April 15th is only one-day away and as a result I wanted to remind everyone of three crucial deadlines that apply to your IRA on April 15th. In addition to the April 15th deadline, I also wanted to note which deadlines can be extended.
1. Contributions – Roth IRA and Traditional IRA contribution deadlines for 2014 are April 15, 2015. Even if you extend your personal return until October 15th, the Roth and Traditional IRA deadline is still April 15th. However, for SEP IRAs, the contribution deadline can be extended if you have filed an extension with the company tax return (or personal return if you file your business income on schedule c of your personal return). If you are thinking about making a contribution sometime soon and if you haven’t yet made any contributions for 2014, you might as well make the contribution now and have it count for 2014 numbers. This will leave you with 2015 contributions that can be made over the next 12 months should you decide to later make additional contributions. For more details on 2014 retirement plan contribution deadlines, please find my prior article on 2014 contribution deadlines here.
2. Back Door Roth IRA – The so called “back door” Roth IRA, must be established by April 15th for 2014 contributions. The “back door” Roth IRA is an excellent strategy that can be used by anyone to obtain Roth IRA dollars. Even if you max our your 401(k), you can still open up and fund a “back door” Roth IRA. Even if you have income in excess of the Roth IRA contribution limits, you can still open up and fund a back door Roth IRA. In short, the back-door Roth IRA occurs when you open and fund a non-deductible IRA. You can fund this each year for up to the IRA contribution limits (2014, $5,500, or $6,500 if over 50) . This goes into a non-deductible IRA, meaning no tax deduction, and then you simply convert it to a Roth IRA. Since the restrictions on who can convert to a Roth IRA where removed a few years ago it has allowed more and more high-income earners or those who max out their 401(k) to save additionally using a Roth IRA. Again, keep in mind, that if you are contributing for 2014 purposes that you must make that contribution by April 15th. For more details on the back-door Roth IRA please refer to a prior article I wrote on the subject here.
3. 990-T Tax Return Deadline – If your IRA incurred unrelated business income tax (UBIT) in 2014, then is must report and pay the tax by filing form 990-T with the IRS by April 15th. This return may be extended up to 3 months by filing an extension to the IRS for the IRA. Note that this extension must be filed for the IRA and that it is not part of your personal return. Most commonly, UBIT tax can occur for an IRA if the IRA’s investments are leveraged with debt. The most common example would be an IRA that purchased a rental property with IRA funds and with funds from a non-recourse mortgage loan. Since this investment is leveraged with non-IRA funds that are debt, the IRS taxes the profits they attribute to the debt and as a result the IRA is subject to UBIT. I have a comprehensive webinar on UBIT tax and the IRA’s 990-T tax return that can be viewed here. UBIT tax can also apply to an IRA that receives ordinary income. Keep in mind that passive income is always exempt in an IRA, unless it is leveraged with debt as explained above, and as a result, rental income, interest income, royalty income, dividend income, and capital gain income are exempt from UBIT tax.
Please contact the office if you need a consult on any of these items above. Also, the law firm is now preparing 990-T returns for client’s IRAs that incur UBIT tax. Contact is immediately if you need a 990-T return filed for 2014 for your IRA so that an extension may be obtained with the IRS. Once the extension is in place, we will being working on the return.
By: Mat Sorensen, Attorney and Author of The Self Directed IRA Handbook.