Tag Archive for: deadline

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Year-End Tax Reminders

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A recent call with a financial advisor in Pennsylvania is representative of a common inquiry involving year-end tax-related deadlines. The advisor asked: “Of what year-end tax deadlines should I remind my clients?”

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare. We bring Case of the Week to you to highlight the most relevant topics affecting your business.

Highlights of the Discussion
There are several December 31, 2023, deadlines of which employers, retirement plan participants, IRA owners and other savers should be aware. The list below includes several but is by no means exhaustive. And—because December 31 falls on a Sunday this year, conservatively these actions should be completed by Friday December 29th to ensure they are completed no later than December 31st. 1

  • 2023 Roth conversion: In order for a taxpayer to consider either a Roth IRA or Roth 401(k) in-plan conversion for 2023 tax purposes, he or she must complete the conversion no later than December 31, 2023. (Don’t confuse the 2023 conversion deadline with the deadline for making a 2023 Roth IRA contribution, which is April 15, 2024.)
  • 2023 Qualified Charitable IRA Distribution: No later than December 31st, IRA owners and beneficiaries age 70½ or over can transfer up to $100,000 from their IRAs to an eligible charity, and exclude the amount from gross income. The excluded amount also can be used to satisfy any required minimum distributions that are due from their IRAs for 2023. New for 2023 and for later years, a QCD also can include a one-time gift of up to $50,000 (adjusted for inflation) to a charitable remainder unitrust, a charitable remainder annuity trust, or a charitable gift annuity. See a prior Case of the Week “There’s More to Love About QCDs” for other enhancements to QCDs as a result of SECURE Act 2.0.
  • 2023 Required minimum distributions for second or subsequent distribution years: Plan participants and IRA owners who have begun their required minimum distributions must take their second or subsequent years’ RMDs no later than December 31, 2023—or, potentially, face a 25% penalty on the amount not taken.
  • Discretionary Plan Amendments: Plan sponsors with calendar-year plans that made discretionary operational changes to their retirement plans during the year must generally amend their plan documents to reflect such changes no later than December 31, 2023.
  • Deferral Election: Though not a requirement, plan participants will want to make sure their employee salary deferral elections are properly set for the beginning of 2024.
  • Beneficiary Audits: Although there is no prescribed deadline, plan participants and IRA owners should make it a habit to review their beneficiary elections at least annual to ensure they are up to date.
  • 529 Plan Contribution: Although contribution rules vary by states, many states have a contribution deadline of the end of the calendar year (December 31) to qualify for a 529 education savings plan tax deduction on their tax returns for the tax year.

Conclusion
Before the New Year’s Eve celebration begins, individuals should check with their tax advisors to see if December 31, 2023, marks the deadline for important 2023 tax-related actions like those listed above. Happy Holidays!

1 When a particular act is tied to a prescribed IRS filing deadline there is an exception. In that circumstance, if the due date falls on a Saturday, Sunday, or legal holiday, then the due date is the next business day (IRC Sec. 7503).

© Copyright 2024 Retirement Learning Center, all rights reserved
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Roth IRA or In-Plan Conversion Deadline for 2022 Taxation

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“My client wants to complete a Roth conversion. Is there a conversion deadline?”

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare. We bring Case of the Week to you to highlight the most relevant topics affecting your business.  A recent call with a financial advisor from Florida is representative of a common inquiry related to Roth conversion taxation.

Highlights of the Discussion

  • As with any tax-related question, I always start by suggesting individuals talk with their tax advisors regarding their personal financial situations.
  • According to IRS rules, the deadline for completing a Roth IRA or Roth in-plan conversion relates to the year in which your client wants to pay taxes on the conversion. A Roth conversion is taxable in the year it is completed. For example, in order to include the taxable portion of a Roth conversion in income for 2022, the conversion must be completed by December 31, 2022. There is no carryback period for a conversion as there is for making a regular Roth IRA contribution.
  • Note that the IRS just announced the new tax brackets for 2023, and while the same seven tax rates in effect for the 2022 tax year (i.e., 10%, 12%, 22%, 24%, 32%, 35% and 37%) still apply for 2023, there were quite sizeable changes in the width of the income ranges for the various brackets. Therefore, it may be advantageous for your client to compare his 2022 tax bracket to his anticipated 2023 tax bracket when considering the timing for a Roth conversion. Of course, there are other factors that may affect his decision on timing, including how the income from the conversion will affect his applicable tax bracket.

Example:  Soleste and her husband are part of the married-filing-jointly tax-filing category.  For 2022, they anticipate their taxable income will be $180,000. That would put them in the 24% tax bracket. Looking ahead to 2023, they anticipate their taxable income will be about the same (i.e., $180,000). Because of the tax bracket changes for 2023, they will fall into the 22% tax bracket in 2023. Of course, they will have to consider whether the income generated from the conversion will affect which tax bracket applies.

Year/Filing Status Anticipated Income Income Range Tax Rate
2022 Married Filing Jointly $180,000 $178,151 to $340,100 24%
2023 Married Filing Jointly $180,000 $  89,451 to $190,750 22%

Source:  Revenue Procedure 2022-38

Conclusion

The deadline for completing a Roth IRA or Roth in-plan conversion depends on the year in which an individual wants to include the taxable portion of the Roth conversion in income. A Roth conversion is taxable in the year it is completed. To be taxable for a particular year, the conversion must be completed by December 31st.

 

© Copyright 2024 Retirement Learning Center, all rights reserved
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Plan Establishment Deadlines

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“Is it too late to establish a qualified retirement plan for 2020?”

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare.  We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with a financial advisor from Arizona is representative of a common inquiry related to setting up qualified retirement plans.

Highlights of the Discussion

As a result of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, businesses have more time to set up plans for a particular tax year.

Prior to the SECURE Act, a business that wanted a qualified retirement plan (e.g., 401(k), profit sharing, money purchase pension, defined benefit pension plan, etc.) for a particular tax year had to establish it by the last day of the business’s tax year. For example, a calendar year business had to sign documents to set up the plan by December 31 of the tax year in order to be able to contribute to and take a deduction for contributions.

For 2020 and later tax years, a business has more time—until its tax filing deadline, plus extensions for a particular tax year—to set up a plan. Notice the plan establishment deadline is tied to the type of business entity (e.g., sole proprietor, partnership, corporation, etc.) and its associated tax filing deadline as illustrated below. [Note: Simplified employee pension (SEP) plans have historically followed this schedule; and special set-up rules apply for safe harbor 401(k) plans.]

Tax Status Filing Deadline Extended Deadline
S-Corporation (or LLC taxed as S-Corp) March 15 September 15
Partnership (or LLC taxed as a part) March 15 September 15
C-Corporation (or LLC taxed as C-Corp) April 15 October 15
Sole Proprietorship (or LLC taxed as sole prop) April 15 October 15

EXAMPLE:  Doin’ Great, Inc., has an extended tax filing deadline of October 15, 2021, for its 2020 tax year. The owners of Doin’ Great decide in early 2021 they would like to set up a 401(k)/profit sharing plan for the business for 2020. They have until October 15, 2021, to execute plan documents to set up the plan, effective for 2020. While Doin’ Great would be able to make a profit sharing contribution on behalf of participants for 2020, participants can only make pre-tax employee salary deferrals and designated Roth contributions prospectively—meaning after they execute valid salary deferral elections for compensation yet to be received in 2021.

Conclusion

Thanks to the SECURE ACT, for 2020 and later tax years, a business has more time—until its tax filing deadline, plus extensions for a particular tax year—to set up a plan.

 

© Copyright 2024 Retirement Learning Center, all rights reserved
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California and Oregon State-Sponsored Retirement Plans

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“I have several clients who are employers based in California and Oregon. Can you provide an update on the registration requirements for the CalSavers and the OregonSaves retirement savings programs? Are there any deadlines approaching?”

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare.  We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with a financial advisor from California is representative of a common inquiry related to state-sponsored retirement plans for private-sector workers.

As we reported in a prior Case of the Week:  State-sponsored retirement plans for private-sector workers, to date 12 states and one city have enacted laws that, generally, require certain employers without their own retirement plans to make the state-sponsored plan available to their employees. Each state has different rules so it is imperative to confer with state authorities and reference state websites for guidance. Note that some of the states’ plans have an employer registration requirement that is time sensitive. California and Oregon are examples of two such states.

California
CalSavers is a retirement savings program for private sector workers in California whose employers do not offer a retirement plan. Employers with five or more employees must participate in CalSavers if they do not already have a workplace retirement plan. Employers that do sponsor their own retirement plan must register their exemption from the state mandate. The following deadlines to register or claim an exemption are based on the size of the business.

Size of Business                 Deadline

Over 100 employees           September 30, 2020 (but see potential for year-end extension)[1]

Over 50 employees             June 30, 2021

5 or more employees          June 30, 2022

To register, visit www.CalSavers.com, call CalSavers Client Services at 855-650-6916 or email them at Clientservices@calsavers.com to certify an exemption. For businesses that missed the deadline and need to get caught up, please engage with the CalSavers support team immediately as they want to help. There is unofficial word that the deadline for registering as a California exempt employer has been extended to December 29, 2020. 

Oregon

Oregon has a similar employer registration requirement for its state-sponsored retirement program covering private sector workers− OregonSaves. Businesses with employees that do not offer a qualified retirement plan and are currently issuing payroll are required to implement the OregonSaves program. Most of the deadlines for registration/exemption have passed[2], but the state has indicated that its expectation at this time, given the impact of Covid-19, is for business owners to facilitate the program “as soon as you are reasonably able to do so.” Oregonian employers that sponsor a qualified retirement plan don’t have to participate in the program but must certify their exemption and renew it every three years.

Businesses can register or certify their exemption online at www.oregonsaves.com. Alternatively, they can contact the OregonSaves Client Service Team by phone at (844) 661-1256 or by email at clientservices@oregonsaves.com for assistance.

For information on state-sponsored retirement savings plans, please refer to the table below.

State/City Plan Name
1.    California California Secure Choice Retirement Savings Program
2.    Colorado Colorado Secure Savings Program
3.    Connecticut Connecticut Retirement Security Program
4.    Illinois Illinois Secure Choice Savings Program
5.    Maryland Maryland Small Business Retirement Savings Program
6.    Massachusetts Massachusetts Defined Contribution CORE Plan

 
7.    New Jersey New Jersey Small Business Retirement Marketplace

 
8.    New Mexico The New Mexico Work and Save Act

 
9.    New York New York State Secure Choice Savings Program
10. Oregon OregonSaves

 
11. Vermont Vermont Green Mountain Secure Retirement Plan

 
12. Washington Washington’s Small Business Retirement Marketplace

 
13. Seattle, WA Seattle Retirement Savings Plan

 

 

[1] Employers who missed this deadline should contact CalSavers and register as soon as possible to avoid penalties. There is unofficial word that the deadline for registering as a California exempt employer has been extended to December 29, 2020.

[2] Oregonian businesses with four or fewer employees have until January 15, 2021, to register or record their exemption.

© Copyright 2024 Retirement Learning Center, all rights reserved
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Rollover of Plan Loan Offsets and 402(f) Notices

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“Has the IRS issued an updated model plan distribution notice to reflect the changes related to rollovers of plan loan offset amounts?”

ERISA consultants at the Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings plans, including nonqualified plans. We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with a financial advisor from Illinois is representative of a common inquiry related to the special tax notice required for plan distributions under Internal Revenue Code 402(f).

Highlights of Discussion

The IRS periodically issues model plan distribution notices, also referred to as a “special tax notice,” “rollover notice” or the IRC Sec. “402(f) notice,” in order to incorporate any changes to the language as a result of law changes. As of this posting, the IRS had not issued updates to its model 402(f) notice to reflect changes in the information as a result of the Tax Cuts and Jobs Act of 2017 (TCJA-2017), effective January 1, 2018. The last model notice was issued in 2014 (Notice 2014-74).

Plan sponsors are required to provide up-to-date 402(f) notices to convey important tax information to plan participants and beneficiaries who have hit a distribution trigger under a qualified plan and may receive a payout that would be eligible for rollover (Treasury Regulation 1.402(f)-1). A 402(f) notice, in part, explains the rollover rules and describes the effects of rolling—or not rolling—an eligible rollover distribution to an IRA or another plan, including the automatic 20 percent federal tax withholding that the plan administrator must apply to an eligible rollover distribution that is not directly rolled over. Plan administrators must provide the 402(f) notice to plan participants no less than 30 days and no more than 180 days before the distribution is processed. A participant may waive the 30-day period and complete the rollover sooner.

A plan may provide that if a loan is not repaid (is in default) the participant’s account balance is reduced, or “offset,” by the unpaid portion of the loan. The value of the loan offset is treated as an actual distribution for rollover purposes and, therefore, may be eligible for rollover. In most cases, participants (or beneficiaries) who experience a loan offset can rollover an amount that equals the offset to an eligible retirement plan. Instead of the usual 60-day rollover deadline, effective January 1, 2018, as a result of TCJA-2017, if the plan loan offset is due to plan termination or severance from employment, participants have until the due date, including extensions, for filing their federal income tax returns for the year in which the offset occurs to complete a tax-free rollover (e.g., until October 15, 2019, for a 2018 plan loan offset).

Conclusion

Even though the IRS has not updated its model 402(f) to reflect the extended rollover period for certain loan offsets as a result of TCJA-2017, plan sponsors and administrators must ensure the distribution paperwork and 402(f) notices that they are currently using include language that reflects the new rollover timeframe. For those that rely on plan document providers, ask if the new 402(f) notice is available.

 

© Copyright 2024 Retirement Learning Center, all rights reserved