Jill Schlesinger writes about money-saving ideas to consider before 2020...

Jill Schlesinger writes about money-saving ideas to consider before 2020 ends. Credit: Dreamstime/TNS/Thicha Satapitanon

Stuck at home with not enough to do? Work your way through these year-end money and tax savings ideas.

Consider a Roth or a Roth conversion. For decades, the idea behind retirement planning was simple: save money by deferring taxation today, because years later, when you retire, your tax bracket will be lower. The idea has now been turned on its head, because currently, federal income tax brackets are about as low they have ever been. That means that it could be better to pay taxes now instead of in the future, when rates could be higher.

That thesis is the argument for making a Roth IRA contribution for 2020, rather than using a traditional IRA. The limit for 2020 and 2021 is the lower of $6,000 or your total earned income for the year, with an additional $1,000 catch-up contribution available if you are over age 50. One note: you can't count unemployment benefits as earned income when determining how much you can contribute to either a Traditional or a Roth IRA.

If you have lower income this year, it could be an ideal time to convert from a traditional IRA into a Roth. A conversion may allow you to pay the taxes due at today's a lower rate than you might find yourself in the future. Start by checking out the IRS tax brackets, because the amount you convert adds to your taxable income. Then make sure you have non-retirement funds available to pay the tax due. Once you convert to a Roth, your money will grow tax-free and when you retire and withdraw the money, there will be no tax due. Because Roth plans are not subject to required minimum distributions (RMDs), many retirees use them to help control their future taxation of Social Security benefits and/or increased costs of Medicare, which are income tested.

Don't worry about RMDs. The CARES Act eliminated RMDs from retirement plans (including beneficiary accounts) for calendar year 2020, so there should not be any last minute, end-of-year freak-outs. That said, if you did not have to take the RMD money for financial reasons, your taxable income will be lower for 2020, which means that you might consider realizing capital gains in a taxable investment account, which will allow you to take advantage of lower rates. If you are married filing jointly and your income is less than $80,000 ($40,000 for singles), the capital-gains tax rate is zero.

Finally, last year's SECURE Act increased the RMD age from 701/2 to 72. If you turned 72 in 2020 or are turning 72 in 2021, you may want to establish an automatic transfer of your RMD, or at least set a calendar reminder to take it at some point in 2021. Roth IRAs do not require withdrawals until after the death of the owner.

Slash your tax bill with Uncle Sam's help. The best way to reduce your tax liability is to maximize your retirement plan contributions before the end of the year. Most employer plans allow you to increase your contribution percentages, but be sure to readjust after the New Year. If you are self-employed or earn money as a gig worker, consider establishing your own retirement plan. For most, using either or Traditional or Roth IRA will do the job.

Re-balance thoughtfully. If you itemize and have a taxable investment account, you can sell investments with losses to offset gains during the year. If you have more losses than gains, you can deduct up to $3,000 against ordinary income; and if you have more than $3,000, you can carry over that amount to future years.


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