If you're one of the millions who's put off filing your tax return until October, you know that due date — it's Monday, Oct. 16, this year — is just a week away.
But mid-October is also a key deadline for other tax tasks, particularly when it comes to retirement savings.
Here are a couple of retirement-related tax matters to consider, and take care of if they apply to you, by next Monday.
Open or contribute to your self-employment retirement plan.
Self-employed folks, be it full-time or even just the occasional side hustle to supplement regular paychecks, can open or add to a self-employment retirement plan if we got a filing extension.
This is a tax technique I have personally used over the years. The extra six months gives me time to come up with my self-employment retirement plan money. Even better, I then deduct that contribution as an above-the-line deduction.
Depending on your income, your self-employment plan contribution also might make you eligible to claim the retirement saver's tax credit. This tax break, which maxes out at $1,000, rewards low- and moderate-income individuals for adding to their retirement accounts. Even better, it's a credit, which means it directly reduces your tax bill dollar-for-dollar.
You have a wide variety of self-employment retirement plans from which to choose. If you haven't opened one yet, do it now and take advantage of putting in tax-saving money by Oct. 16.
Recharacterize your Roth conversion.
When you converted your traditional IRA to a Roth IRA last year, it seemed like a good idea. Now not so much.
The good news is that you get a do-over. But you need to act fast.
If you have second thoughts about your Roth, tax law gives you until the October extension deadline of the tax year following the conversion year to put the money back into a traditional IRA. Again, this year that's Monday, Oct. 16.
Why would you want to go back from a tax-free retirement plan to a tax-deferred one? The most common reason to reverse a Roth conversion is that the retirement account has lost money since the change.
That means in addition to the Roth being worth less, you owe income tax on the converted amount. A recharacterization can erase that Roth conversion tax bill.
The market's been surging, so if that's your situation, in addition to recharacterizing your under-performing Roth IRA, you might want to reconsider your financial adviser. But that's a post for another day.
Whatever your reason for Roth recharacterization, don't wait until the final day.
You can’t move the money from your Roth back to a traditional IRA yourself; it must be done trustee-to-trustee. You need to get that process underway before the deadline, like this week.
You also might find these items of interest:
- 2017 inflation-adjusted retirement plan limits
- Will tax reform 'Rothify' tax-deferred 401(k) plans?
- Rethinking retirement as traditional 3-legged stool wobbles
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