As 2021 draws to a close, we want to provide our clients with strategies for year-end tax planning.

  1. Retirement Account Contributions
    We suggest you maximize your retirement account contributions.   For 2021, the maximum IRA or Roth IRA contribution is $6000 up to age 49 and $7000 for age 50+.  For 401k plans, you can contribute as much as $19,500 up to age 49 and $26,000 for age 50+.  If you cannot make the maximum contribution to your 401k, try to contribute funds that will at least match the maximum that your employer will contribute.
  2. Converting Traditional IRAs to a Roth
    If your income is down for 2021 or if you have considerable tax losses, consider converting some or all of your IRA to a Roth IRA.  For more information on Roth IRAs, read our blog from September 2020 on this topic.
  3. FSA Year-end Spending
    If you have an FSA (“flexible spending account” for out-of-pocket medical expenses with tax-free dollars), you will pay taxes on any funds still in the account on December 31.   However, some employers give you until March of 2022 to use your FSA dollars, so be sure to check your company’s spending deadline.
  4. Charitable Giving
    There are many ways to make gifts to charity.  The easiest is a cash donation, while some clients prefer to contribute appreciated stock directly to a charity or to their donor advised fund.  In order for your donation to be tax-deductible, it must be made to a 501(c)(3) designated charity and you must file an itemized tax return.
  5. RMD’s and QCD’s
    If you are over the age of 70½, you can make a qualified charitable distribution from your IRA (other than an ongoing SEP or SIMPLE IRA) which must be paid directly from the IRA to the qualified charity (but not to a donor advised fund). Your “QCD” can satisfy all or part of your required minimum distribution (RMD) from your IRA.  For example, if your 2021 RMD requirement was $10,000 and you donated $5000 from your RMD to charity before the end of 2021, you would have to withdraw another $5000 from your IRA to satisfy your 2021 RMD.  The age requirement for an RMD in 2021 is 72 years.
  6. Contribute to a 529 Plan
    Grandparents may consider setting up or putting some excess funds into a 529 college savings plan. Any accrued earnings are tax-deferred while invested and tax-free when used for qualified education expenses.  That means you can use your full balance for expenses like tuition and fees, room and board, and books and supplies at any eligible public or private college, university, or vocational school anywhere in the U.S.  A 529 plan may also be used tax-free to cover certain tuition expenses at K–12 public, private, and religious schools.

As always, please call us if you have any questions and we will be happy to discuss them with you.