In addition to the challenges brought on by the COVID-19 pandemic, 2020 also saw new and amended tax laws. Looking ahead, there is also the potential for tax increases—both federal and state—particularly on the wealthy. What should you be aware of as you begin to prepare for 2020 year-end tax planning?

Despite the challenging environment, you are still able to and should focus on traditional year-end income tax planning. While many issues are out of our control, our tax situation is not one of them. Here are several things to consider before the beginning of the new year.

1. Explore Roth conversions

If you have considered converting your Traditional IRA or 401(k) funds to a Roth IRA, 2020 may be a fitting year to do so. Although Roth conversions generate immediate taxation, federal tax rates are historically low and may not remain that way for too much longer. A conversion may also be beneficial if your 2020 taxable income is lower than usual because of a reduction in your work hours, or less business revenue due to the impact of COVID-19. Remember, all conversions must be completed by December 31st in order to qualify for 2020.

 2. Take advantage of Coronavirus-Related Distributions (CRD)

A coronavirus-related distribution is a distribution that is made from an eligible retirement plan to a qualified individual from January 1, 2020 – December 30, 2020, up to an aggregate limit of $100,000 from all plans and IRAs. CRDs are not subject to the 10% early distribution penalty, and there is the option to spread the taxable income over a three-year period.

3. Reconsider taking RMDs

This year you do not have to worry about taking Required Minimum Distributions (RMDs) by the end of the year, as the CARES Act waived 2020 RMDs. The waiver applies to RMDs from IRAs, company plans, inherited IRAs, and inherited Roth IRAs. Even though RMDs are waived for 2020, you may still want to consider taking distributions by December 31st in order to take advantage of lower tax brackets.

4. Consider Qualified Charitable Distributions

Qualified Charitable Distributions, or QCDs, are distributions from your IRA account directly to a qualifying charity. IRA owners 70½ years of age and older are eligible. The benefit of giving to charities from your IRA is that you do not pay income tax as you do on the funds that you receive from your IRA.

5. Consider charitable giving

Consider giving appreciated securities to charities and avoiding a potential taxable capital gain when sold. Avoiding the capital gains tax is one advantage, a tax deduction for those itemizing their deductions is another potential benefit, and, of course, the benefits reaped by the charity itself. If you plan to take the standard deduction in 2020, you can deduct cash gifts to charities up to $300, and—for 2020 only—the CARES Act allows individuals and families to deduct cash gifts up to 100% of their Adjusted Gross Income (AGI).

6. Maximize retirement savings and Health Savings Accounts

IRA and Roth IRA contributions have an April 15th deadline, but employer-sponsored retirement plans need to receive contributions by December 31st. Your contribution to an HSA also needs to be received by December 31, 2020.

7. Spend down your Flexible Spending Accounts

Flexible Savings Accounts (FSA) follow a “use it or lose it” rule. If you took the time to fund an FSA with pre-tax dollars, be sure to use it to its full advantage. Spend down all money that you would otherwise lose on January 1st.

8. Update your estate plan

The SECURE Act eliminated the stretch IRA for most non-spouse beneficiaries. This became effective beginning with any deaths in 2020. Most non-spouse beneficiaries will be subject to the new 10-year payout rule, meaning that the entire inherited IRA will have to be withdrawn by the end of the 10th year after the IRA-holder passes.

Working with Janney

Depending on your financial needs and personal preferences, you may opt to engage in a brokerage relationship, an advisory relationship or a combination of both. Each time you open an account, we will make recommendations on which type of relationship is in your best interest based on the information you provide when you complete or update your client profile.

When you engage in an advisory relationship, you will pay an asset-based fee which encompasses, among other things, a defined investment strategy, ongoing monitoring, and performance reporting. Your Financial Advisor will serve in a fiduciary capacity for your advisory accounts. For more information about Janney, please see Janney’s Relationship Summary (Form CRS) on www.janney.com/crs, which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.

By establishing a relationship with us, we can build a tailored financial plan and make recommendations about solutions that are aligned with your best interest and unique needs, goals, and preferences.

Contact us today to discuss how we can put a plan in place designed to help you reach your financial goals.

Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting, or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

About the author

Jack Cintorino

Vice President & Senior Financial Planner

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