November 23, 2020 | eFocus @ Legacy

Ten Considerations for Year-End Financial Planning

Here are ten valuable planning tips to consider before the end of the year so that you head into 2021 feeling confident about your overall financial health.

1) Understand the Potential Tax Impact of a Biden Presidency. Eventually, the election results will be final and, assuming a Biden victory, many will be asking the same question: are taxes going to change and what planning can be done to potentially minimize the impact? The Senate will largely dictate whether Biden proposals become law and two run-off elections in Georgia will determine whether Republicans or Democrats will have control. Republicans must win one of the run-offs to maintain control. If Democrats win both run-offs and flip control of the Senate, it is possible that tax law changes passed in 2021 could be retroactive to January 1, 2021. Therefore, it is important to understand the Biden proposals and consider whether action in 2020 is beneficial.

Overview of the Biden tax proposals:  Biden’s tax proposals target treatment of capital gains and the way wealthy families transfer assets to heirs:

Raising the capital gains rate to 39.6% for taxpayers with income over $1 million. Currently, wealthy investors pay a capital gains rate of 20%.
Reducing the estate and gift tax exemption for individuals from $11.58 million to $3.5 million.
Increasing estate and gift tax rates from 40% to 45%.
Eliminating the step-up in basis at death. Instead of receiving assets valued as of the date of death, any unrealized capital gains would be subject to tax at death.

2) Review Your Estate Plan and Beneficiaries. Make sure your estate plan is up-to-date, including your will, trust, health care directive, and power of attorney. If you have put off updating or creating your estate plan, make it a priority to get started by year-end.

Review named beneficiaries on all your accounts including employer-sponsored retirement plans, 401(k)s, IRAs, Roth IRAs, annuities, life insurance policies, deferred compensation plans, etc. Also, check transfer on death (TOD) designations and payable on death (POD) designations. These should be current and align with your estate plan. For example, it is all too common to leave an ex-spouse accidentally named as a beneficiary.

Legacy does not draft estate planning documents; however, with our extensive estate planning and administration experience, we can be an important part of your estate planning team.  We work closely with our clients’ attorneys, accountants, life insurance agents, and any other advisors to ensure that our clients’ planning goals can be achieved.

3) Evaluate Investment Tax Strategies. Speak with your investment professional to discuss year-end tax planning around your investments. Your investment professional may have the opportunity to offset capital gains by harvesting losses by selling taxable investments. Conversely, you may be able to realize gains by selling taxable investments if you have capital loss carryovers or losses for the current year.

4) Make Up an Income Tax Shortfall with Increased Withholding. Review your withholding and estimated taxes to ensure they align with what you expect to pay while there is still time to fix a problem. If you find yourself in danger of being penalized for underpaying taxes, you can make up the shortfall through increased withholding on your salary or bonus. A larger estimated tax payment at the end of the year can still expose you to potential penalties for underpayments in previous quarters, but withholding is considered to have been paid ratably throughout the year, so increasing it for year-end wages can save in penalties.

5) Retirement Plan Contributions. Maximize the amount you contribute to retirement plans to take advantage of available tax deductions and employer matching contributions.

Retirement Plan Contributions

6) Consider a Roth Conversion. If you are unable to directly contribute to a Roth IRA because you do not qualify, you may benefit from contributing to a traditional IRA and then immediately converting the funds to a Roth IRA (commonly referred to as a “back-door Roth IRA”). Also, consider converting a traditional IRA to a Roth IRA if in a low marginal income tax bracket. Note that partial Roth IRA conversions are permissible. Please consult your tax professional prior to making a final decision to avoid unintended tax consequences.

7) Review Required Minimum Distribution (RMD) Options. The CARES Act allows for the waiver of RMDs for 2020. This applies to most RMDs, including those for traditional IRAs, 401(k) and 403(b) plans for those age 72, or age 70 ½ for years before 2020, and inherited IRAs.

8) Gifting Strategies. Consider gifting options to loved ones and charities:

Gifting to loved ones:

You can gift up to $15,000 per person free of any taxes (federal annual gift tax exclusion).

Gifting to charities:

Bunch into 2020 the charitable donations that you would usually give over multiple years. The goal is for your charitable write-offs, along with any itemized deductions you plan to take, to exceed the standard deduction for your filing status.
Use your above-the-line charitable deduction. All taxpayers are entitled to a charitable deduction this year. The Tax Cuts and Jobs Act doubled the standard deduction while repealing or limiting many itemized deductions. These changes greatly reduced the number of taxpayers claiming actual itemized deductions. Typically, there is no tax benefit for giving to charity unless you itemize deductions. However, the CARES Act created an above-the-line deduction of up to $300 for cash contributions for taxpayers who do not itemize. To take advantage of this provision, taxpayers should be sure to donate before the end of the year. Consider having children and grandchildren who may be subject to their parents’ income tax rates (kiddie tax) for 2020 donate to charity to get the $300 deduction for this year.
Make a charitable donation (cash or even personal items) before the end of the year. Remember to keep all your receipts from the recipient charity. If the charitable contribution is made very close to year-end, consider using a credit card to lock in the deduction in the current year.
Use appreciated stock rather than cash when contributing to charities. This may help you avoid income tax on the built-in gain in the stock, while at the same time maximizing your charitable deduction.
If you are over 70½ in 2020 and would like to donate, consider a qualified charitable distribution (QCD). The QCD rule allows traditional IRA owners to deduct their required minimum distributions on their tax returns if they give the money to a charity. By lowering your adjusted gross income, the QCD rule can effectively reduce your income taxes.
Set up a donor-advised fund (DAF) for an immediate income tax deduction and provide immediate and future benefits to charity over time.

9) Health Savings Accounts & Flexible Spending Account Balance. Check your health savings account (HSA) contributions for 2020. If you qualify, you can contribute up to $3,550 (individual) or $7,100 (family), and an additional $1,000 catch-up if you are age 55 or older. Also, confirm you have spent the entire balance in your flexible spending accounts (FSA) for the year if your employer plan does not allow rolling money over into the next year (use it or lose it).

10) Prepare and Plan for Life Events. Prepare for next year by reviewing and selecting health insurance, flexible spending accounts (FSA), health savings accounts (HSA), and life, property and casualty insurance. Discuss major life events with your advisor to ensure there is clarity in your current situation and direction for tomorrow. This includes family or employment changes and significant elective expenses (real estate purchases, college tuition payments, etc.). Begin to review any IRS updates or changes for 2021.

The most important decision you can make as the year comes to a close is to speak with your trust and investment professionals to ensure everything is in order with your overall financial situation. There is still time to act, but time is running out.

If you are a Legacy client and have questions or concerns, please do not hesitate to contact your Legacy advisor. If you are not a Legacy client and are interested in learning more about our approach to personalized wealth management, please contact us at 920.967.5020 or

Candy Thurs


By: Candy H. Thurs, Vice President & Senior Trust and Financial Advisor



This information has been prepared by Legacy Private Trust Company for informational purposes. Any opinions expressed herein represent our current analysis and judgment and are subject to change. Actual results, performance, or events may differ based on changing circumstances. No statements contained herein should substitute for professional legal, tax, or other specialized advice.