Your Financial Year-End To-Do List

02 Dec 2020

By Scott Kittrell, CFP®, CDFA, Financial Advisor

2020 is finally coming to an end. Hallelujah. I can’t ever recall such a collective desire for a year to hurry up and pass us by. When I would suggest such as a child, my parents would generally respond with “don’t wish your life away.” Sage advice, but I believe the challenges of this year are something most want to move beyond and hopefully start a better 2021. But before we close the books on the year, let’s not overlook our finances and some year-end moves that might be worth consideration.

Charitable giving
Year-end is a popular time for charitable giving. The type of gift (appreciated stock or cash from a brokerage account, contributions of appreciated stock to a donor-advised fund, cash gift from an IRA, etc.) should be carefully considered in the context of your overall tax situation. Tax law changes at the end of 2017 add to the importance of a well-thought-out annual charitable giving plan. For example, the standard deduction was doubled (in 2020, $24,800 for a couple filing jointly or $27,400 for a couple both over age 65), so if available Schedule A deductions do not exceed the higher standard amount, charitable gifts are effectively not
tax deductible.

The following are tax-efficient charitable gifting options for those taking the standard deduction.

• Qualified charitable distribution (QCD): If you’re over 70.5, charitable gifts made directly from an IRA reduce taxable IRA distributions dollar for dollar. A charitable gift from an IRA is called a QCD. These types of gifts were made a permanent part of the tax code in early 2016. Another benefit of the QCD is the possibility of reducing Medicare Parts B and D premiums, which are determined by modified adjusted gross income (MAGI = AGI + tax-exempt interest). This year, there are five tiers of MAGI that determine Medicare Parts B and D premiums. A QCD reduces MAGI, so charitable gifts made through an IRA could lower income enough to drop into a lower MAGI tier, thereby reducing Medicare Parts B
and D premiums.

• Donor-advised funds (DAF): Grouping several years of charitable giving into one year (often called front-loading) allows gifts to be itemized along with other available Schedule A deductions. Appreciated stock that is over weighted in a taxable portfolio can be reduced by gifting shares to a DAF. Using appreciated stock for charitable giving is tax efficient since you avoid capital gain tax on the appreciation. In subsequent years after the DAF is funded, gifts are made from the DAF rather than from a brokerage account. Structuring a charitable giving plan to incorporate a DAF allows you to time contributions to achieve the greatest tax benefit while maintaining the same level of annual gifting.  

Retirement plan contributions
Don’t forget your retirement plan! You have options, depending upon the type of plan you have.

• 401(k)/403(b)/defined contribution plans: If the contribution amount was lowered at any point during the year, revisit to ensure contributions are sufficient to receive the maximum company match. The limit this year for employee contributions increased by $500 to $19,500. If you’re over age 50, a step-up of an additional $6,500 is available. We advise clients to maximize contributions to a retirement plan to the extent cash flow allows. These contributions are typically pretax, serving to lower taxable income during working years. Contributions also compound more quickly than a similarly invested taxable portfolio.

• IRA contributions: The IRA contribution limit also increased this year to $6,000. If you’ll be 50 or older this year, a catch-up contribution of an additional $1,000 is available for a total limit of $7,000. While the annual contribution limit is the same for all IRAs, the tax treatment isn’t. Speak to your advisor before making an IRA contribution to ensure the most tax-efficient approach, which can change from year to year. For example, if your AGI is larger than $196,000 (married filing jointly) or $124,000 (single), then a direct contribution to a Roth IRA may be reduced or prohibited. If you’ve contributed to a Roth in the past, revisit any changes this year that may push your income over the threshold for a direct contribution.

Health savings account (HSA)
Contributions to an HSA are pretax if made through payroll deductions. If contributions are made with after-tax dollars, an “adjustment to income” deduction is taken, which serves to lower adjusted gross income. In addition, withdrawals are not taxed if used for qualifying medical expenses. And don’t forget — HSA account balances roll over from year to year, unlike their FSA counterpart. Given the tax-preferred treatment of HSAs, we recommend maximizing annual contributions if an HSA is available with your medical plan. For 2020, contributions can be made up to $3,550 for individual coverage and $7,100 for family coverage. For those over 55, an additional $1,000 can be added as a “catch-up” to these limits.

Annual exclusion gifts
Gifts up to $15,000 can be made to an unlimited number of individuals this year. These annual gifts do not count toward the applicable lifetime gift-tax exclusion amount, which is why they’re often called “annual exclusion gifts.” Gifts made each year can reduce a taxable estate over time. All future growth on these gifts is outside of the taxable estate.

529 contributions
Consider additional savings to your children’s 529 plans at year-end. Parent-owned 529 plans can also receive contributions from grandparents.

Make your list and check it twice!
As we wrap up 2020, let’s use the remaining days and weeks to be smart about our finances. A little attention can go a long way toward helping us reach our financial goals. How are you feeling about your year-end planning? Connect with us at

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