If you’re new to our 2020 Tax Planning series, click here to start with Part 1! Otherwise, keep reading for some more great tips to help individual taxpayers minimize their 2020 tax bill. In Part 3, we’re going over traditional IRAs and Roth accounts! Be on the lookout for part four, where we’ll dive into intrafamily loans. 

Year-end Planning Moves for Individual Taxpayers

Tax Tip #4: Traditional IRA Contributions for All

The SECURE Act removed the age restriction on making traditional IRA contributions. Individuals over the age of 70½ who are still working in 2020 are no longer prohibited from contributing to a traditional IRA. 

However, if you’re over the age of 70½ and considering making a charitable donation directly from your IRA (known as a Qualified Charitable Distribution or QCD) in the future, making a deductible IRA contribution will affect your ability to exclude future QCDs from your income. 

Contact us for further explanations of QCDs, and how they can be an effective way to give to charity and reduce your income.

Tax Tip #5: Convert Traditional IRAs into Roth Accounts

This may be the perfect time to make that Roth conversion you’ve been thinking about!

The current tax rates are still relatively low compared to a couple of years ago, and while they’re scheduled to remain that way until 2026, they could increase in the near future. Also, your income may be lower in 2020 due to the financial fallout of COVID-19. On the bright side, that means you’re likely in a lower tax bracket than you normally find yourself. Since the CARES Act suspended Required Minimum Distributions (RMDs) for 2020, if you already budgeted to pay tax on your RMD, rolling that distribution to a Roth IRA could be a perfect move. No RMD for 2020 also means that 100% of the distribution can be classified as a rollover.

It’s possible the overall value of your retirement account suffered as a result of the economic downturn. The depressed value in your IRA means a rollover distribution will contain more assets. Once in the Roth IRA, the recovery of value and ultimate withdrawal will be tax free.

Have More Questions?

Tax planning can get overwhelming really quickly—especially during a year like 2020! At Dent Moses, we’re all about providing you with high-quality financial management services and an exceptional level of compassion. If you have any questions about our 2020 Tax Planning Tips series, or if you need general tax planning advice, you’ve come to the right place. Get in touch with us today.