To maximize the value of your 401(k) and IRA accounts, you often need to meet specific tax deadlines. Here's a look at what you need to do before the end of the calendar year, and what can wait until your tax filing deadline:
Make 401(k) contributions by December 31. Workers age 49 and younger can defer taxes on up to $17,000 in their 401(k) in 2012. Contributions are generally due by December 31. "It's not unusual to have someone put a large portion of their paycheck in a 401(k) plan in the month of December," says Randy Clayton, a certified financial planner for Clayton Financial Services in Topeka, Kan. "You can go to HR or personnel and change it just for one or two paychecks to get more money into the 401(k)."
[Read: 7 Ways to Retire with $1 Million.]
Deposit catch-up contributions. Catch-up contributions to 401(k)s are also typically due by the end of the calendar year. Workers age 50 and older can contribute up to $22,500 to a 401(k) plan in 2012, $5,500 more than younger workers.
Additional time for IRA contributions. Investors can make 2012 IRA contributions up until April 15, 2013. "You can fund a Roth or traditional IRA as well as the additional $1,000 catch-up contribution up to the 2012 tax filing deadline of April 15, 2013," says Jean Sinclair, a certified financial planner for Avenue Advisors in San Diego. If you contribute to an IRA between January 1 and April 15, 2013, you will need to tell the financial institution to record the deposit as a 2012 or a 2013 contribution. If you don't specify a year, the IRA sponsor may report to the IRS that the contribution is for the calendar year in which the payment was received.
You can file a tax return claiming an IRA contribution before the deposit is actually made, but the money must be in the account by the due date of your return. "With an IRA, you can contribute up until April 15, even if you file your taxes in January," says Charles Buck, a certified financial planner for Buck Financial Advisors in Woodbury, Minn. "You can file your taxes and get the refund and then use it to fund your IRA."
Take required minimum distributions. Withdrawals from 401(k)s and IRAs are required after age 70 1/2, and income tax is due for each distribution. The penalty for failing to withdraw the correct amount is a 50 percent tax on the amount that should have been distributed. The first distribution is due by April 1 of the year after you turn 70 1/2, but subsequent distributions must be taken by December 31 each year. And if you delay your first distribution until April 1, you will need to take two distributions in the same year, which could result in an abnormally high income-tax bill.
Check out your quarterly statements. For the first time in 2012, 401(k) participants began receiving annual and quarterly statements outlining the fees they are paying and comparing their returns to a benchmark, due to new Labor Department rules. Pay attention to year-end mail that you get from your 401(k) provider and consider altering your investment lineup if the costs are too high.
Get the saver's credit. Low-income workers who save for retirement may be able to earn a tax credit worth up to $1,000 for individuals and $2,000 for couples. The saver's credit can be claimed by workers whose modified adjusted gross incomes are up to $28,750 for singles, $43,125 for heads of households, and $57,500 for couples who contribute to a 401(k) or IRA.
Reset your contributions for next year. Contribution limits for 401(k)s and IRAs will each increase by $500 in 2013, to $17,500 for 401(k)s and $5,500 for IRAs. However, catch-up contributions for workers age 50 and older will remain the same next year, at $5,500 for 401(k)s and $1,000 for IRAs. If you fund either type of retirement account through a payroll deduction, consider resetting your contribution amount to keep pace with the higher limits.
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