Proactive investors know that the months before year-end are an ideal time to make any final tax-saving moves.
While keeping in mind your long-term investment goals, meet with your advisor and coordinate with your tax professional to examine nuances and changes that could impact your typical year-end planning.
Be thoughtful about required minimum distributions (RMDs) to ensure that you comply with the rules – especially as some of those rules have changed for 2020.
Investors that reach a certain age – 70½ for those born before July 1, 1949; 72 for those born after – are required to take RMDs from their IRAs each year. Normally, investors face a 50% tax penalty on amounts not withdrawn from their IRA to meet their RMD. However, the CARES Act has waived all RMD obligations for 2020, including for those who turned 70½ in 2019 and had until April 1, 2020 to take their first distribution.
You’ll want to speak with your financial advisor about what this means for your financial plan as well as your RMD obligations in 2021.
A few reminders for future distribution planning:
Evaluate whether you could benefit from tax-loss harvesting – selling a losing investment to offset gains. The first $3,000 (single or married filing jointly) offsets ordinary income. Excess losses also can be carried forward to future years. With your advisor, examine the following subtleties when aiming to decrease your tax bill:
Those at or near the next tax bracket should pay close attention to anything that might bump them up and plan to reduce taxable income before the end of the year.
From welcoming a new family member to moving to a new state, any number of life changes may have impacted your circumstances over the past year. Bring your financial advisor up to speed on major life changes and ask how they could affect your year-end planning.
Consider these to-dos as you prepare to make the most of year-end financial moves, and discuss with your financial advisor and tax professional:
* Withdrawals prior to age 59½ may also be subject to a 10% federal penalty tax. RMDs are generally subject to federal income tax and may be subject to state taxes. Consult your tax advisor to assess your situation. Raymond James advisors do not provide tax advice.
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