NEW YORK (MainStreet) — Are you planning to make a contribution to your traditional or Roth IRA, Coverdell Education Savings Account, Section 529 College Savings Plan or Health Savings Account for 2013? Do it now!
Thanks to the miracle of tax-free compounding, by making your contribution as soon as possible in the beginning of each year you will have substantially more in the account by the time you are ready to retire, or when you need the money to pay for education or medical bills, than if you wait till the last minute.
If you make a Roth contribution for 2013 now and later find out you are not eligible for a Roth, or, for whatever reason, decide you would rather have the funds in a traditional IRA, you have until the due date of your 1040, including extensions — as late as Oct. 15, 2014 — to "recharacterize" the contribution.
When making a contribution to a tax-deferred account be sure to identify the year for which it is being made. Write “2013 contribution” clearly in the memo section of the check. If you enclose a payment voucher or coupon provided by the trustee, make sure the correct year is marked. Follow up by checking the next statement for the account to verify the contribution was applied to the right year. This will avoid potential problems with the IRS down the road.