Now that the holidays are behind us, you still have time to address some important end-of the-year financial moves you can make before the end of 2020.
2020 was a year like none other, since Required Minimum Distributions were waived as part of the CARES Act. If you would have normally taken an RMD in 2020, and will not, you still have a great opportunity to convert some traditional IRA values to a Roth. The reason that 2020 is unique is that you were not allowed to convert your pre-2020 RMD’s to a Roth IRA, so you would have had to take your RMD and then withdrawn an additional amount to convert. This year you can simply withdraw funds in any amount from your traditional IRA and convert it to a Roth while you have this opportunity to convert what would have been a nonconvertible amount: an RMD.
If you are a participant in company-sponsored HSA plan, you might still have time to maximize your tax-deductible contribution. For single plans, the contribution limit is $3,500 and $7,000 for family plans. If your account has unused dollars at year-end, those amounts can be carried over from year to year. When you turn 65, you may withdraw funds for any purpose and not be hit with a withdrawal penalty. Prior to that date, withdrawals for medical expenses are tax-free.
If you are participating in a company-sponsored flexible spending account plan, you must spend all the money in the account (you can leave $500 in the account) by the end of the year, or by the end of the 2021 open enrollment period if the plan so provides. Failure to spend down such accounts will mean that you will forfeit those unused dollars.
Make a 529 plan contribution for the future education expenses incurred by your children or grandchildren if you have not yet done so. In fact, South Carolina is one of only a handful of states that allows its residents to contribute up to the April 15 deadline, or when the tax deadline is set, and still get a deduction on the previous year’s state taxes.
Contributions to the South Carolina Future Scholar Plan qualify for a S.C. state income tax deduction, but 529 plan contributions are not deductible on your federal tax return.
If your family income is too high for you to make a Roth IRA contribution for 2019, you still have time to contribute to a non-deductible IRA and then convert those funds to a Roth by year-end. This perfectly legitimate move is referred to as a Back-Door Roth.
Year-end is a good time to review your insurance policies: homeowner’s and auto, renter’s insurance, and life insurance. If you rent and don’t have renter’s insurance, you are foolish, since these policies are not expensive. Remember that if your apartment complex has a fire or a hurricane hits Aiken, the apartment complex’s insurance will not cover the losses of your personal property.
Make certain that your beneficiary designations are up to date on your life insurance policies as well as your IRA and 401(k) accounts. You may want to consider jointly titling your home so that in the event of your death, the house will not be part of your probated estate. Ditto with your bank and other savings accounts.
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December 27, 2020 at 06:00PM
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ON THE MONEY: You still have time | Features | postandcourier.com - Charleston Post Courier
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