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.
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).