Written by: Michele Burkholder, Founder of The Burkholder Team
In October of last year, we shared some financial planning steps you can take to improve your current year position and set yourself up for success in 2021. Since the SECURE Act (Setting Every Community Up for Retirement Enhancement) and the CARES Act (Coronavirus Aid Relief and Economic Security Act) were both enacted in 2020, there are some financial planning changes that you should be aware of. If you haven’t already taken the following actions in 2020, you still have time. Here are the items you need to consider:
1. Qualified plan contributions – have you maximized your taxed deferred savings for 2020? It’s too late to change your 2020 contributions for your company retirement plan, but it’s not too late to make 2020 contributions to your Individual Retirement Plans or Health Savings Account.
a. Individual Retirement Account – If eligible, you can contribute $6,000. to an Individual Retirement Account.
b. Catch-up – If you are over 50 and are eligible, you can contribute an additional $1,000 to an IRA.
c. Heath Savings Account- the maximum amount you can put into your HSA is $3,500 if you’re an individual, $7,100 if you have family coverage. There is a catch up of $1,000 if you are 55 or over.
If you decide to make contributions for 2020, you can do so up to April 15, 2021. Make sure you clearly mark the memo of your check that you intend the money to be credited to 2020 and not the current year. This will be critical if there is a coding error or discrepancy with the IRS.
2. Required Minimum Distributions –CARE’s act suspended RMDs for 2020 (including beneficiary IRAs). If you took an RMD in 2020 you will receive a 1099R which you will need to file your taxes. If you took advantage of the one-time exception to return the money you withdrew, you will receive a 5498. Unfortunately, that form is not produced until May. So detailed record keeping is key.
3. Retirement Plan Distributions: If you took a withdrawal from one of your Retirement Plans due to coronavirus-related expenses, you may not be subject to the 10% penalty if under 59 ½. However, you will still be required to pay federal taxes. You can also return these withdrawals if you choose, over the next three years. You may also choose to split the tax for these distributions over the same three years (2020, 2021 & 2022). You will have the same reporting issue as you did with the RMDs above. Make sure you keep detailed records for yourself and your CPA.
Before you take any action, make sure you consult with your Tax Advisor and work with a Financial Professional to maximize your Financial Options. It’s not too late to improve your 2020 financial picture. Also, taxes are anticipated to rise for 2021 and future years. Tax saving strategies will be critical for your Financial Planning.
Michele Burkholder* is the Founder of The Burkholder Team, a family financial practice whose mission is to Provide Families, Business Owners & Their Employees Optimal Guidance to Help Them Reach Their Financial Goals.
* Registered Representative of, and Securities and Investment Advisory services offered through Hornor, Townsend & Kent, LLC. (HTK). Registered Investment Advisor, Member FINRA/SIPC.
1847Financial | 161 Washington Street, Suite 700 | Conshohocken, PA 19428 | Phone 610.771.0800 | Fax 610.771.100 HTK is a wholly owned subsidiary of Penn Mutual. The Burkholder Team and 1847Financial are not affiliated with Hornor, Townsend & Kent, LLC
For Educational Purposes Only – Not to be relied on as financial, tax, or legal advice. All investing involves risk and no investment strategy can assure a profit or protect against a loss in a down market. Past performance is not a reliable indicator of future results.
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