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Year-End Retirement Account Q & A

By Jeffrey Levine, Director of Retirement Education 
Follow Me on Twitter: @IRAGuru4EdSlott


Question: When is the last day to make a 2016 Roth IRA conversion?

Answer: In order for a Roth IRA conversion to be considered a 2016 Roth conversion, the money must leave the distributing account by December 31, 2016. So if a distribution is made from a traditional IRA on December 31, 2016 and it doesn’t get into the Roth IRA until February 15, 2017, it’s still a 2016 Roth IRA conversion.


Question: What is the deadline to take an RMD for 2016?

Answer: There are two answers to this question; the tax code specific question and the practical answer. From a tax code perspective, the last day to timely take an RMD for 2016 – with the exception of your first year’s RMD – is December 31, 2016. Practically speaking however, the time may have already passed. Different IRA custodians require different lead times to process distributions. Some may guarantee same-day processing of RMD requests, while others may require a two-week runway. Obviously, if your IRA is held with a custodian that has the latter of those policies, you’re already past your deadline, even though you’re not past the deadline.


Question: I just got a big year-end bonus I wasn’t expecting and it pushed me over the Roth IRA contribution income limit. Do I have to remove the Roth IRA contribution I made in July for 2016 before the end of the year?

Answer: No. You will have to do something to correct that contribution, but you don’t have to do it before the 31st. Your two options are to:

a)     Remove the contribution as an excess contribution

b)     Recharacterize the contribution to a traditional IRA contribution

Regardless of which of the above options you choose, the correction can be made through October 16, 2017 without incurring any penalties.


Question: Can I make a salary deferral to my 401(k) plan up to April 15, 2017 and treat it as a 2016 deferral?

Answer: No, although you can make a traditional IRA or Roth IRA contribution for 2016 up through the April 2017 filing deadline, the same rules don’t apply to your salary deferrals. A deferral of salary into a 401(k) plan in April of 2017 would reduce your 2017 income, but it could not reduce your 2016 income.



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