Retirement Plan Tax-Prep Checklist

Qualified retirement plans and individual retirement accounts (IRAs) allow you to save for retirement on a tax-advantaged basis. Earnings on contributions grow tax deferred—or tax-free for Roth IRAs and Roth 401(k)s. When it comes to tax time, be sure you are up to date with all the requirements.

Watch the Contribution Deadline

You have until the tax filing deadline to contribute to an IRA or a Roth IRA. You don’t get more time to make IRA contributions, even if you obtain a filing extension for your tax return.

However, if you own a business, you can contribute to a qualified retirement plan up to the extended due date of your return (e.g., Oct. 17, 2023, for a 2022 contribution). If you didn’t, you could still set up and fund a SEP IRA by the extended due date of your return.

Use Tax Refunds for Contributions

If you’re owed a tax refund, you can apply it toward a contribution to an IRA or a Roth IRA​. This can be for the 2022 tax year if you submit your tax return in time for the IRS to send the funds to your account’s custodian or trustee; be sure to notify your custodian or trustee that you want the funds applied for 2022. Use Form 8888 to tell the IRS where to send your refund. If funds arrive late or you don’t tell the custodian or trustee that you want to apply them for 2022, they might be applied for 2023.

Fix Excess Contributions

The IRA contribution limit for 2022 is $6,000 (or $7,000 if you are 50 or older). For 2023, it rises to $6,500 (and $7,500 if you are 50 or older).

Your modified adjusted gross income (MAGI) may lower or eliminate the deduction you can take for contributions to traditional IRAs if you or your spouse participate in a qualified retirement plan such as a 401(k) at work. Your MAGI can also reduce or ban contributions to Roth IRAs regardless of any other plans. Any excess contributions—amounts higher than you are eligible to make—are subject to a 6% penalty each year until you take corrective action.

If you contributed too much to any of your IRAs, don’t delay fixing the problem. If the excess contribution involves a traditional IRA, be sure you don't deduct the contribution. If you discover the error before filing your tax return, withdraw the excess contribution (plus any earnings) no later than the tax filing deadline to avoid the 6% penalty. If you've already filed, remove the excess contribution and earnings within six months and file an amended return by the October extension deadline.

If you miss that deadline, remove the excess (even after Oct. 15) and reduce next year's contributions by the excess amount. Keep in mind that any earnings you withdraw from your IRA are taxed as ordinary income, and you may owe a 10% early withdrawal penalty if you're younger than 59½.

Take Required Minimum Distributions

Tax deferral doesn’t last forever. Make sure you understand when you must start taking required minimum distributions (RMDs). The IRS imposes a 25% penalty on any missed RMDs—meaning you'll owe a penalty equal to a quarter of the amount you should have withdrawn.

RMD rules are complex, but here's some information to get you started.

• Roth IRAs require no RMDs during the account owner's lifetime. If you don't need the money, you can leave the account alone and let it grow tax-free for your heirs.
• For your own accounts. You must start taking RMDs by April 1 of the year after you turn 73 (for people born between 1951 and 1959) and age 75 (for those born in 1960 or later). The amount of the RMD is based on IRS tables, which can be found in IRS Publication 590-B. Use Table II (Joint Life and Last Survivor Expectancy) if you are married, your spouse is more than 10 years younger than you, and they are the only beneficiary of the account; otherwise, use Table III (Uniform Lifetime).
• For inherited benefits from a qualified retirement plan or an IRA. The rules depend on your relationship with the account holder. If you are a surviving spouse, you can opt to roll over the benefits to your own account and treat them as if they were always yours. Thus, if you’re 60 and inherit an IRA from a spouse who died in 2021, a rollover means you can postpone RMDs until you reach age 73. If you’re not a surviving spouse, you generally must take a distribution of the entire balance by the end of the 10th calendar year after the owner’s death.

Other notable exceptions to the 10-year rule for eligible designated beneficiaries include an owner's minor child, a disabled or chronically ill beneficiary, and any other beneficiary who is not more than 10 years younger than the original owner.

If you failed to take RMDs, you might qualify for relief by showing reasonable cause for your failure. You don’t have to pay the penalty upfront, but you must file Form 5329 with your tax return and attach an explanation for your failure (e.g., you had a severe medical condition or received bad tax advice about how much to take). What’s more, you must show that you took the RMD as soon as you could. Instructions to Form 5329 explain what to do.

Protect Yourself If You Took Distributions Before Age 59½

Even if you weren’t required to take distributions, you might have opted to do so before retirement age because you needed the money. The distribution generally is fully taxable (different rules apply to Roth IRAs and nondeductible IRAs) and reported to you on Form 1099-R. In addition, if you were under age 59½ at the time, you’ll be penalized 10% unless you qualify for an exception.

Due to the 2020 pandemic-related economic crisis and its negative financial impact on many American families, the rules were modified around early retirement account distributions for the 2020 tax year. The CARES Act allowed qualified individuals to borrow up to $100,000 or 100% of the vested balance in their retirement accounts (whichever is smaller) as long as they were eligible for stimulus distributions. The distribution is taxable, but taxes can be spread over three years instead of being due entirely in 2020.

If a taxpayer pays the funds back to the plan within three years, it will be considered a rollover and nontaxable. The CARES Act also allows a taxpayer to delay payments on any prior outstanding retirement account loans for up to one year.

In normal (non-COVID) years, you may avoid the penalty—but not the tax on the distribution—if you qualify for an exception (the IRS lists the acceptable reasons). If you want to rely on an exception, get your proof together now. For example, if you are disabled, be sure to have documentation from doctors or the Social Security Administration showing you are totally and permanently unable to engage in any substantial gainful activity. If you used the funds to pay qualified higher-education costs for yourself, your spouse, or a dependent, be sure to have receipts for these costs.

The Bottom Line

The rules for retirement accounts are complicated and change periodically. For help, talk to your plan administrator or IRA custodian, or even better, your tax advisor.