7 Year-End Planning Tips for Your Money

The end of the year will be here before we know it, and we wanted to share our top year end planning tips to help you prepare. While the world is emerging from the worst part of the pandemic and many of the Covid-related financial and tax planning items from last year are no longer available, what is clear is our custodians are still impacted and already signaling delays in processing times. As such, they are recommending we submit account-related requests as soon as possible.  This year, one area of particular planning uncertainty are the ever-changing spending and revenue proposals discussed by our government. In our tips below, we reference some of these proposed changes but ultimately focus on financial and tax planning strategies that are useful at the close of any year because it is impossible to know what will actually pass into law at this point. More on that below.

1. Charitable giving

Still have charitable giving to do? Those contemplating making larger gifts have a couple of options. In 2021, if you itemize, you can make cash contributions of up to 100% of adjusted gross income (AGI) and claim the deduction. Those that don’t itemize are limited to $300 for cash contributions, $600 per couple. If you plan to give stock, the limit is 30% of AGI. If you have low basis stock or mutual funds but haven’t decided which charities you’d like to receive the gifts, consider setting up and funding a donor-advised fund. If 2021 was a high income year, you might want to ‘clump’ charitable contributions for multiple years of giving into this year. Talk to your advisor or tax preparer about the most effective way to give. Many of our deadlines to complete gifts from your portfolio are as early as December 6th, so if you plan to give in this manner, speak to your advisor soon.

2. Required Minimum Distributions (RMDs)

The one-year break from RMDs that clients enjoyed in 2020 is over. RMDs resumed in 2021 and must be completed by 12/31. Those of you accustomed to making charitable gifts from your IRAs, called Qualified Charitable Distributions (or QCDs), still have time. QCDs count towards satisfying your RMD requirement, lower your taxable income, and use pre-tax dollars to satisfy charitable intent. Again, custodians are warning of delays to processing times in December, so if you plan to give from your IRAs, speak to your advisor soon. 

3. Retirement contributions

Your 2021 IRA contributions can typically wait until April 15th of next year with one possible exception.

If you normally make a non-deductible IRA contribution with a backdoor Roth conversion or do Roth conversions of after-tax dollars in your retirement accounts (whether IRA or employer-sponsored retirement plan), consider completing these in this calendar year, as a previous tax proposal in Congress suggested the strategies would be eliminated as soon as 1/2022.

Also, if you contribute to an employer plan but aren’t on track to maximize your annual contribution amount (in 2021, $19,500 under 50 or $26,000 over 50), consider changing your contribution rate to maximize your contribution before year end.

4. Low income year? 

Consider a Roth conversion of a regular or traditional IRA. Your tax preparer or advisor can help you determine the impacts of a Roth conversion.

5. Self-employment or consultant income?

Consider opening an individual 401(k). These plans allow their owners to save up to $58,000 in 2021, not including the over-50 catch up of up to $6,500, assuming you have the eligible net earnings.

6. Medical / Benefits open enrollment

For many companies, it is open enrollment time. Talk to your advisor if you have questions about changing your level of benefits, particularly life, disability, long term care or health care insurance. Use up FSA benefits if they won’t roll over to next year. If you are on Medicare, open enrollment lasts until December 7th. You may want to review your options particularly if there have been major changes to prescriptions or medical care needs in the last year, to make sure you have the best cost, coverage and quality plan in place.

7. Proposed changes to tax / estate law and year end planning

It’s been the subject of endless discussions among planners, tax preparers, and attorneys how the current tax proposals will ultimately impact estate and tax law. When we first started drafting this article, many expected ordinary income and capital gains tax rates to increase, and the estate tax limit to decrease, among a number of other proposed items, per the House Ways and Means Bill (9/2). However, the most recent proposal, the House Democratic Bill (10/28), removed the above mentioned changes in favor of additional taxation on pass-through entity owners and taxpayers with income in excess of $10,000,000. Reacting to these proposals by accelerating income, deductions, capital gains or advanced estate tax reduction techniques this year should only be done after careful consideration and preferably in consultation with your advisor, tax preparer and in some cases, estate attorney, if trusts will be used to reduce potential future estate tax liability.

Questions? Please contact me or your advisor to discuss how you can prepare for year end.


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