You can still save on your 2020 taxes. Here’s how.

Three options give you the chance to reduce the money you owe or increase your refund, and save on fees—even after the clock has turned past December 31. Use this year’s filing extension—now May 17—to trim however you can.

1. Reduce your tax bill and increase your refund: Contribute to an IRA.

In addition to building retirement savings, contributing to an IRA may help lower your taxable income, which in turn can boost any refund that’s coming your way. That includes any new IRAs that you start—even those you open after January 1 and contribute to until the new filing date of May 17. If you have a retirement plan through work, IRS restrictions affect deductions for traditional IRA contributions.1 Check out the IRS website to see if you may qualify for a full or partial deduction.

IRAs: Traditional vs. Roth

A quick overview of income tax implications for each.

IRA typeDeductible on tax return?Yearly contribution limits2Income restrictions for contributions Contribution date for tax purposes
Traditional IRA
Deductible on tax return?
Yes, but depends on income and if you or spouse have access to employer plan.
Yearly contribution limits2
Up to $6,000

Age 50 or over: an extra $1,000 catch-up contribution
Income restrictions for contributions
Income limits on tax-deductible contributions
Contribution date for tax purposes
May 17, 2021
Roth IRA
Deductible on tax return?
No, the tax treatment is different, you won’t be able to deduct the contribution.
Yearly contribution limits2
Up to $6,000

Age 50 or over: an extra $1,000 catch-up contribution
Income restrictions for contributions
$140,000 for individual filers, $208,000 for married filing jointly
Contribution date for tax purposes
N/A

2. Avoid tax penalties: Take a Required Minimum Distribution (RMD).

When you reach age 72, you’re required by law to take a certain amount—an RMD—from retirement accounts each year. If you don’t, you’ll pay a penalty (in some cases as much as 50% of the total you were supposed to take out). Or, if you don’t need the income, you can make a qualified charitable distribution (QCD) from certain IRAs to a qualified 501(c)(3) charity (and it’ll be tax free). Work with your financial professional to make sure you follow the rules for a QCD.

Here’s the tricky thing: Even before the COVID pandemic, the RMD amount required to be distributed changed each year based on your age and account balance. A 2020 waiver, for example, made an RMD optional, but that expires for 2021, so be prepared to take yours this year.

Graphic of a thumbtack. Need help calculating your RMD? Find a calculator at investor.gov.

3. Avoid tax penalties: File for an extension, if needed.

The COVID pandemic affected nearly every aspect of life in 2020—including the tax filing deadline. In 2020 the April 15 due date was extended to July 15; in 2021 it’s been moved to May 17. To avoid penalties and interest, you have two options.

  • File by May 17. If you’re mailing your tax return, make sure the envelope is addressed, postmarked, and in the mailbox by May 17. Or, submit electronically by that same date.
  • File for an extension. That will get you some breathing room—until October 15, 2021. To do so, use Form 4868 by July 15. But be aware: An extension simply delays when you submit your return. If you owe taxes, you still pay by July 15, or you could get hit with penalties. And if you miss the original May 17 file date and don’t file for an extension, you may face a late-filing monthly penalty of 4.5% per month of the tax owed and a late-penalty of 0.5% per month of the tax due.

The IRS has more details on getting an extension.

Next steps

The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment or tax advice. You should consult with appropriate counsel, financial professional or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.

Be sure to also confirm your State filing and payment deadlines as they may not align with the extended federal filing deadline.

Insurance products and plan administrative services provided through Principal Life Insurance Co. Securities offered through Principal Securities, Inc., 800-547-7754, member SIPC and/or independent broker-dealers. Principal Life, and Principal Securities are members of the Principal Financial Group®, Des Moines, Iowa 50392.