As we approach the end of, by all accounts, an extraordinary year on many fronts, it is a perfect time to take charge of the year and begin to plan for the future. Whether it is economic models, capital market assumptions, or political headwinds, we can consider year-end planning techniques that may increase your net worth with changes in your financial and investment plans.

Investment and Income Tax Strategies

Capital Gains Harvesting

  • Consider harvesting losses in taxable brokerage accounts to offset gains.
  • Re-evaluate your asset allocation, as many of your stocks may have appreciated significantly in the past several years.  Rebalancing can be a valuable tool in long term investment performance.
  • Understand what capital gains taxes are and how they affect your mutual fund investment returns.  Consider delaying investment in mutual funds to avoid inlaid capital gains.
  • Ask your financial advisor if you should expect a capital gains distribution from your mutual funds and design a harvesting strategy around minimizing taxes.

Retirement Planning

  • Maximize annual IRA contributions; you may be able to deduct $6,000 for your IRA and $6,000 for your spouse’s.  Check income limitations.  Add $1,000 if you are over the age of 50.
  • Self-employed should consider a defined contribution plan to supercharge their retirement planning, especially for older workers/owners.
  • Recent legislation has made ROTH IRA’s a more powerful retirement and estate planning tool.  Understand what a ROTH Conversion can do to your retirement income.
  • Consider setting up ROTH IRA accounts for your children with earned income.
  • Always check your beneficiaries on all qualified accounts in December.
  • RMDs are NOT REQUIRED in 2020. However, you may still consider taking them and reinvesting in a non-qualified account or as a ROTH conversion.
  • NUA: There are special tax rules for executives with stock in their retirement account.  Understand what an NUA strategy is and how you can take advantage of tax rules.

“Secure” Act Strategies

Considering the “Setting Every Community Up for Retirement Enhancement (SECURE ACT),” there are several changes to financial planning strategies that should be considered.  Two specific issues The Secure Act has brought up that create significant planning opportunities include:

  1. It does away with “Stretch IRA’s” and;
  2. Increases age of Required Minimum Distributions to 72 (from 70 ½).

Both of these make the IRA a less useful retirement and estate planning tool

  • Consider a ROTH conversion if you have suffered a financial loss from slow business.
  • Properly Structured Life Insurance can replace the benefits of the stretch IRA, but more tax-efficient, better flexible, no RMDs, and fewer tax complications.
  • Suppose you are in RMD status but do not need the income. You may consider using your IRA distributions to fund premium payments to a life insurance contract held in an Irrevocable Life Insurance Trust. This may drastically increase the legacy to your beneficiaries.
  • Consider accelerating IRA distributions before 59 ½ through 72 payments and avoiding the 10% early withdrawal penalty.
  • If you have losses this year as a business owner, you may consider converting some or all of your quailed IRA Balances to ROTH.

COVID Specific Strategies

  • The CARES Act (Coronavirus Aid, Relief, and Economic Security Act) allows for distributions from qualified retirement accounts to help offset expenses due to affected individuals from the Covid Pandemic. CLICK HERE to see what the IRS constitutes as a “Qualified Individual.”  The deadline for the distribution is 12/30/2020, and the aggregate amount available is $100,000.  Taxes due on the distribution can be spread out over three years (3) and avoid the 10% early withdrawal penalty. (Coronavirus related Distributions or CRDs).
  • Even if you are not subject to RMDs, it may pay to begin taking taxable IRA/Plan distributions this year to:

◦ Use today’s lower tax brackets

◦ Begin reducing future IRA Debt

◦ Move funds to a more tax-favored position.

Gifting Strategies

  • Consider making gifts of up to $15,000 per person allowed under federal annual gift tax exclusion.

◦ Use assets that are likely to appreciate significantly for the most optimum tax savings.

  • Use appreciated stock rather than cash when contributing to charities.  This maximizes your charitable deduction and avoids the capital gains tax on significantly appreciated assets.
  • Consider setting up a Donor Advised Fund (DAF) while in prime working years (or if you are in a high tax bracket) and gifting appreciated stocks or other assets.  Assets in a DAF grow tax-free and are not required to be gifted annually, therefore, growing a family trust that can be used for charitable purposes into retirement and beyond.

◦ Consider “bunching” years of contributions into a DAF during high tax years.

  • In years your income is higher, consider a Charitable Remainder Trust.  The Trust is funded with after-tax money, which you can take income from for any period less than 20 years, and you will get an immediate partial deduction in the year the Trust was funded.


The current estate tax exemption of $11.8 Million for individuals and $22.36 Million for married couples is set to “sunset” or expire 12/31/2025, which means the proportion of families required to pay estate taxes will increase dramatically.  After sunset, exemptions will return to pre-2018 levels of $5 Million for individuals (indexed for inflation).

  • Understand what a Grantor Retained Annuity Trust (GRAT) is and if it can help.  A “Grantor” creates a trust and transfers property.  The Trust then pays the grantor back an annuity stream usually equal to the deposited amount for a period no longer than 20 years.  If the assets perform better than the IRS mandated amount at the end of the Trust, the beneficiary receives the excess, and the Trust is not included in the grantor’s estate.
  • Discuss possible benefits of a “ROTH for the wealthy” strategy may have for you.
  • Qualified Charitable Distributions: Direct transfer of IRA Funds to a qualifying charity is the most tax-efficient way to make charitable gifts. Most people do not itemize their deductions, and for those over the age of 65, they have an even larger standard deduction.

◦QCDs reduce AGI, which determines the availability of tax deductions, credits, taxation on social security, and Medicare Parts B&D.

◦Reduces taxable IRA balances at no cost

◦ Up to $100,000 per year for each IRA Owner

If you have questions about any of these strategies and how they may help you, please reach out and schedule a no-obligation appointment to see how we may add value to your current relationship.

Phil Clark may be reached at 626-449-4225 or

Past performance is no indication of future results.  This information should not be construed as tax advice, nor should be taken as financial planning advice.  Please consult your tax professional.

These opinions are based on Philip Clark’s observations and research and are not intended to predict or depict performance of any investment. These views are as of the close of business on 11/18/20 and are subject to change based on subsequent developments. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. These views should not be construed as a recommendation to buy or sell any securities. Past performance does not guarantee future results.

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