An intelligent investor is an informed investor
From the Desk of Jeff DeLarme
Timely insights from Jeff DeLarme, CFP®
Wealth Briefing: October 2020
2020 YEAR-END PLANNING
Most of us can’t wait for 2020 to end, but before it does, consider these timely year-end planning opportunities.
1. REVIEW YOUR 2020 INCOME AND EXPLORE ROTH CONVERSIONS
Review your 2020 income. If your income is down and you’re in a lower tax bracket—either because of lower wages, lower investment income, or perhaps because you didn’t take a (taxable) required minimum distribution this year from an IRA due to the CARES Act—determine if converting part of your IRA to a Roth IRA makes sense.
2. IF YOU HAVE A FLEXIBLE SPENDING ACCOUNT (FSA) USE IT BEFORE 12/31
These accounts come with terrific benefits, but it’s use it or lose it! Usually, these accounts can be used for qualified expenses including medical, dental, vision, co-payments, and coinsurance. See IRS Publication 502 for a full list of what’s considered “qualified.”
3. ESTABLISH CORPORATE RETIREMENT PLANS
If you’re self-employed, consider setting up a retirement plan if you haven’t done so already.
4. MAXIMIZE CONTRIBUTIONS TO EMPLOYER SPONSORED RETIREMENT ACCOUNTS
Seek to maximize your employer sponsored retirement accounts (401k, 403b, 457, etc.) Unlike IRA account contributions which can be funded in 2021 for tax year 2020, contributions to employer plans need to be made before 12/31/2020.
5. HARVEST LOSSES IN TAXABLE ACCOUNTS
In taxable accounts (e.g., Trust, Individual, Joint, etc.) seek opportunities to harvest losses and/or offset gains. Remember that the IRS typically allows you to deduct just $3,000 of net losses in a year; the rest may be carried forward for future years.
6. FUND CHARITABLE CAUSES
Review your charitable giving plans. If you’re looking to make a contribution to a charity in the future, but want a tax deduction this year, consider if a donor advised fund is right for you. These funds allow you to make a contribution today for the current tax year, but allow you to defer the giving to a later date to the charity or charities of your choice. If you’re at the age where you are subject to required minimum distributions, even though they are waived for 2020 tax year, you may still consider a qualified charitable distribution as a way to reduce your future RMD amounts by donating IRA funds this year directly to a qualified charity, without taxation (up to $100,000).
7. CONSIDER ACCELERATING CAPITAL GAINS
Consider accelerating capital gains before 12/31 if you anticipate realizing a large gain in 2021. For example, say you plan to sell $100,000 of stock next year which comes with a capital gain. You may want to sell $50k this year and $50k in 2021. The idea is to spread out the gain over 2020 and 2021 rather than realizing it all in 2021.
8. REVIEW YOUR ESTATE PLAN AND BENEFICIARY DESIGNATIONS
Year-end is often a time for reflection and quality time with family. Consider your legacy, and if appropriate, seek the assistance of an estate attorney for guidance updating your wishes. Then, ensure your various accounts and insurance policies reflect your most current wishes.
9. REVIEW YOUR INSURANCE COVERAGE (LIFE, HEALTH, MEDICARE, HOME, AUTO, ETC.)
Insurance can be one of those expenses we set and forget, but taking a few moments to confirm that your coverage amounts are appropriate and cost effective can be time well spent. For those on Medicare, open enrollment is October 15 to December 7th. Check out medicare.gov for resources and tools.
10. CONSIDER REFINANCING YOUR MORTGAGE
As investors, we generally don’t celebrate low-interest rates, but one silver-lining is reduced borrowing costs. Mortgage rates have tumbled down to record lows, with many 30 year fixed mortgages being refinanced below 3%. Contact your lender to see if refinancing makes sense for your situation.
With the election upon us, a pandemic that won’t leave us, and a general lack of clarity about the future, I think more than ever we ought to focus on what we can control. Hopefully the list above helps you do just that, and in the process, perhaps we can set 2021 up to be a year of success.
Jeff DeLarme, CFP®
Registered Principal, Financial Advisor
The information in this writing has been prepared from sources believed to be reliable, but is not guaranteed by Raymond James Financial Services or DeLarme Wealth Management and is not a complete summary or statement of all available data necessary for making an investment decision. Any information provided is for informational purposes only and does not constitute a recommendation.
The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Any opinions are those of DeLarme Wealth Management, and is not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected individual investor’s results will vary. Raymond James nor DeLarme Wealth Management, Inc. provide tax or legal advice.
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