There’s Still Time to Make Retirement Savings Plan Contributions for 2019
By Alexis Gonzalez-del-Valle, CIP, CHSP
Your organization is likely still seeing 2019 IRA or retirement plan contributions coming in because the 2019 contribution deadline was postponed. Maybe you are even fielding questions about it. You’ll want to be sure that your clients are aware of the deadline extension, that they still have time to make contributions. And with the economic impact payments that were provided to eligible individuals beginning in April 2020 as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, more of your clients who have received these payments may be planning to use all or some of the funds to make Traditional IRA or Roth IRA contributions.
Traditional and Roth IRA Contributions
In response to the coronavirus (COVID-19) pandemic, the IRS issued guidance allowing the completion of certain time-sensitive, tax-related actions to be delayed until July 15, 2020. It started on March 20, 2020, with IRS Notice 2020-18, which states that 2019 federal income tax returns that would have been due on April 15, 2020, are due on July 15, 2020. Then on March 24, 2020, the IRS updated the frequently-asked-questions (FAQs) on its website, stating there that Traditional IRA, Roth IRA, and certain employer retirement plan contributions that would have been due April 15, 2020, for tax year 2019 have a deadline of July 15, 2020. In April, IRS Notice 2020-23 confirmed this deadline extension, along with extensions for many other time-sensitive tax-related acts.
At the end of May, the IRS issued Notice 2020-35, providing a six-week window after the July 15, 2020, contribution deadline in which organizations can prepare and provide 2019 Form 5498 information returns to the IRS and to account owners.
Normally, the deadline to make regular Traditional and Roth IRA contributions is by the IRA owner’s federal tax return due date, not including extensions. For most individuals, their due date is April 15, as the majority of taxpayers file their tax returns on a calendar tax year basis. Regular contributions made between January 1 and the federal tax return due date for the previous year must be accompanied by a written, irrevocable election by the IRA owner. If the IRA owner does not provide a written, irrevocable election designating that the contribution is for the prior year, the contribution must be treated as a current-year contribution. This rule still applies to the 2019 deadline extension; IRA owners must make a written, irrevocable election that a contribution made by the July 15, 2020, deadline is for 2019; otherwise, it must be treated as a contribution for 2020.
When the deadline for filing the tax return lands on a Saturday, Sunday, or legal holiday, the individual has until the next business day to make that contribution. IRA contributions that are received through the mail after the contribution deadline are deemed timely made as long as the envelope has a postmark dated on or before the contribution deadline. Financial organizations that decide to accept these contributions should save or copy the envelope that contains the postmark and retain it in the IRA owner’s file.
IRA owners can file their tax returns before making Traditional and Roth IRA contributions, as long as they make those contributions by the tax filing deadline, excluding extensions. For instance, an individual who filed his 2019 tax return on April 1, 2020, could still make a 2019 contribution after that, up until July 15, 2020.
It may help to remind IRA owner clients that they can elect to have their income tax refunds directly deposited as regular contributions into their IRAs. They simply make this request on their tax returns (i.e., Form 1040, U.S. Individual Income Tax Return) or on Form 8888, Allocation of Refund (Including Savings Bond Purchases). The direct deposit option is available for Traditional and Roth IRAs, but not for SIMPLE IRAs. Individuals need to establish the IRA prior to submitting the direct deposit request. They must also provide the IRA trustee or custodian with a written, irrevocable election if the deposit represents a prior-year contribution.
Employer-Sponsored Retirement Plan Contributions
Your employer plan clients should know that the contribution deadline extension pertains to them as well. Employer contributions—including those made to simplified employee pension (SEP) and savings incentive match plan for employees of small employers (SIMPLE) IRAs—for 2019 that would have been due April 15, 2020, also have the postponed deadline of July 15, 2020.
Normally, the deadline for an employer to make contributions to its retirement plan for deduction purposes is the employer’s federal income tax return due date, including extensions. The deadline for employers to establish a SEP plan and make SEP contributions for the business tax year is the business’ federal income tax return due date, including extensions. The deadline for making employer contributions to a SIMPLE IRA also is the business’ federal income tax return due date, including extensions.
