The year is drawing to a close in a flash and this is the time to address important year end deadlines. Following are key things you should be in communication with your advisor about now.
Custodians are busier than normal years and we expect delays that haven’t been experienced in the past. If you haven’t squared away with your SYM team already, we advise making it a priority.
Planning to make a contribution to your college savings account this year? Contributions to the account must completed by 12/31. Contributions are best made early to ensure they are received by the end of the year.
What about reimbursement of expenses? Did you know that all expenses incurred in the calendar year must also be reimbursed in the same year? If you paid for college expenses out of pocket in 2021 and plan to reimburse yourself for those costs from a 529 plan account, those withdrawals must be done by 12/31.
Over the age of 72? Don’t forget to take your required minimum distribution from IRA, 401(k), and other retirement accounts. Be sure to complete all distributions before the end of the year to avoid a 50% penalty. The pandemic may not be over yet, but the one-time exception to skip an RMD was only in effect for the 2020 calendar year. 2021 RMD’s are due by the end of the year. Get them done early to allow for processing.
Did you know you can gift a portion of your RMD to charity to avoid taxation? A Qualified Charitable distribution isn’t’ counted as income and counts toward the RMD. These must also be completed by 12/31.
With the potential of higher tax rates in future years, you may be considering a Roth Conversion. Converting a portion of your IRA or 401(k) to a Roth IRA account can provide long-term tax benefits. If you are considering a Roth Conversion strategy to fill up current, lower tax brackets, these must be processed by the end of the year. Complete these now to avoid processing delays at year end.
What about the “backdoor” Roth Strategy? IRA contributions and Roth conversions are not customarily a 12/31 deadline. Contributions can be completed until your 2021 tax filing deadline (April 15, 2022). Proposed tax law changes have resulted in uncertainty around the backdoor strategy. This strategy may not be allowed in 2022 and if you have usually waited to make contributions for the prior year when filing your taxes, you will want to reconsider this timing and make those contributions and conversions by 12/31.
Gifts to Charity or gifts to family must also be completed before the end of the year. If you’re looking at charitable strategies to reduce 2021 income, complete those gifts now. Gifts of securities or establishing new Donor Advised funds often experience delays at year end and should be processed now.
Are you using the annual exclusion gifting strategy to gift money to family members each year? If so, these types of gifts are also based on the calendar year and should be completed before year end.
SYM teams are here to help you wrap up important details. Call us at 800.888.7968 with any questions or intentions you may have.