/End-of-Year Tax and Financial Planning Tips for Investors

End-of-Year Tax and Financial Planning Tips for Investors

As this turbulent year is finally coming to a close most people do not even want to begin thinking of tax season. However, these tips can help set you up for tax season and even boost your retirement.

1. RMDs aren’t required in 2020, but it’s not too early to plan for 2021

Thanks to the CARES Act passed in March 2020, required minimum distributions (RMDs) are not required this year. However, it’s never too early to come up with a plan to take your 2021 RMDs. You should ask the brokerage or bank holding your assets to help you estimate your 2021 RMD values based on your year-end account values.

2. If you can, boost your 2020 retirement contributions

If you have a retirement plan account—such as a 401(k), 403(b) or Thrift Savings Plan—you can contribute up to $19,500 from your paycheck in 2020 with an additional $6,500 in catch-up contributions if you’re 50 or older. Your employer may even match your contributions to some degree!

3. Consider tax-loss harvesting to offset capital gains

If you sold securities (stocks, bonds or other investments) at a gain in a taxable account this year, you will likely owe capital gains taxes unless you also incurred a similar amount in losses. Strategically selling securities at a loss to offset your capital gains is called tax-loss harvesting. It can be a huge help if you can execute it without drastically altering your investment strategy. Should your realized losses exceed your gains, you can carry those losses into future years and use them to offset future realized gains.

4. Donate to charities—and deduct

If you plan to make charitable donations using taxable investments, you may be able to transfer those investments in kind rather than selling them and donating the proceeds. Transferring investments in kind can help you avoid capital gains taxes you may incur from selling them, and you can still claim the charitable deduction on your taxes if you itemize. It’s important to be mindful of higher standard deductions after the 2017 Tax Cut and Jobs Act, but itemizing and donating to charity could still help. Please talk to your tax advisor about your personal circumstances.

Keep reading at Real Clear Markets to find out more.