15 Deadlines Retirees Can't Afford to Miss in 2016
Missing a deadline could be costly.
After the New Year festivities are over, it's time to turn to your 2016 calendar. In the year ahead, numerous deadlines loom -- from tax payments to health-plan enrollment. Miss one, and it can cost you.
We've made life a little easier by noting many of the most important dates. You can print out these pages and post them on your fridge. Or add these dates to an online calendar and set reminders. "Time gets away from people, and they lose track of key dates," says Joseph Heider, president of Cirrus Wealth Management, in Cleveland. "Plug the dates in now."
The New Year is a good time to get your financial house in order. "Right after January 1, sit down and review your assets and financial plan," says Bill Van Sant, certified financial planner at Girard Partners, in King of Prussia, Pa. Those approaching retirement should review their financial plan at least once a year, while retirees should consider conducting quarterly reviews, Van Sant says.
If you're still working, consider boosting contributions to your employer-based retirement plan. You can stash up to $18,000 in a 401(k) in 2016, and workers 50 and older can put away an extra $6,000.
Over the next few weeks, start gathering tax forms and supporting documents for your 2015 tax returns.
For Social Security beneficiaries, a new budget law nixed the popular "restricted application" strategy for those who are 61 and younger after January 1. But a cohort of baby boomers got an exception. If you are 62 or older on January 1, 2016, you can still use this strategy, which lets you apply just for spousal benefits at full retirement age, while letting your own benefit grow 8% a year until age 70 (see Big Changes Ahead for Claiming Social Security).
If you file estimated taxes, you must file the final payment for the 2015 tax year. However, the IRS gives you a grace period if you file your tax return by February 1 -- just pay the remaining balance when you file by that date.
For those who want to purchase individual health insurance on the federal and state health exchanges, January 15 is the deadline to enroll in or change health plans for new coverage to start in February.
This is the deadline to enroll in individual health insurance or change plans on the exchanges and have coverage start in March 2016. (Some people may qualify for a special enrollment period past this deadline date -- check HealthCare.gov.) If you don't have health insurance for 2016, you are subject to a penalty of $695 per adult or 2.5% of household income, whichever is higher.
If your company offered a grace period for your flexible spending account, spend your remaining FSA money by March 15 on eligible expenses. Miss this deadline, and the cash balance in the account goes to your employer.
For anyone who turned age 70 1/2 in 2015, April 1 is the deadline for taking your first required minimum distributions from your retirement accounts, such as your 401(k) and your IRA. Even if you waited this long to take your first RMD, you will still need to take your second RMD by December 31, 2016. If you're still working, you won't have to take an RMD from your current employer retirement plan unless you own at least 5% of the company.
The penalty for missing an RMD is 50% of the amount that was not withdrawn. If you miss a required distribution, take the money out as soon as you realize your error, says William Stunkel, a certified public accountant in Pittsburgh. To ask the IRS to waive the penalty, file Form 5329 and attach a letter of explanation. "The IRS will usually allow a reason such as death of an immediate family member, hospitalization or natural disaster to be a basis for waiving a penalty," Stunkel says.
The federal tax filing deadline in 2016 is delayed to April 18, because of the celebration of Emancipation Day on April 15 in Washington, D.C. April 18 will also be the last day to make 2015 contributions to an IRA. For both 2015 and 2016, the maximum IRA contribution is $5,500, plus $1,000 for those age 50 and older. You can file for a six-month extension to send in your 2015 return, but you will need to pay your expected tax bill by April 18.
And don't forget about state taxes. "Sometimes state due dates don't follow the same dates as federal dates," says Stunkel. If you've just retired to a new state, check the deadlines with the state tax department.
April 18 is also the due date for the first federal estimated tax payment for the 2016 tax year. When you "move from employed status to retirement, evaluate your tax withholding strategy," says James Nichols, head of retirement income at Voya Financial. Another option: Have taxes withheld from your retirement income, such as IRA distributions or Social Security checks.
If you do neither, you will be subject to penalties and interest for not paying taxes on time. See IRS Publication 505 and IRS Form 1040-ES to learn more about estimated tax payments.
The new budget law ends the advantages of the popular "file and suspend" Social Security strategy on this date. If you want to use this strategy and are at full retirement age of 66 or older as of May 1, you must file for your benefit and suspend it by April 30, 2016. At that point, your spouse can collect spousal benefits based on your earnings record while you delay your benefit to earn 8% a year in delayed retirement credits.
The second estimated tax payment is due.
Retirees abroad who had more than $10,000 in foreign bank accounts in 2015 must file FinCEN Form 114 with the Treasury Department. The government imposes large penalties for failing to file. Starting in 2017, this deadline moves to April 15.
Those paying estimated tax must send in their third payment for 2016. The fourth estimated tax payment is due in January 2017.
Some beneficiaries who inherited individual and Roth IRAs in 2015 should pay special heed. If a nonindividual, such as a charity, has also been named as a beneficiary, cash out the nonindividual's portion by this date. Otherwise, the IRA may have to be emptied within five years after the original owner's death.
Open enrollment begins for private Medicare Part D prescription-drug plans and Advantage plans, and it ends December 7. Plans can change their benefits and drug formularies from year to year, so shop around.
Your 2015 tax return is due if you filed for a six-month extension. Because the usual deadline of October 15 falls on a Saturday, you get a couple extra days to finish your return.
It's also the deadline to "recharacterize" a Roth conversion from 2015. When you recharacterize, the money goes back into a traditional IRA and you will no longer owe ordinary income tax on the amount you converted. Reversing a conversion could be a good idea if, say, your 2015 Roth conversion dropped in value; you would avoid paying tax on money that's no longer in the account. You could also recharacterize if you can no longer afford the conversion tax bill.
Keep your eye out for the federal and state health care exchanges to open for enrollment for 2017 health coverage. If the dates follow the same time frame as last time, you can buy or change health insurance coverage for 2017 on the exchanges from November 1 to the end of the following January.
This is the deadline for several tax moves. Starting with the second required minimum distribution, seniors 70 1/2 and older must take their annual RMDs from traditional IRAs and employer retirement accounts. Nonspouse beneficiaries of traditional and Roth IRAs must also take RMDs by year-end, starting the year after the original owner's death.
If multiple beneficiaries have been named to an inherited IRA, be sure to split the account by December 31 of the year after the owner's death so each beneficiary can use his or her own life expectancy for required withdrawals. Otherwise, the withdrawals will be based on the oldest beneficiary's life expectancy.
To get a 2016 charitable tax deduction, contribute by this date. Last-minute donations can be made on a credit card or to a donor-advised fund.