Good Riddance to 2020! Good Times in 2021? Year-end financial planning deadlines

It goes without saying that most of us will be glad for 2020 to end, as it has been one of the most exhausting years in modern history. This past year is undeniably one for the history books on many fronts, including: human pandemics, the stock market, the economy, social impacts and politics. There is no doubt students and historians will be studying and analyzing 2020 for decades to come. Amazingly, despite the trials and tribulations 2020 has delivered, as of this writing, the markets are in positive territory for the year, despite being one of the most volatile markets in history. Below we review the events that caused this volatility. 

2020 events that are statistically unlikely to reoccur in our lifetime… 

• A global pandemic which has resulted in over 1 million deaths to date 
• An unprecedented complete global economic shutdown 
• A US economic contraction exceeding that of the Great Depression  
• The US Federal Reserve rewriting their playbook to not only provide an economic lifeline, but to stimulate economic growth 
• The US Government spending $5 trillion in stimulus which equates to 25% of GDP 
• The most dramatic stock market pullback in the shortest period 
• The most dramatic market recovery from a recession in history​

S&P 500 (year to date)

Planning: Year-End Financial Planning Deadlines 

As 2020 comes to an end, there may be a few items that need to be completed before the clock strikes midnight on December 31st. 

• 529 Plan contributions - must be received by the plan by year end in order to claim any available state income tax credit.  In Indiana, for example, the maximum annual credit is received once you have contributed $5,000 into Indiana 529 plans (equals a $1,000 Indiana income tax credit).  
• 529 Plan distributions - must be taken in the same calendar year that the qualified educational expense is paid. If you paid an education expense in 2020, you must take the 529 Plan reimbursement distribution by year end. If you are going to pay the expense in January 2021, then you need to wait and request the distribution in 2021. 
• Health Savings Account and 401k Plan contributions – review your funding for the year to see if additional last paycheck contribution options exist or if you need to make adjustments for maximizing 2021 contributions.  
• Family gifting – the annual gift tax exclusion amount is $15,000 for 2020. This is the amount you can give to each recipient without paying gift tax or using part of your lifetime exclusion amount. 
• Charitable contributions – if under age 70 ½, consider transferring shares of low basis investments. If you are over age 70 ½, then you can make a Qualified Charitable Distribution from your IRA of up to $100,000 per year.   
• Charitable contributions continued - for 2020, if you claim the standard deduction, you can also take a $300 charitable contribution deduction (per tax return) for cash contributions to public charities. This above the line charitable deduction will reduce your taxable income by up to $300. You will need to keep your written receipt as a backup for this deduction. 
• IRA and Retirement Account distributions – the CARES act eliminated required minimum distributions (RMDs) for 2020. This year no distributions are mandatory by year end from IRAs, Inherited IRAs and company retirement plans.   
• Roth conversions – if 2020 is a low-income tax year (maybe due to lower IRA distributions or changes in come levels), you may wish to lock in a low tax bracket by converting part of your IRA to a Roth IRA.  

Thank you for allowing the Windsor Wealth Management Team to continue to earn your trust and confidence in the services offered to you. We appreciate your loyalty and always welcome feedback from you. We wish everyone a happy and healthy holiday season! 

Dream boldly. Plan wisely.

---

Robert Kaspar, CPA
Managing Principal
39 years of service
(317) 805-6733
[email protected]
www.windsorwealth.com​

Bob is Managing Principal of Windsor Wealth Management. Bob holds memberships in the Financial Planning Association, the American Institute of Certified Public Accountants and the Indiana CPA Society. Bob also possesses several securities industry licenses. He holds B.S. degrees in accounting and management from Ball State University, which he completed in 1981.
​
Click here to schedule a call with me.