Year End Planning In 2020: A Year Like No Other
Financial Planning / Tax and Estate Planning / Wealth Management

Year End Planning In 2020: A Year Like No Other


Despite the ongoing concerns brewing, during uncertain times like these, it’s a good reminder to look forward and focus on your long-term goals and let that serve as your guide.

Here we are at the end of November with only five weeks left before the new year begins, and the one thing I think we can all agree on is that 2020 has been a year like no other. Between a global pandemic, transition to work/school from home, the most memorable election in recent memory and dozens of “new rules” created by the CARES Act & SECURE Act, I think we’re all feeling the effects of a whirlwind year. But as 2020 winds down, it also presents some timely financial planning opportunities that you may want to take advantage of before the clock strikes midnight on December 31st.

Even though the inconclusiveness in the election results mean the federal tax environment remains uncertain, it looks likely that future tax rates are going up. We already know the lower and wider tax brackets set forth by the Tax Cuts & Jobs Act of 2017 are due to sunset on December 31, 2025 meaning that even if no new tax policy gets passed on the Hill, tax brackets will revert to 2017 levels, with a top Federal rate of 39.6% for individuals and families. Further, the federal estate tax reverts back to $5 million (adjusted for inflation). More imminently, with the two Georgia Senate seats still up for grabs which will surely impact the feasibility of the Biden Tax Plan, we don’t know what the tax future holds. Despite this muddled backdrop, there are several financial planning strategies to consider before year-end.

Max Out Your Retirement Plan

If you have an employer sponsored retirement plan, make sure you’ve either maxed it out, or contributed as much as you can afford to. The 2020 plan limit for 401k, 403b & 457 accounts is $19,500 (plus an additional $6,500 catch up if you’re over 50). If you are eligible to contribute to an IRA for tax year 2020, consider making your contribution now, although you have until April 15, 2021 to make a 2020 contribution. And finally, don’t forget to review your investment options and make any necessary adjustments.

Fund Your HSA

For individuals who have access to a Health Savings Account (HSA) through their employer, make sure you fully fund it before year end. The 2020 contribution limit is $3,550 per person or $7,100 per family and allows for a $1,000 catch up contribution for those who are 55 or older. These tax-efficient accounts offer the uniquely dual benefit of tax-deductible contributions as well as tax-free distributions for qualified medical expenses, a great retirement savings vehicle! Keep in mind though that once you’ve enrolled in Medicare, you can no longer contribute to an HSA plan, but you can use HSA funds to pay Medicare (but not Medigap) premiums.

Tax Loss Harvesting

Early December is the ideal time to review your investment gains and losses for the year, and to look for opportunities to harvest losses to offset capital gains. This year also provides a unique window of opportunity for individuals who were able to forego their RMD in 2020 thanks to the CARES Act, so you may qualify for a lower capital gain rate. For joint filers with taxable income less than $80,000, you qualify for the 0% capital gains rate ($40,000 for single filers and $53,600 for heads of household). The 15% capital gain rate kicks in at $80,000 - $496,600 for joint filers ($40,000-$441,450 for single filers) and thereafter the 20% capital gain rate applies.

Year-End Roth Conversions

Speaking of foregoing RMDs this year, you may want to take advantage of lower taxable income and consider a Roth conversion. For our regular readers, our August blog featured a post by CERTIFIED FINANCIAL PLANNER™ professional Bre Pangares outlining the mechanics and considerations for doing a Roth conversion. As the year winds down, if this appeals to you, just reach out to your relationship manager and we will crunch the numbers and run an analysis to see if this planning strategy makes sense for you.

Accelerating or Deferring Income & Deductions

An age-old tax management strategy warrants consideration of optimizing the timing of income and deductions. While the general principle is to defer recognition of income for as long as possible, with today’s uncertainties, you may want to consider accelerating income into 2020. Have stock options? Consider selling prior to year-end. Think your income will be lower next year? See if you can defer compensation or a bonus into January.

Charitable Giving

When you file your tax return, you have a choice between claiming the standard deduction or itemizing deductions. With the increased standard deductions from the TCJA Act, $12,400 for single filers and $24,800 for joint filers, many taxpayers who formerly itemized are now using the standard deduction. If you have charitable intent, you may want to consider bunching your charitable gifts into predetermined years. For example, if your projected income is lower in 2020, it might make sense to take the standard deduction this year, and “bunch” your charitable giving into 2021. The CARES Act passed earlier this year gives donors who plan to take the standard deduction the option to claim an above-the-line deduction of up to $300 for cash contributions to charities. For those who itemize, the CARES Act expanded the charitable giving limitations for cash gifts to public charities to 100% of AGI for 2020. If you want to use appreciated securities, the annual income tax deduction limit for gifts to public charities, including donor-advised funds, are capped at 30% of AGI for contributions of non-cash assets held more than one year. Donation amounts in excess of these deduction limits may be carried over up to five tax years.

Estate Planning

New laws introduced in December 2019 brought many changes that make updating your estate plan more important than ever. Did you get married? Divorced? Have a child? Create a Trust? All of these important events should automatically trigger a review of your estate plan. If you had a Revocable Trust created, have you titled your accounts and real estate properly? Are your beneficiaries up to date? Your successor Trustees? And speaking of beneficiaries, if you have named your Trust as beneficiary of your retirement accounts (401k, IRA, etc.) thinking that’s the best way to pass on your assets according to your wishes, think again. The new non-spouse, non-eligible beneficiary rules created by the SECURE Act may have unintended consequences when listing a Trust as the beneficiary. It’s very important to have your Trust reviewed by an attorney to ensure your estate will be carried out according to your wishes.

The sobering statistics around COVID-19 are a stark reminder of the importance of ensuring that important legal documents are in place. Appropriate forms include a durable power of attorney to grant your loved one authority over your finances if you become incapacitated, a health care power of attorney or advanced directive & living will to ensure clear medical instructions if you can’t communicate your wishes, and up to date wills and trusts to ensure they reflect your current wishes. One of the most heartbreaking estate planning mistakes involves outdated documents and it happens more than you might think.

For families with large estates, the current federal exemption amount of $11.58 million per person ($23.16M for married couples) is set to expire in 2026, reverting back to $5 million (adjusted for inflation). However, given the uncertainty of the future composition of the Senate, for individuals and couples who want to make large gifts, it may make sense not to wait. It’s a “use it or lose it” exemption and could save families subject to these limits a substantial amount in taxes. If you haven’t used your lifetime exemption, consider outright gifts or certain Irrevocable Trusts to pass assets on to family members. We urge you to reach out to your estate planning attorney as soon as possible to see if this makes sense for you.

Annual & Lifetime Gifting

The 2020 annual gift exclusion is $15,000 per person, or $30,000 per person if you and your spouse elect to split gifts. For those who wish to help with educational expenses, consider funding a 529 Plan. You can also front-load the plan with 5 years of annual gifts, or up to $75,000 per child.

We hope the above strategies serve as a guide to ensuring your financial house is in order going into the new year. As our valued clients, we are continuously working on many of these items on your behalf. We encourage you to reach out to your relationship manager with questions or if you’d like to have our financial planning team help you evaluate a particular strategy. And despite the ongoing concerns brewing, during uncertain times like these, it’s a good reminder to look forward and focus on your long-term goals and let that serve as your guide. 

For most of us, this year’s holiday festivities won’t be the same as holidays past, but I hope you and your family are able to connect and celebrate in new and meaningful ways. And as we leave an unforgettable 2020 behind, may you raise your glass to welcome brighter days ahead.


The information contained in this blog is not written or intended as tax or legal advice. The author is neither a CPA or Legal Professional. You are encouraged to seek tax and legal advice from your professional advisors. Accordingly, this blog should not be viewed as a substitute for the guidance and recommendations of a retained professional and should not be construed as legal, tax, or other professional advice. We recommend consultation with competent professional advisors before applying this material in any factual situations.