The count down to the end of 2021 is here! It is hard to believe the ball is going to drop again in just a few days! While some would say this year can't end soon enough, others will hate to see it go. As we narrow in on the last few days, I wanted to point out a few last-minute tax and retirement tips that you may wish to consider. (Please Note: Nothing in this blog should be construed as tax advice. Please consult with your own tax advisor regarding your specific tax situation)
1. Follow-up on IRA and 401k transactions like rollovers and ROTH conversions. For most of these types of transactions you should have already received confirmations that the funds had transferred once the transaction was complete. But unfortunately, that is not always the case. There have been instances where the wrong account number got credited or the transaction was coded in correctly for tax purposes. Working with a team that keeps you updated throughout the process is very important.
2. Follow-up on 60-Day Rollovers: 60-day rollovers are not as commonly used as they once were, but if utilized they must be done correctly. If your intent is to re-deposit withdrawn IRA funds back into another IRA, it must be done within the 60-day window or it will be considered a taxable withdrawal. If you are less than 59 ½ years old, it may also be subject to a 10% penalty.
3. Take your Required Minimum Distributions for 2021: This is one we see that some people may potentially get tripped up on this year. In 2020 the CARES ACT eliminated RMDs for the 2020 tax year. But they are back and enforceable for 2021. We have seen cases where RMD recipients that were having them come out of their IRAs automatically, shut them off for last year, but have failed to turn them back on for 2021. So, if required, make sure to take the required amount(s) out of your IRA and other tax-deferred account to avoid the potential of a 50% penalty!
4. Make sure Heirs take Required Minimum Distributions if needed: If you inherited an IRA or other tax-deferred account in 2020 or 2021, make sure you understand the rules regarding if and when you must take your RMD as an heir. With recent changes in the rules, there are now potentially two different sets of rules that may apply to you as an heir of this type of account.
5. Consider Qualified Charitable Distributions: If you are charitably inclined and over age 70 ½, QCDs can serve as very productive tool to support the charities that you care about and still be able to receive a potential tax benefit. Because of the higher standard deductions in place and the fact that most do not itemize their deductions any longer, it is much more difficult to receive a tax benefit from your charitable gifts. QCDs are great alternatives to consider if you fit the requirements to use these tools.
6. Still time to consider a ROTH Conversion: For those who had a change (reduction) in income this year and also have sizable tax-deferred qualified assets (IRAs, 401ks, etc), there is still time to execute this strategy. But prior to putting this into motion, you should contact your tax professional and make sure this makes sense for you. Also, by working with both your tax professional and a qualified financial planner, you may be able to incorporate this into a forward-looking tax-management and retirement income strategy.
This list just scratches the surface of some of the last-minute planning items that you may wish to consider. If you have additional questions on these or other planning concerns, please reach out to your tax advisor and financial professional. But do it soon, the clock is ticking!