Wow, what a year…and it isn’t even over yet. I truly hope this email finds you well, safe and sane. As we roll into year-end, I wanted to shoot a few quick thoughts your way to try and help turn some of the 2020 lemons into lemonade. Whether you’re a client or not, maybe you’ll find a morsel of goodness mentioned below.
2020 RMDs – Setting the record straight, Required Minimum Distributions are not, in fact, ‘required’ for 2020 per the Cares Act. See HERE for detailed information.
Roth Conversions – There are two methods by which to fund a Roth IRA: contributions and conversions. Most are familiar with contributions, but few are familiar with conversions. A Roth conversion is the act of converting funds from a qualified retirement plan such as a traditional IRA into a Roth IRA. There is no limit to the amount you may convert; however, all money converted is subject to income tax. Why would you do this? Well, once money is converted into a Roth it is never taxed again nor is it subject to RMDs for the primary account holder. If 2020 has thrown you an income curveball and you find yourself in a situation where income is significantly lower this year, thus resulting in a lower tax bracket, you may want to consider a Roth conversion before year end. Side note: Unlike contributions, which can be made until the tax filing deadline in the following year, conversions must be done before year-end. Roth conversions may be a great strategy for future income tax benefits, depending on your specific tax situation.
RMDs / Charitable Giving – While RMDs are not required in 2020, when you enter 2021, should you be required to take an RMD and if you are charitably minded, you may consider gifting funds from your IRA directly to the charity of your choice. Distributions such as these will be credited towards your RMD, and while it will not count as a deduction on your income taxes, many people no longer itemize due to the tax law changes and increased standard deduction. If you take RMDs from IRAs, or Inherited IRAs and want to give to charities, this is something to definitely explore.
Tax Loss Carryovers are, in my opinion, Terrible Investments – I don’t write about this enough, as I feel it is second nature. Well, after working with so many clients from competing firms this year, I’ve realized we take so many of these strategies for granted. If you are carrying a loss in your taxable investment accounts, you may want to consider selling that loss and offsetting that loss by taking capital gains in other areas. This will allow you to fully utilize your loss and possibly avoid taxable gains in other investments. If you sell the loser and don’t use the total loss, you’re only allowed to carry forward $3,000 of the loss per year. Consider adopting a simple rule as I have, never carry a loss forward…ever.
Year-End Operations – Keep in mind, while Joule Financial is fully staffed, many Wall Street institutions are not. Many banks have closed branches and are working sporadic hours. Many large custodians such as Fidelity, Vanguard and even Schwab have limited staff, long wait times and are operating on shortened holiday hours. If you need to conduct year-end business, give yourself plenty of time to see the operation through.
We’re working on a new Zoom webinar that will discuss the inflation freight train headed our way. Be on the lookout for this link as it will fill up quickly. In the meantime, your homework assignment is to learn a bit about M1 and why it matters. Until recently I haven’t been in the inflation camp as we hadn’t seen real evidence of the money supply actually changing, other than moderate GDP-like expansion. Well, if this doesn’t get your attention, I’m not sure what will. Yes, there will be a quiz!
(Please note: the information set forth in this letter is not intended to be tax advice. Please consult with a professional tax adviser for advice specific to your situation.)