When year-end approaches, most of us are busy taking care of last-minute items for the year and preparing for the upcoming year. Remember, procrastination can result in missed opportunities and, in some cases, penalties for missing deadlines. To help you stay on top of matters, here is a list of retirement items that must be completed by year-end, and a reminder of the retirement plan limits that apply.

Establishing a Qualified Plan
Qualified plans that operate on a calendar year basis must be established by Dec 31 of the year for which contributions are to take place. 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. See IRS Publication 560. (For more information about establishing this type of plane, see the Qualified Plan Tutorial.)

Roth IRA conversions
Roth IRA conversions for a year must be completed by Dec 31 of that year. (To determine if you are eligible for a Roth IRA conversion, see this section in the Roth IRA Tutorial.)

A Roth conversion may be accomplished in one of three ways:

• Conversion within the same custodian - This kind of conversion takes place if the Traditional and Roth IRAs are maintained at the same custodian. The custodian may either require the IRA owner to move the assets from the Traditional IRA to the Roth IRA, or may change the Traditional IRA to a Roth IRA to accomplish the conversion.
• Trustee-to-trustee transfer - Here the conversion occurs between two IRA custodians. The first is the custodian of the Traditional and the second (successor) is the custodian of the Roth IRA. Generally, the IRA owner will instruct the successor custodian to submit a request to the first custodian to deliver the assets. To ensure proper tax reporting, the instructions should clearly indicate that the transaction must be processed as a Roth IRA conversion. The first custodian will issue the Form 1099-R and the second custodian will issue the Form 5498.
• Distribution and rollover (60-days) - A Roth conversion may also be accomplished by means of a distribution and 60-day rollover. The IRA owner may distribute the assets from the Traditional IRA and rollover the assets within 60-days to a Roth IRA.

The Roth conversion applies to the year in which the assets were distributed from the Traditional IRA. For instance, assume you convert your Roth IRA by means of a 60-day rollover and you distribute the assets in December 2009 and rollover the amount to your Roth IRA in February 2010. The conversion is applicable to 2009 and must be reported on your income tax return for 2009. The tax-reporting forms will be issued for the year the applicable transaction occurs; therefore, your custodian will mail your year-2009 Form 1099-R in January 2010, and your 2009 Form 5498 will be mailed in May 2010.

Be sure to check the tax-reporting documents you receive from your IRA custodian/trustee. If you are under age 59.5, you must report the conversion as a distribution that is not subject to the early-distribution penalty with a code 2 in Box 7 of Form 1099-R. If you are at least 59.5 when the conversion occurs, you must report the distribution with a code 7 in Box 7. For the Form 5498, the conversion amount should be reported in Box 3. 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 IRA custodian/trustee before your tax forms are issued.

Required Minimum Distributions

Participants If you reached age 70.5 prior to the applicable tax year, you must distribute your required minimum distribution (RMD) Dec 31 of that year. If you are an IRA owner who is subject to this requirement, be sure to contact your IRA custodian/trustee as soon as possible: in order to guarantee that funds will be distributed by Dec 31, some custodians/trustees require IRA owners to request their RMDs by a deadline prior to Dec 31. To determine if an RMD amount should be distributed this year, qualified plan participants must consult with their employer or plan administrator as some plans allow participants to defer starting RMDs until after retirement, even if this occurs after age 70.5. 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. For details, see Inherited Retirement Plan Assets - Part 1 and Part 2. Last Chance to Change from Five-Year Rule to Life-Expectancy Method The RMD regulations provide that if the retirement account owner died before the required beginning date, the beneficiary may distribute the assets over his or her life expectancy or by the end of the fifth year following the death of the retirement account owner (the five-year rule). Many beneficiaries have been subject to the five-year rule, either through their own election or through requirements by the plan (provider). Recognizing that this rule may not offer the best financial planning advantages, the IRS granted a reprieve to certain individuals. This reprieve allows an individual to switch from the five-year rule to the life-expectancy rule, providing the individual calculates the RMD amounts for the past years using the life expectancy method and distributes these amounts by the end of the five-year period or December 31, 2003 - whichever came first. This means that this option is no longer be available after Dec 31, 2003. Beneficiaries who want to make the switch should contact their IRA custodian/trustee or plan administrator to determine if there are any formal notification requirements for the change and to request assistance with the calculations.

New Retirement Plan Limits for 2004
The IRS has announced cost of living adjustments (COLA) for tax year 2004. The table below includes the limits adjusted for COLA, as well as those that are increased under the provisions of the Economic Growth and Tax Relief Act of 2001 (EGTRRA).


Be aware of these limits when making plans for the 2004 retirement year, as they may affect items such as salary deferral elections and amounts representing employer contributions.

Conclusion
Talk to your tax professional, employer, and financial service providers about these and other deadlines and financial matters that require action 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 preparation.

by Denise Appleby (Contact Author | Biography)

Denise Appleby is a retirement plans consultant, freelance writer and editor. Before starting her own business, Appleby Retirement Consulting, Denise worked for Pershing LLC for almost 10 years. While at Pershing, Denise rose to the rank of vice president, and held many positions including retirement plans product manager, manager of the retirement plans technical assistance group and retirement plans training manager. Appleby Retirement Consulting provides technical assistance to financial institutions and financial professionals; content for newsletters, websites and magazines; and technical editing services for books and other retirement plans material. Denise holds several retirement professional designations.