Year-End Planning
As year-end approaches, it is important to address any unresolved planning or tax issues for 2021 and ensure you are on track for 2022.
Year-End 2021 Planning Opportunity Checklist
Now is a good time to review year-end tax strategies and plan for the year ahead. It is also important to be ready for any last-minute tax law changes. Below are some items that should be completed or reviewed before year-end:
- Required Minimum Distributions – If you are over the age of 72 in 2021 or have an inherited IRA that you received before 2020 you are required to take your Required Minimum Distribution by year-end. For inherited IRA’s where the decedent died in 2020 and onward you are not required to take yearly distributions; however, the inherited IRA must have an account balance of zero by the end of year 10.
- Year-end Gifting – If you have not already done so, review your 2021 charitable and family gifting goals to ensure you are accomplishing your goals in a tax-efficient manner. There are several strategies that a WESCAP advisor can recommend depending on your situation.
- Roth IRA Conversions – If you expect to be in a low-income tax bracket this year, now may be a good time to make Roth IRA conversions. High-income taxpayers with little or no pre-tax IRA assets can also make non-deductible IRA contributions and later convert these funds to a Roth IRA (known as a backdoor Roth IRA conversion). With possible changes to tax rates coming, it might be time to take advantage of this strategy. It is also possible that backdoor Roth IRA conversions will be disallowed in the future.
Year-End 2021 Investment Strategies
- Harvest Losses – As we approach the year’s end, it can be productive to harvest losses in your portfolio to offset potential capital gains or to generate capital loss carry forwards.
- Avoid Large Capital Gains – Review mutual fund holdings and look to avoid significant year-end capital gains distributions by selling these funds prior to record date. Additionally, you should avoid purchasing some mutual funds toward the end of the year in taxable accounts, instead using ETFs to avoid capital gains distributions.
- Harvest Tax-Advantaged Capital Gains – If individuals have low taxable income, it may be prudent to harvest capital gains, as federal capital gains tax rates may be as low as 0%.
General Planning Opportunities
- Qualified Charitable Donations – This may not apply to all; however, due to the limitation of certain itemized deductions, charitably-inclined individuals may choose to accomplish their charitable goals through donations out of their IRA, utilizing a portion, or all, of their Required Minimum Distribution, up to $100,000.
- Charitable Gifting – Discuss a “bunching” strategy for gifting due to tax law changes to ensure you are maximizing the tax benefits for your charitable donations.
- Retirement Projections – WESCAP Group offers retirement income projections to ensure you remain on track to meet your long-term goals. We recommend this for individuals who are currently concerned about their long-term financial security or are expecting significant life or financial changes in the near future.
- Social Security Analysis – If you are approaching 62 and would like to discuss the optimal strategy to begin taking Social Security benefits, WESCAP can assist in making this decision.
- Education Funding – Set up and fund a 529 account for your child or other relations. You can contribute up to $15,000 per donor per child this year, or even super-fund an account with up to $75,000 in funding per recipient in your first year of funding
Please let us know if you have any questions about these items or if you would like to schedule a time to talk about your specific situation.
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