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PENSCO Blog

Fresh alternative asset insights and the latest news on real estate and private equity investing.

Tax Day Preparation: Is Your IRA Ready?

  |  By Karen Walls

The last day to file taxes this year is April 18th*, which means there are roughly two weeks to go until the arrival of 2016’s tax day. If you’re looking for some last minute tax savings tips, there is still time to save yourself some money. You can lower your tax bill by opening an individual retirement account (IRA) if you do not already have one, or by ensuring your IRA is prepared for the tax year.

Here are five potential ways to make sure you and your IRA are ready for tax day:

1. Consider Opening an IRA:

One way to lower your tax bill is to open an IRA and to make a contribution to the account by April 18th. Not only does contributing to an IRA help to build your retirement savings, but it could also save you money as the annual contribution may apply as a tax deduction.

If you are considering opening an IRA by the tax filing deadline, read more here to find out what you need to know.

2. If you're an Employer, Considering Setting up a SEP Plan:

If you are a small business owner, you should consider setting up a Simplified Employee Pension (SEP) plan for your business and employees. SEP IRAs, which are known for being easy to establish, allow employers to make tax-deductible contributions to their employees' and their own retirement accounts. Employees do not pay taxes on contributions they make to their SEP-IRA.

The deadline for contributions this year is April 18 or until the date of any tax-filing extensions, if applicable.

You can read more about SEP IRAs here and here.

3. Make a Contribution to your IRA:

If you have a traditional IRA you can reduce your taxes by contributing to that retirement account if you have not already. The deadline for 2015 IRA contributions is April 18.

For tax year 2015, if you are under the age of 50, you are allowed to contribute up to $5,500 into an IRA. If you are 50 and over the IRS allows you to contribute up to $6,500.

Starting Jan. 1, 2016, you could also begin making a current year contribution. This means between January 1st and April 15th, you can make a combined IRA contribution of $11,000 if you’re under 50 and $13,000 if you are 50 and over, if you qualify.

Here's a helpful chart outlining contribution deadlines and limits.

4. Update the Valuation of the Assets in your IRA:

If you’re an IRA holder, now is the time to ensure that the valuation of the assets in your retirement account are up-to-date.

All assets held in IRAs must be valued on an annual basis for IRS Form 5498 reporting, even if the value of the asset has not changed in the past year. For traded securities like stocks and bonds, these valuations are relatively simple to obtain and can be easily accessed by the account owner, an IRA trustee or custodian and the account owner’s financial professional.

For self-directed IRA account owners who hold alternative assets, the process for determining fair market value can be a bit more challenging and take some time to figure out. While practices vary across custodians, at PENSCO we request updated valuation information on an annual basis for alternative investments, which include private equity, non-exchange traded assets and real estate.

To learn more, read this blog about annual valuations.

5. Update Beneficiary Information:

It's a good idea to use tax day as a yearly reminder to keep your IRA information up-to-date, including being sure you have designated a beneficiary for your account. Choosing a beneficiary allows you to control who receives your IRA assets after your death and it helps to ensure your assets will transition as smoothly as possible.

It's also a good time of year to ensure your custodian has your most current contact information, including address, email and phone number.

* Tax day is April 19, 2016, if you live in Maine or Massachusetts.

 

This Blog does not provide investment, tax, or legal advice nor does it evaluate, recommend or endorse any advisory firm or investment vehicle. Investments are not FDIC insured and are subject to risk, including the loss of principal.

Editor’s Note: This is an updated version of a post we originally published in April 2015. We welcome new comments and questions below.