It’s been a crazy year and 2020 is quickly coming to an end. Even though we only have a few weeks left, there are still some important actions you can take in preparing your 2020 tax return filing.
1. Take your Required Minimum Distribution (RMD):
If you have reached 70½ years old (72 years old if your 70th birthday is July 1, 2019 or later), the IRS requires you to start taking withdrawals from your retirement accounts, with the RMD calculated based on all established retirement accounts. Without this distribution, you risk being taxed at a 50% penalty rate!
Once RMDs are withdrawn, they will also impact your tax bracket based on your total earnings for the year. It is necessary to pay attention to how much is withdrawn and what type of tax implications this could have.
PLEASE NOTE: RMDs for 2020 have been suspended with the CARES act, but will be required again in 2021.
2. Convert IRA assets into a Roth IRA:
The conversion of an IRA to a Roth IRA needs to be done before year-end. Contributions to an IRA, whether Traditional IRA or Roth, can wait until April of the next year. Think about converting some of your assets to a Roth IRA, as it will help give you a tax-free retirement. Whatever amount you choose to convert may be treated as a taxable distribution from your traditional IRA for 2020.
3. Make 529 Plan Contributions:
This is a great time of year to fund a 529 Plan for your children, grandchildren, nieces and nephews. College is expensive, and what better way to help a loved one out than to give them the gift of helping with their education. Contributions can be made in any amount, however, are restricted to the $15,000 limit for gift tax filing.
This is another way that you can improve your tax situation for 2020. Contributions made prior to December 31, 2019 up to $5,000 for a single filer and $10,000 for a married couple filing jointly into a NYS 529 Plan can be claimed on your NYS 2020 tax return and will count as a NYS tax deduction.
4. Give a Gift:
During 2020 you can gift up to $15,000 to as many people as you’d like without having to file a gift tax return for the year, which doubles to $30,000 if you are married.
These gifts can take many forms, such as through cash or check, but can also be through an investment in securities.
5. Max out your Retirement Savings Contribution:
Maxing out your employer-sponsored retirement savings contribution can be a great way to reduce your taxes! The more you contribute to your employer-sponsored retirement account, the lower your taxable income will be. This can help lower your tax bill come April! (And of course, help you work towards a great retirement life!)
For 2020 and 2021, the maximum allowable contribution into a retirement account is $19,500, with an additional catch-up contribution of $6,500 allowed if you are over the age of 50.
IRAs are another way to put money away for retirement, with a $6,000 contribution limit in 2020 and in 2021. Both years, a catch-up contribution is also allowed of $1,000 of you are over 50 years-old.
Call our office now to discuss how this will help you either with your finances or your taxes.