Denise Appleby for MarketWatch.com writes: If you’re considering taking advantage of the tax benefits available for individual retirement accounts, or IRAs, you have only a few days left to do so for the 2012 tax year.
While you may feel the need to hurry, haste will make waste if you don't take the time needed to ensure that your IRA contribution complies with the tax code and your financial institution's operational requirements.
The following are some general guidelines.
Note the year on your contribution
If you send in your 2012 IRA contribution now, be sure to notify your IRA custodian that you want it to be allocated for 2012. Some financial institutions provide special forms that can be used for this purpose, and some will accept a notation on a check such as in the memo field.
If your financial institution provides a form for contributions, it is still recommended that you make your notation on your check, just in case it gets separated from the form before being deposited.
If you don't indicate that the contribution is intended for 2012, the tax code allows your financial institution to treat it as a contribution for 2013.
Meet the deadline
Tax filing extensions don't apply to IRA contributions. As such, your contribution for 2012 must be made by April 15, 2013. If you deliver your contribution in person, be sure to ask for a receipt from your financial institution. If they misplace or lose your contribution, documented proof that they did in fact receive it by the deadline should be sufficient for accepting a replacement check after the deadline.
If you send in your contribution by mail, your envelope must be postmarked no later than April 15.
Use an IRS approved delivery service
If you are sending in your IRA contribution by mail, your financial institution will treat it as a 2012 contribution only if it is postmarked by April 15, 2013. For this purpose, the IRS designates a short list of delivery service that meets their requirement for “timely” delivery.
These are:
- DHL Express (DHL): DHL Same Day Service.
- Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2 Day, FedEx International Priority, and FedEx International First.
- United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide Express Plus, and UPS Worldwide Express.
Check with the private delivery service about how to get written proof of the mailing date for your IRA contribution.
Stay within your limit
Your IRA contributions must not exceed the limit in effect for the year.
For 2012, the limit is the lesser of 100% of your eligible compensation or $5,000. If you were at least age 50 on Dec. 31, 2012, your dollar limit is increased to $6,000. This limit is a “per individual limit” and not a “per IRA” limit. Therefore, regardless of the number of Traditional and/or Roth IRAs you own and fund, your total contribution for 2012 cannot exceed $5,000 or $6,000 if you are at least age 50 by Dec. 31, 2012.
Caution: Don't overlook the compensation requirement. If your eligible compensation for 2012 is only $4,000, your IRA contribution for 2012 is limited to $4,000. Eligible compensation includes income such as W-2 wages, income from self-employment and nontaxable combat pay. It doesn't include earnings from property, interest and dividend income, and pension income. Ask your tax or financial professional for a complete list of eligible and ineligible compensation.
Overlooking the compensation requirement and contributing more than is allowed will result in an excess contribution to your IRA. Excess contributions can be costly as they will result in penalties being owed to the IRS and can result in double taxation if not corrected in a timely manner.
Note your IRA number on your contribution
You must include your account number on your contribution instrument so that your financial institution will deposit it to the right account. This is especially important if you have multiple accounts with the same financial institution. Failing to provide that information could result in your contribution being deposited to your Roth IRA instead of your traditional IRA for instance, or to your regular checking account instead of to your IRA.
Inform your tax preparer
Inform your tax preparer about your IRA contribution, so that any required tax reporting can be done for the amount on your tax return.
Your tax preparer may need to claim a deductionand/or the savers credit for contributions made to your traditional IRA, if you meet the eligibility requirements. If the contribution is made to your traditional IRA and you won't be claiming a tax deduction for the amount, your tax preparer must file IRS Form 8606 , Nondeductible IRAs . Filing Form 8606 helps to keep track of the nondeductible amount, so as to help ensure that amount isn't taxed when withdrawn from your traditional IRA.
Your IRA Contribution Information statement (Your Form 5498) for 2012 isn't required to be issued by your financial institution until May 31, or even later if they file for an extension. However, a copy of your regular account statement or documentation should be sufficient for purposes of preparing your tax return.
There are no stupid IRA questions
Mistakes made with your IRA contributions can be costly. If you are unsure of the rules that apply or need more information, talk to a tax or financial professional who understands the rules that apply to IRAs. Mistakes can be corrected with little to no cost if corrected timely.
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