Closing Time for 2020
Every new beginning comes from some other beginning's end. Yeah, 2020 was challenging but plenty of opportunities were available and some still to consider before year end.
Reverse required minimum distributions (RMDs). Congress suspended RMD rules this year. Per IRS, individuals who took RMDs in 2020, including those who turned 70 ½ during 2019, have the option of returning the distribution to their account or other qualified plan. RMDs taken in 2020 are considered eligible for rollover.
For 2021, RMDs return and recall the SECURE Act changed the age requirement to 72. That said, be aware of bipartisan supported SECURE Act 2.0 which has proposals increasing the age requirement (age 75), limiting distributions based on account balance and other nuances.
Lastly, if you inherited an IRA from a non-spouse (i.e. parent, grandparent, sibling) you need to be proactive in taking your RMD and impact your tax planning.
Roth Conversion. Have sizable Traditional IRAs? Think taxes are going up? With a strong handle on your sources of income and capital gains for 2020, consider modeling tax liability of different amounts converted to a Roth IRA. Remember, unlike a few years ago, you can no longer undo a conversion via “recharacterization”, so what’s done is done.
Rebalance portfolios and lower taxable income. Sell investments at a loss earlier in the year? Realized gains? Sitting on sizable unrealized gains? Portfolios need review and rebalancing. Depending on activity in taxable accounts, you may be able to offset taxes owed, reduce unrealized gains as well as write off up to $3,000 against ordinary income.
Last minute 401(k), 403(b) and 457 plan contributions. Ideally, you’d be at $19,500 maximum contributions limits ($25,000 if 50 or older). If not, many plans allow online changes up to 50% of wages. Have a year-end bonus? Can forgo a paycheck or two? Act quickly as plans require a pay cycle for updates to take effect.
Use your Flex Spending Accounts (FSA). Unlike Health Savings Accounts (HSA) that rollover each year to accumulate, FSA is a “use it or lose it” benefit program. Most allow just $500 carried the following year, others $0. If you have qualified medical expenses or bills, pay with your FSA funds before year end. If not, your New Year’s Eve may be spent panic shopping in Walgreens.
Financial resolutions look the same? No one wants to see 2020 repeated, same with financial resolutions. If they look familiar, maybe it is time for a change with professional support and an accountability partner.
May you and those closest to you enjoy a happy and safe holiday season.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Glenn Brown is a Holliston resident and owner of PlanDynamic, LLC, www.PlanDynamic.com. Glenn is a fee-only Certified Financial Planner™ helping motivated people take control of their planning and investing, so they can balance kids, aging parents and financial independence.
This article appeared in the December editions of Holliston Local Town Pages, Ashland Local Town Pages and Natick Local Town Pages.
Please call me at (508) 834-7733 or directly schedule a meeting to learn more about considerations for planning and investing so you can balance kids, aging parents and your financial independence.
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