withdrawals from their current 401(k), but not IRA, until April 1 of the year after they retire (unless they own 5 percent or more of the company sponsoring the 401(k) plan). "It makes sense to take it in the first year and not double up on the RMD," says Rick Epple, a certified financial planner and president of Epple Financial in Wayzata, Minn. "We're trying to keep them in the 15 percent tax bracket, and if they space it out, it is easier to keep them in the lower tax bracket."
Save in an IRA or Roth IRA. Workers have until April 15, 2014, to contribute up to $5,500 to a traditional or Roth IRA, or $6,500 if they are 50 or older. If you wait until 2014 to make an IRA contribution you will claim on your 2013 tax return, make sure you tell the plan sponsor which year the contribution is for. The sponsor may report to the IRS that the contribution is for the year the sponsor received it unless you specify otherwise. Even though you're allowed to make IRA contributions up until your tax filing deadline, some financial advisers recommend making the contribution before then. "Typically, the markets start off strong at the beginning of the year," Rezny says. "So you get a bigger boost at the beginning of the year than you would in April when a lot of that gain has already been made."
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