Why the 2019 Tax Deadline is Good News for your IRA...But Only if Your Broker Knows!
Updated: Aug 24, 2020
Due to the coronavirus pandemic affecting not only the United States, but the whole world, the Treasury Department and the Internal Revenue Service (IRS) announced that the 2019 Federal Tax filing deadline would be moved from April 15th to July 15th. This change was implemented to provide Federal income tax return filing and payment relief in response to the ongoing Coronavirus (COVID-19) emergency.
If you’re an overachiever like me (and knew you would be getting a refund), you may have already submitted your 2019 taxes, and are now thinking, well what good does this do me? There is good news for you yet! With the IRS tax filing deadline moved to July 15th, so is the IRA contribution deadline. Typically, people can contribute to an IRA (Traditional and/or Roth) from January 1st of a given year to April 15th (Tax Day) of the following year. So, for example, under normal circumstances the 2019 IRA contribution window would have been January 1, 2019 through April 15, 2020. However, due to the Federal tax filing change, you now have until July 15, 2020 to make your 2019 IRA contributions.
Talk to Your IRA Brokerage
There is a critical part to this, though. You must ensure that any contributions made to 2019, particularly for contributions made after April 15, 2020 explicitly state that they are for 2019. The issue here is that many IRA brokers, such as Vanguard or Fidelity, that allow for online contributions may not have had the chance to update their software yet.
As a Vanguard account holder, I was curious to see if they had updated their online IRA contribution software to reflect the new 2019 deadline, so I gave them a call. I know, under most circumstances, I would avoid calling a company (particularly at this time where you hear about 3+ hour wait times), but knowing how fantastic Vanguard’s call support usually is, I gave it a try. In true Vanguard fashion, I was connected to a helpful customer service agent almost immediately!
The customer service agent told me that [as of this writing 4/10/20] they had not updated their software yet to reflect the extended contribution deadline, but did anticipate it happening soon. She said that they are recommending that people who want to make 2019 IRA contributions after April 15th should mail in a check (on what…their dinosaur??). The issue I see with this is that whether you are buying an ETF or mutual fund in your IRA, you generally know the price you are paying per share either immediately or by the close of the market. When you mail in a check, you do not “lock in” a share price until they receive and process the check. That means, for example, the price you think you might be paying per share on Day 1 (when you mail the check) is significantly different from the price you actually pay of Day 7 (when the check is received and processed). Granted, with the instability of the current market, the prices could be significantly down from when you mailed the check, but is that a gamble you’re willing to make?
So what is an investor to do?
1. Check with your IRA broker to see if they have updated their software. The easiest things would be to check their website first, either for a news update mentioning the change or your IRA account to see if there is an updated 2019 contribution deadline date. If you cannot find this information online, try giving them a call. I can’t speak for other brokers, but Vanguard has amazing call support and an almost non-existent wait time (at least when I called). Your broker may recommend mailing a check, but as I already mentioned there’s a bit more uncertainty in what your share price will be.
2. So what do you do if your broker has not updated their software yet, it is after April 15th, and your T-Rex is in the repair shop? Blend your contributions. The fantastic thing about IRAs is that, unlike 401Ks or 403b’s which follow a calendar year, you have 15.5 months to contribute to them. And with this new 2019 extension, you have 18.5 months! During the month 13 to month 15.5 (or 18.5 for 2019) overlap, you can choose to contribute to either the previous year, the current year, or both. So, from January 1, 2020 to July 15, 2020, you can choose to make your IRA contributions to 2019, 2020, or a combination of the two.
3. My recommendation: until your broker has updated their online IRA contribution software, start contributing to your 2020 IRA. Once they have made the update, go back to contributing to your 2019 IRA until July 15th, 2020. Remember, you will still have until April 15th, 2021 to make your 2020 contributions, which should hopefully be plenty of time to max it out (as we all know we should strive for).
But what if I already filed my 2019 taxes?
You may also be thinking, “Well, I’ve already filed my 2019 taxes and did not max out my traditional IRA contributions which would have helped lower my taxable income, so what can I do now?”. To that, I offer you the amended tax return. The IRS, generally, allows you to file an amended tax return for any of the three previous tax years.
If you have already filed your 2019 Federal taxes and would like to make additional Traditional IRA contributions to help bring down your taxable income, I recommend logging into the tax filing software that you used, such as TurboTax or TaxAct, or checking with your tax preparer (if you have one) to see if they offer an amended tax return option. If they do, run the numbers to see how much of an impact the additional contribution would make to your tax liability and/or refund. Also note, decreasing your 2019 adjusted gross income (AGI) could also lower it enough to be eligible for the coronavirus stimulus check. It may or may not be worth it to file, but at least you would know. In the past, I have had to file an amended return using TaxAct and did not have to pay an additional fee, but be sure to check with your tax service/accountant.
Amend Your Tax Return the Right Way
If you choose to file an amended tax return, do not file yet. First, make your 2019 Traditional IRA contributions up to the July 15th deadline or until the contribution limit has been reached ($6,000 – or $7,000 if you're 50 or older), whichever happens first. After that, go ahead and submit your amended return with the updated 2019 Traditional IRA contribution amount. The IRS will process it and send back any additional refund you are owed. An item to note, amending your federal tax return could mean having to amend your state tax return too, so also check with your state’s tax filing department.
In a world of uncertainty, we are all struggling to maintain some sense of normal and control. It is important to do what you can to keep yourself and your family safe and secure, both health-wise and financially. In these trying times, it is key to remember that retirement investing is investing for the long-term. Even if you plan to retire in the next 10 years, you may have an additional 20 or 30 years of continued growth beyond that. The decisions you make today will create the opportunities you have decades from now. Don’t shortchange yourself by being fearful of the current market. If you planned to contribute monthly to your IRA and other retirement accounts a month ago, and are still financially able to today, stay the course. Keep the momentum going by continuing to make those contributions, no matter how small. Your future you will thank you.
Stay safe everyone!
Update: As of 4/16/2020, it looks like Vanguard has updated their online software to allow for 2019 IRA contributions. Be sure to check with your IRA provider to see if 2019 online contributions are available.
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