This past year has reordered our lives in numerous ways as we have all dealt with a seemingly endless barrage of uncertainty and disruption. One thing we know for sure is that this year will end….and soon! As we bid a not so fond farewell to 2020 there are several financial considerations for us all to keep in mind. As always, we recommend working with your RGT advisor if any of these items trigger a question.
- Is your estate plan updated and in effect with trusts funded, beneficiary designations up-to-date, and essential documents saved with those whom you’ve asked to help administer your estate?
- Have you taken advantage of and completed any annual exclusion gifting? You may make a gift of up to $15,000 ($30,000 if it is a joint gift from husband and wife) to as many people as you’d like without using any of your lifetime exemption or paying gift tax.
- Note that this year the CARES Act allows individuals to deduct up to 100% of their Adjusted Gross Income (AGI) for cash gifts to public charities (i.e. not to a Donor Advised Fund or Foundation).
- Consider contributing highly appreciated securities to your Donor Advised Fund. This type of gifting can be deducted up to 30% of AGI in the current year (or carried forward if greater than 30%).
- If possible, you should max out your annual retirement contribution and consider opportunities for Roth conversion.
- The CARES Act waived the required minimum distribution during 2020 for IRAs and retirement plans. This includes beneficiaries with inherited accounts.
Tax Loss (or Gain) Harvesting
- The exercise of selling assets trading below purchase cost to offset realized taxable gains can be an effective method to defer taxes on capital gains. Depending on potential tax law changes, it may be beneficial to realize gains in the current year.
- Each potential trade is unique and should be considered in light of (1) potential tax law changes, (2) a client’s individual tax situation related to capital gains rates and current realized gains/losses, and (3) potential forgone returns due to not owning the asset for 30 days because of the IRS “wash-sale” rule. [Note: This rule prevents investors from using realized losses if they immediately re-purchase the same or substantially identical, security within 30 days. The 30-day waiting period can lead to “forgone” performance, which can quickly wipe out the initial tax benefits of the trade. This opportunity cost is often overlooked but is typically the deciding factor in whether a harvesting trade is ultimately successful for an investor.]
Again, we welcome your questions and we are committed to helping our clients make smart financial decisions whether in person or on Zoom! Stay safe and well.