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We’re approaching Tax Day 2020 very quickly. While most have already completed their tax return, others will do so within the next month. It’s important to understand how Tax Day could impact your retirement savings. Here are a few items you may want to add to your tax prep checklist.
1. Max out 401(k) and IRA Contributions
You may want to consider this tip before Tax Day 2020. Maxing out 401(k) and IRA contributions now can build your retirement savings while reducing your tax burden at the same time. The amount you contribute to your retirement account now can make a big difference over time.
Prior Year Contributions
You have up to Tax Day 2020 to contribute to your 2019 limit, as these are called “prior year contributions.” But even though you have this extra time, it’s beneficial to get all contributions to your custodian several days prior to the deadline. This allows for processing times or last-minute changes.
Kingdom Trust clients are required to submit the Deposit Instructions Form, in order to process contributions. This form is located on our website for easy access. If you decide to make prior year contributions, be sure to specify the contribution year.
Remember to reference the annual IRA contribution and deduction limits to ensure that you are taking full advantage to save for retirement. If you have questions regarding how much you should contribute, don’t hesitate to meet with your team of professionals.
2. Utilize Your Tax Refund for Retirement Savings
A tax refund could jump start your retirement savings. Did you know that if you use your refund for a retirement contribution, you may even receive tax benefits? If this is an option you’re considering, take note of the additional information below. Another great resource to have on hand regarding your tax refund is the Tax Season Refund FAQ displayed on the IRS website.
- Make a Contribution: IRS Form 8888 allows you to contribute to a Traditional, Roth or SEP IRA but you cannot contribute to a SIMPLE IRA this way. Other eligible accounts include a Coverdell Education Savings Account (ESA) or Health Savings Account (HSA).
- Direct Deposit into a Retirement Account: If you file electronically or on paper, this method gives you access to your refund faster than a paper check. Most assume this option is only for a personal checking or savings account. However, you can directly deposit your tax refund into two or three different accounts including an established Traditional, Roth or SEP IRA.
- Manual Deposit into a Retirement Account: Another option to consider is having the refund sent directly to you. Next, you can fund a retirement account with all or just a partial amount of the refund.
3. Update Personal Information with your Custodian
It’s always a good idea to update your personal information on a regular basis with your custodian. If you moved to a new address, recently married, or want to update your beneficiaries on your accounts, contact your custodian directly for information on the process. This way, your custodian can generate tax forms and properly deliver your account information to you with ease.
4. Consult with your Tax Professional
Don’t hesitate to reach out to your team of professionals with questions regarding your tax return. Meet with your tax professional or financial advisor to determine if funding an IRA with your tax return is the best option for you or if you need more clarity on the decisions that could impact your retirement. The earlier you plan, the more prepared you will be when tax season rolls around.
- The Treasury Department recently extended the tax filing due date from April 15th to July 15th. The previous extension applied to only the payment of the tax but the filing was still required by April 15th. This means that the IRA contribution deadline is extended as well until July 15th. Read more about the extension here.