This 2020, The IRA Contribution Deadline Isn’t Until July

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This 2020 has certainly been a year of the unexpected. The news is streaming live updates about a global pandemic, and we are all sheltered in place. Children are home as schools and daycares are closed. Students are home as dorms and lecture halls sit empty. Workers are home as office buildings limit commuters. Our hair is growing longer as hairstylists are forced to furlough. Grocery stores are picked over as shoppers are encouraged to limit trips to the store. Life is very different.

In response, the federal government has created many temporary measures and provisions to try and help the economy. Interestingly, by nature of the waivers, Congress is effectively acknowledging that some requirements are known to be burdens on the people and the economy.

Separate from Congress’s March 27th’s CARE Act, the president issued an emergency declaration on March 13 for the Treasury department. The result of that declaration is that, in response to the ongoing Coronavirus Disease 2019 (COVID-19) emergency, the Treasury Department and the Internal Revenue Service (IRS) have created a special waiver that extends the tax filing deadline from April 15 until July 15, 2020.

The IRS is very clear, “Any person with a Federal income tax return or payment due on April 15, 2020, is eligible for relief under the Notice.”

One question we’ve frequently been asked is:

Do I need to fund my Roth IRA before April 15 still or can I wait to fund my Roth IRA until before July 15, 2020?

Luckily, the answer is that this year you have until the filing deadline of July 15, 2020. As the IRS frequently asked questions state:

Q17. Does this relief provide me more time to contribute money to my IRA for 2019?

A17. Yes. Contributions can be made to your IRA, for a particular year, at any time during the year or by the due date for filing your return for that year. Because the due date for filing Federal income tax returns has been postponed to July 15, the deadline for making contributions to your IRA for 2019 is also extended to July 15, 2020. For more details on IRA contributions, see Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs).

In this way, you have until the filing deadline — which is now July 15, 2020 — to contribute to your Roth IRA for 2019.

In general, we recommend that you fund your Roth IRA to the maximum even if you feel like you can’t afford it. Roth IRAs are post-tax assets, which means distributions, dividends, interest, and capital gains are all free of tax in a Roth.

Even though Roth IRAs are technically retirement accounts, you are also always allowed to withdraw up to the amount you have contributed without penalty or tax. For this reason, Roth IRAs make a great account for any kind of savings. The difficulty is that you can only contribute to a Roth IRA when you have earned income and even then, only up to a contribution limit.

If you had earned income and have not yet funded your Roth IRA for last tax year, contribute now! Even if you end up needing the assets later, the growth you have between now and then will remain behind tax-free for your retirement.

If you are over the income threshold to contribute to a Roth IRA directly, you may be able to take advantage of the backdoor Roth strategy by making a nondeductible contribution to your traditional IRA and then converting those assets to a Roth IRA in a Roth conversion. To evaluate whether you are a good candidate for a backdoor Roth, you may benefit from reading “When You Should Not Do a Backdoor Roth.”

If you have children, this extension may be the perfect opportunity for you to help your child fund their Roth IRA with chore or babysitting money. Roth funding is a great way to give your child some experience making wise financial decisions. You can read about that process here: “Funding a 3-Year-Old’s Roth IRA.”

Regardless of whose Roth you are funding, the easiest way to fund a Roth is by transferring assets from one account to the other electronically. You can read about how to do that in “How to Fund Your Roth By Using Another Schwab Account.” If the money is coming from an external custodian, you could utilize a MoneyLink or transfer from an external account. Also, the low tech option of writing a check always works.

Happy Roth funding!

Photo by sheri silver on Unsplash

Follow Megan Russell:

Chief Operating Officer, CFP®, APMA®

Megan Russell has worked with Marotta Wealth Management most of her life. She loves to find ways to make the complexities of financial planning accessible to everyone. She is the author of over 800 financial articles and is known for her expertise on tax planning.

Follow Libby Horbaly:

Wealth Manager

Libby Horbaly is a Wealth Manager at Marotta Wealth Management. In addition to writing articles, she is one of our primary editors and image selectors for Marotta on Money. In her spare time, she enjoys reading, sailing, and spending time with her family.