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Five Year-End Tax Planning Ideas


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November 08, 2020

Five Year-End Tax Planning Ideas

It is that time again. The holiday season is approaching. Before the rest of the year gets away from you, here are five ideas to consider that may give you an opportunity to reduce your taxes this year and in the future.

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Roth IRA Conversions
  • A good idea to consider in any year but especially in 2020 because income tax rates are at historic lows and your income may be lower due to Covid-19.
  • Tax rates may not stay this low - the current low rates will automatically end in 2025 unless Congress acts, and rates may rise sooner depending on the election results and due to the high U.S. budget deficit and growing national debt.
  • Funds converted to a Roth grow tax free, are not taxable when withdrawn, and have no lifetime Required Minimum Distributions (RMDs)
  • After the conversion, there will be less funds in traditional IRA's and that will lower future RMD's, which may be subject to higher tax rates.
  • Since a Roth conversion is taxable income and the tax must be paid for the year of the conversion, you may want to consider doing a series of smaller conversions over a few years to keep your tax rate in each year in as low a bracket as possible
  • Proceed with caution - carefully evaluate your tax situation before doing a Roth conversion because, unlike in the past, they cannot be reversed
IRA Distributions
  • In 2020, IRA distributions are not required because they were waived under the CARES act, but there are still reasons to consider taking them
  • The historically low tax rates and the possibility that you are in a lower than typical tax bracket if your income is lower this year may result in less tax owed in 2020 than in future years
  • This year only, the funds that would normally be taken as RMDs can be used for a Roth IRA conversion
  • If you plan to leave the assets in your IRA to your heirs, you may be able to reduce the taxes they will have to pay by using the proceeds from an IRA withdrawal to purchase a more tax-efficient asset (e.g., permanent cash value life insurance)

Qualified Charitable Deductions (QCDs)
  • QCDs are the most tax-efficient way to make charitable gifts because they reduce the balance of IRA accounts and are not included in your income
  • They can be used by the many people, regardless of whether you itemize deductions
  • Since they are not included in Adjusted Gross Income (AGI), tax deductions, tax credits, the taxation of Social Security benefits, and Medicare Part B and D premium surcharges (i.e., income-related monthly adjustment amounts) are not negatively impacted
  • But there are limitations - they can only be used by owners of IRA accounts (not from company plans) ages 70 ½ and up, must be done by direct transfer to a qualified charity (not to a donor-advised fund or private foundation), and the limit is $100,000 per IRA owner.
  • As an aside, if you do not qualify to do a QCD or if you take the standard deduction, the CARES act allows you to take a $300 charitable gift exclusion from income in 2020 (applies only for cash gifts)


  • The combined estate tax and lifetime gift tax exemption is at a historic high - in 2020, it is $11,580,000 per person
  • The amount in 2020 that a person may gift to anyone, without using their lifetime gift tax exclusion, is $15,000
  • There is an unlimited gift tax exclusion for direct payments for tuition and medical expenses.
  • But the estate and lifetime gift tax exemption amounts are scheduled to go down to $5,000,000 after 2025, and Congress may decide to decrease the amount occur sooner.
  • If you have a large estate that you think someday may be taxable, and you have the desire, you may want to consider making large gifts in 2020 to reduce the chance of your gifts or estate being taxable in the future.The IRS has stated they will not tax you retroactively.
  • Note this idea is only applicable for cash gifts since appreciated assets inherited after the owner dies receive a step-up in basis.

Updating Estate Plans

  • The SECURE Act eliminated the Stretch IRA for most non-spouse beneficiaries, meaning that an inherited IRA account must be depleted by the end of the 10th year after the original IRA owner dies.
  • The inability to "stretch" the IRA past 10 years may result in a higher tax liability for an IRA inheritor.
  • Trusts in an estate plan should be reviewed considering the new rules and possibly modified to work as intended.
  • Planning strategies should be revisited. For example, permanent cash value life insurance purchased may be a better asset to leave to a trust than Inherited IRAs - the cash value grows tax free and the proceeds may be tax free to the beneficiaries.

Please note you should always consult a qualified tax professional and attorney for advice on tax and estate planning matters. Along with your Private CFO®, they comprise the core team to help you plan and manage your personal finances.

If you would like to receive more information on making smart money moves for your future, be sure to contact us today!


Bring On The New Year

About the author

a man wearing a suit and tie smiling at the camera

Steve B. Goldstein

Vice President, Private CFO®

Steve Goldstein is Vice President, Private CFO® with oXYGen Financial, Inc., and is based in Alpharetta, Georgia. Steve holds the Certified Financial Planner, Chartered Retirement Planning CounselorSM and Retirement Income Certified Professional® designations.

He is a 20-year veteran in the financial services industry and specializes in helping Baby Boomers and older Gen X'ers plan and manage their finances as they transition and live in retirement.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice. Investor Disclosures:

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

Background and qualification information is available at FINRA's BrokerCheck website.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice.

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