BY MARCUS IWIG, CFP, CPA, MAcc
Since we are close to flipping the calendar to 2021, this is a great time to sit down and reflect on the past financial year and anticipate what might be ahead. Here are a few actions to consider taking before year-end:
- If you haven’t maxed out your retirement plan contributions for 2020, you may want to use your year-end bonuses to do so. The maximum 401(k) contribution for 2020 is $19,500. If you are over the age of 50, you can contribute up to $26,000.
- Consider increasing next year’s salary deferral to your retirement plan by one percent or more. If you are anticipating a raise next year, it’s a great way to save a portion of it before you spend that extra cash.
- As a reminder, for those over the age of 72, required minimum distributions (RMDs) were suspended for 2020 in the CARES Act. While you can still pull income from your IRA if desired, there will be no minimum requirement before year-end.
- Also with the CARES Act, the 60% adjusted gross income (AGI) limit on cash charitable contributions has been suspended for 2020, allowing you to deduct up to 100% of your AGI with cash donations.
- If you have a child nearing college age, consider putting more into a 529 plan. Many states offer a state income tax deduction for contributions. For example, in the state of Iowa, contributions up to $3,439 per beneficiary by an individual (up to $6,878 per beneficiary by married taxpayers filing jointly) are deductible when computing your taxable income for the state of Iowa.
- With standard deductions now at $24,800 for married couples filing jointly ($12,400 for single), you may want to consider the following:
- Consider combining charitable gifts for a few years into a single year. By doing this, you could receive a higher itemized deduction this year and then utilize the standard deduction next year.
- Be aware that, if you use the standard deduction, you won’t be able to deduct mortgage interest, which can be yet another benefit to eliminating debt.
- Review your after-tax portfolio for capital-loss harvesting opportunities and rebalancing. No one likes it when the market goes down, but market losses may create a potential opportunity to harvest some losses and rebalance your portfolio.
- Take time to think about the year ahead before electing your benefits for the next year.
- If you have a high deductible healthcare plan, consider maximizing a Health Savings Account (HSA). The 2020 contribution limit for an individual is $3,550 and $7,100 for a family. HSA holders 55 and older get to save an extra $1,000.
- Have you met your out-of-pocket maximum in the current year? If you have, consider any medical care you’ve been putting off before the end of the year.
- Are you aware of any certainties when it comes to your health care in 2021? If you know you are having a baby, a surgery, or some other medical procedure in 2021, have the provider give you an estimate of cost so that you can evaluate your health plan options.
- If you are a recipient of stock options or restricted stock, review the number of units vested to you in 2020 and will be vested to you in 2021. Make sure that your tax preparer is aware of those so that you can plan for them in advance. There may be opportunities to offset that extra income with increased retirement plan contributions or deferred compensation contributions.
- Set a fun goal for 2021! Saving money is great, but plan to have a little fun along the way. Reward yourself for hitting some increased savings goals.
Content should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation. PLEASE SEE IMPORTANT DISCLOSURE INFORMATION at www.fostergrp.com/disclosures. A copy of our written disclosure Brochure as set forth on Part 2A of Form ADV is available at www.adviserinfo.sec.gov. ©2020 Foster Group, Inc. All Rights Reserved.
| Marcus Iwig, CFP, CPA, MAcc