However, procrastination can result in missed opportunities and, in some cases, penalties for missing deadlines.
To help you stay on top of year-end retirement matters, here is a list of related items that must be completed by year end.
Establishing a qualified planQualified plans that operate on a calendar-year basis must be established by Dec. 31 of the year for which contributions are to be deducted.
This includes completing the necessary documentation and notifying employees about the plan. Contributions may be made by the employer's tax-filing deadline, including extensions.
Convert Roth IRAsRoth IRA conversions for a year must be completed by Dec. 31 of that year.
A conversion may be accomplished in one of three ways:
1. Conversion within the same financial institution
This kind of conversion takes place if the non-Roth retirement account and Roth IRAs are maintained at the same financial institution.
2. Trustee-to-trustee transfer
Here the conversion occurs between two financial institutions. Generally, the Roth IRA owner will instruct the Roth IRA custodian to submit a request to the non-Roth IRA custodian or plan (qualified 403b or governmental 457b plan) trustee to deliver the assets to the Roth IRA.
To ensure proper tax reporting, the instructions should clearly indicate that the transaction must be processed as a Roth IRA conversion.
3. Distribution and rollover (60 days)
A Roth conversion may also be accomplished by means of a distribution and 60-day rollover. The Roth IRA owner may distribute the assets from the non-Roth retirement account and roll over the assets within 60 days to a Roth IRA.
Be sure to check the tax-reporting documents you receive for your Roth conversion. If you are unsure of the tax-reporting requirements, consult with your tax professional. You may also want to check the activity and description on your account statement prior to receiving these forms, so that you are able to resolve any discrepancy with your custodian/trustee before your tax forms are issued.
Make required minimum distributionsParticipants: If you reached age 70.5 prior to the applicable calendar year, you must distribute your required minimum distribution (RMD) by Dec. 31 of that year.
Beneficiaries: If you are a beneficiary who is required to distribute retirement assets using the life-expectancy method, you may need to distribute a minimum by Dec. 31.
Talk to your tax professional, employer and financial-service providers about these and other deadlines and financial matters that require action by the end of the year, as well as for next year. Taking care of these items will help ensure a smooth financial transition from year to year and give you an upper hand with your financial planning and tax preparation.
This article was reported by Denise Appleby for Investopedia.
Published Dec. 22, 2010