• Steve Coker, CFP

3 Top Tax Planning Opportunities for 2020


Changing income and changing tax rules are opening new opportunities for tax planning. Here are our 3 new tax planning opportunities for 2020. Be careful about waiting too long to take advantage of the changes, RMD rules change August 31st.


Skipping RMD’s


Required Minimum Distributions (“RMD’s”) from an IRA have been waived for 2020. This is good news if you are subject to RMD’s and don’t need the income. You now have the option to skip the RMD distribution for 2020, keeping the assets in the IRA to lower your income and pay less in taxes. Even those who already took distributions for 2020 can participate since distributions all 2020 distributions can be repaid until August 31st. Remember that the waiver applies to Inherited IRA’s too.


Roth Conversions


If your job or business has been adversely impacted by the economic shutdown, or if you have lowered your income by skipping your RMD, you may want to consider a Roth conversion this year. As we have often shared, making good use of the tax brackets can be one of the most effective tax planning strategies. When you convert an IRA to a Roth IRA you are effectively pre-paying the taxes on your IRA. Why not fill those lower brackets to pay the lowest tax possible? Moreover, the Roth IRA will continue to grow tax-free and does not have any RMD’s during your lifetime. Given the uncertainty surrounding future tax rates, we continue to believe that 2020 is a great year to consider a Roth conversion.


$100,000 Cares Act Retirement Plan Withdrawals


Those who experience “adverse financial consequences due to Covid-19” can receive a distribution from a 401k or IRA, up to $100,000 without penalty regardless of age. While this distribution would still be taxable, the CARES act waives the typical 10% penalty for distributions before the age of 59.5. Also, the CARES act very generously allows you to spread the taxes on the distribution over a period of 3 years. Alternatively, the CARES Act gives you up to 3 years to redeposit the money back into the retirement account (instead of the typical 60-day recontribution deadline). The limit is $100,000 per person, not per IRA, so be careful. Also, you must have a specific Covid-19 impact, not just a general one, to qualify for the exemption. Some examples would include:


- Being diagnosed with Covid-19

- Having a spouse or dependent diagnosed with Covid-19

- Experiencing a layoff, furlough, reduction in hours, or inability to work due to Covid-19 or lack of childcare because of Covid-19

- Have a job offer rescinded or job start delayed due to Covid-19

- Experiencing adverse financial consequences due to an individual or the individual’s spouse’s finances being affected due to Covid-19

- Closing or reducing hours of a business owned or operated by an individual or their spouse due to Covid-19


Of course, the IRS does not require every plan to follow the new rules, though most do. If you would like to take advantage of the distribution from a 401k plan, be sure to talk with your employer to make sure the allow for CARES Act withdrawals.


We live in interesting times! Changes are happening quickly not just in the market, but also in the rules surrounding your retirement accounts. We’ll keep you informed of the rule changes and would be happy to discuss your situation to help you make the best of the new opportunities.

DISCLOSURE Information on this website and others should be used at your own risk. Past performance does not guarantee future results. Securities investments involve risk; returns in such investments vary and may involve gain or loss. The materials and content herein are not a substitute for obtaining professional tax, personal financial planning, or other relevant financial advice from a qualified person or firm. For full disclosure click on the disclosure link at the bottom.

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