Retirement savers who want to get a 2011 tax deduction for their 401(k) and IRA contributions should pay attention to several deadlines. Retirees need to take required withdrawals by specific dates to avoid tax penalties. Keep these important dates in mind when making decisions about your retirement accounts.
December 31, 2011. There are only a few weeks left to make 401(k) contributions that will count toward tax year 2011. If you haven’t yet stashed $16,500 in your 401(k) this year, or $22,000 if you are 50 or older, you generally have until December 31 to do so.
The previous income limit of $100,000 for converting a traditional 401(k) or IRA to a Roth was eliminated in 2010, which means almost anyone can pre-pay tax on their retirement savings using a Roth account in 2011. Last year’s ability to spread the income tax over two years has ended, so people who convert to a Roth before the end of the year will owe income tax on the amount converted on their 2011 tax return.
Retirees who are over age 70½ must take required minimum distributions from their retirement accounts before the end of the calendar year. Those who fail to withdraw the correct amount must pay a 50 percent tax penalty and regular income tax on the amount that should have been withdrawn.
Retirees age 70½ or older who don’t need the cash can avoid paying income tax on up to $100,000 withdrawn from a retirement account if they donate the money directly from their IRA to a qualifying charity. The deadline for making a 2011 charitable distribution is December 31, 2011.
April 1, 2012. A retirement account owner’s first required minimum distribution can be delayed until April 1st of the year after he or she turns 70½. However, retirement savers who delay their first required distribution until April will then have to take two distributions in the same year because the second distribution will be due on December 31. Taking two distributions in the same year can result in an abnormally large tax bill and could bump you up into a higher tax bracket.
April 17, 2012. Retirement savers have until April 17, 2012 to make IRA contributions that count toward tax year 2011. If you make an IRA deposit between January 1 and April 17, make sure you specify which year the contribution is for. The financial institution will assume the contribution is for the year the sponsor received it unless you request that it be counted toward the previous tax year. You can file a tax return claiming a traditional IRA contribution before the deposit is actually made, but the money must be there by the due date of your return.