Last Minute Tips for Year-End Planning

Welcome to December! There may be just a few weeks left in 2021, but it’s not too late to make some smart money moves before the end of the year. Here’s a list of last-minute tips and recommendations to help you navigate around year-end planning:

Age Milestones

One of the first things you should do is check to see if you’ve met any significant age milestones this year. Here are a few of the key rule changes along with their corresponding ages:

Age 50: You can make ‘catch-up’ contributions to IRAs and some qualified retirement plans.

Age 55: You can take distributions from 401(k) plans without penalty if retired.

Age 59 ½: You can take distributions from IRAs without penalty.

Ages 62-70: You can apply for Social Security benefits.

Age 65: You can apply for Medicare.

Age 70 ½: The Qualified Charitable Distribution (QCD) gifting strategy becomes available.

Age 72: You must begin taking Required Minimum Distributions (RMDs) from IRAs.

Charitable and Non-charitable gifting

Anyone can give up to $15,000 to any individual this year without having to worry about gift taxes or filing a “gift tax return.” For example, a married couple can give up to $30,000 to each of their children in 2021 if they desire. Sizable gifts above $15,000 are still not likely to be taxable but will require you to fill out IRS Form 709 along with your tax return. This form helps the IRS keep track of any reduction in your lifetime Unified Federal Gift and Estate Tax Exemption, which is $11.7MM per person this year. Also, remember that gifts are generally not considered taxable income to the recipient.

Gifts made to charities may be deductible for you if certain conditions are met:

  • The gift must be made to an IRS-recognized 501c3 organization.
  • The size of the gift is limited to 30% of Adjusted Gross Income (AGI) if in the form of property/securities, and 100% of AGI if made in cash.
  • In general, you must itemize your deductions to deduct donations from your income; however, there is a special provision this year that allows you to deduct up to $300 ($600 if married filing jointly) in cash donations given directly to a charity even if you do not itemize your other deductions.
  • Charitable contributions that are not deductible this year (because of the AGI limits listed above) can be carried forward for up to five years.

And finally, if you are over age 70 ½, you may be able to take advantage of a QCD strategy, whereby gifts are made directly from a traditional IRA account and excluded from your taxable income. Please see your tax advisor for more information.

Offsetting Capital Gains with Capital Losses

Depending on your tax bracket and where your investment assets are located, you may be subject to capital gains taxes this year. In general, the tax is owed on the “net realized” gains at year end, which can occur when investments are sold for a gain, or when distributions are made from a mutual fund or exchange-traded fund. The net capital gain is calculated by summing up all realized gains and subtracting any realized losses; in other words, realized capital gains can be ‘offset’ by realizing capital losses. If realized losses exceed realized gains, losses can also offset ordinary income up to $3,000, whether married filing jointly or for singles. Excess losses can be carried forward to offset future gains indefinitely. If you do have any unrealized losses, the deadline to recognize them (by selling assets) on your 2021 tax return is 12/31/21.

Making Contributions to an IRA, SEP-IRA, or Roth Account for 2021

Not all year-end planning actions have a December 31 deadline. Making contributions to non-employer sponsored retirement plans can generally be made up to the tax filing deadline of the following year. These would include traditional IRA accounts, ROTH accounts, and SEP-IRA accounts.

Be aware that there is an earned income requirement–contributions must be made from salary, wages, commissions, or otherwise “work-related” income. E.g., if your only income is from investments, pensions, and/or Social Security, you cannot make contributions to these kinds of retirement accounts.

The 2021 contribution limits are $6,000 for IRA or ROTH accounts, plus a $1,000 “catch-up” limit for those over age 50. The deadline for 2021 IRA and Roth contributions is April 15, 2022 (the general tax filing date), whereas the deadline for SEP-IRA contributions is your personal tax filing date, including extensions.

One Potential Change for Next Year

There is legislation pending in Congress that may impact tax planning this year and next. The second part of President Biden’s “Build back Better” plan has passed the House of Representatives and is now being debated in the U.S. Senate. The current version of the bill includes a provision to ban “Back-Door” Roth contributions beginning in 2022. This provision in the tax code has allowed high earning individuals who make more than the IRS limit for direct Roth contributions to make a non-deductible contribution to a traditional IRA account and then “convert” it, tax-free, to a Roth account in the same year. However, if the bill passes the Senate as currently written, 2021 will be the last year that back-door Roth contributions will be allowed.


Disclosure: The opinions expressed herein are those of Elevate Wealth Advisory (“EWA”) and are subject to change without notice. EWA reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. This should not be considered investment advice or an offer to sell any product.  EWA is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about EWA, including our investment strategies, fees and objectives can be found in our ADV Part 2, which is available upon request.