Your 2018 tax return isn’t due until April, but if you want to minimize your tax bill or maximize your refund, now is the time to act.
The 2018 tax year ends on Dec. 31, making that the last day to take many types of actions that will affect your 2018 tax return. That includes taking action with tax-advantaged accounts such as retirement accounts.
For example, for individual tax filers with such an account, New Year’s Eve is the last day for the following:
1. Contributing to most workplace retirement accounts
Dec. 31 is the last day to contribute to most types of workplace retirement accounts.
For tax year 2018, the maximum amount of money that you can save in a 401(k) or most other workplace retirement accounts is:
- For workers age 49 or younger: $18,500
- For workers age 50 or older: $24,500
Note that these amounts will rise again for tax year 2019.
You have until Tax Day next spring to deposit savings in individual retirement accounts, or IRAs — including both Roth and traditional IRAs.
2. Taking RMDs
What the IRS calls “required minimum distributions,” or RMDs, generally apply this year to folks who turned or will turn 70½ in 2018 or earlier, and who have certain types of retirement accounts. Roth IRAs are an exception to RMDs.
If these mandatory withdrawals apply to you in tax year 2018 but you fail to take them in full, the IRS is likely to hit you with a tax penalty. The penalty amount is equal to 50 percent of the RMD that you failed to take. So, if you fail to take a $2,000 RMD, that’s a $1,000 penalty.
The deadline to take 2018 RMDs is generally:
- Dec. 31: For taxpayers who were 70½ or older going into 2018
- April 1: For taxpayers who turned 70½ during 2018
So, what’s the exact dollar amount you must withdraw from a retirement account when RMDs apply? It’s not a preset amount. The IRS has an RMD formula based primarily on the account balance and your age. It’s detailed in IRS Publication 590-B.
With employer-sponsored retirement accounts, however, the IRS says the plan sponsor or administration should calculate the RMD for you.
3. Spending money in FSAs
A health flexible spending account, or FSA, is a type of tax-advantaged account that employers can offer. It effectively enables participating workers to pay for eligible out-of-pocket medical expenses tax-free.
The hitch is that — unlike health savings accounts (HSAs) — FSAs are subject to a use-or-lose provision. In other words, workers generally must spend any money in their FSAs within their health insurance plan year or else forfeit the money.
So, if your plan year ends Dec. 31, that date is likely the deadline for you to spend any money that’s currently in your FSA. Employers can opt to offer one of two types of deadline extensions of sorts, but both are limited.
Have you prepared for these deadlines yet? Let us know by commenting below or over on our Facebook page.