In this guest blog post, Michelle Mahoney, CFP® and co-founder of Generations Wealth Management, offers options to have control, strengthen your financial position, and help others this year.

These are strange times. During an upheaval like this, it’s all too easy to worry about the present and the future—for yourself and for the people and organizations close to your heart.

But that doesn’t mean you’re without options. In fact, there are a lot of ways you can take control, strengthen your own financial position and help others.

Watch for buying opportunities
The market has seen lots of ups and downs over the past year. That can mean opportunities to invest in asset classes and companies with track records of long-term strength when prices are depressed.

Rebalance high-performing investments 
Most people know that when it comes to investing, buying low and selling high is the goal. That takes discipline, but successful investors know the importance of keeping an eye on their overall asset allocation. Is the relative success of one asset class performing well, while another is not? 

A market rally may be the time to evaluate your top performers. You could sell and reallocate, but a more advantageous move may be to gift those appreciated shares to a qualified charity, like United Way. By doing so, you avoid capital gains tax on the appreciation of your investment. Just make sure you give away investments held for at least 12 months.

CARES Act and charitable giving
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law. The bill includes increased tax incentives for charitable giving.

In light of that, people who itemize deductions and give cash directly to a charity need to be aware of a few changes:
  • Individuals can deduct up to 100% of AGI (increased from 60%).
  • Corporations can deduct up to 25% of taxable income (up from 10%).
  • If you give via a Donor Advised Fund, there were no changes to the current limits (60% AGI in cash and 30% AGI in appreciated assets).

Remember the Qualified Charitable Distribution (QCD) rules
QCD rules allow individuals at least 70½ years old to transfer up to $100,000 from a Traditional IRA or an inherited Traditional IRA directly to charity. The money will not be included in your taxable income. This has not changed.

However, the CARES Act did create what we like to call a “quasi-QCD” for younger donors. If you’re between 59½ and 70½ years of age and not dependent on retirement assets for support, the CARES Act provides a powerful giving strategy that’s similar to the QCD.

As discussed above, the CARES Act allows an individual to deduct 100% of their AGI for charitable cash contributions. Therefore, it effectively affords individuals as young as 59½ years old QCD-like benefits.

Those individuals can:

  1. Take a cash distribution from their IRA.
  2. Contribute the cash to charity.
  3. Completely offset the tax associated with the IRA distribution by taking a charitable deduction in an amount up to 100% of their 2020 AGI. 

If you’re at least 59 ½ years old, have retirement assets and are planning a large 2020 charitable donation, this is big!

Consider a Roth IRA conversion 
During good times and bad, tax-savvy moves should always be a priority. After all, eliminating or postponing a tax at, for instance, a 30% tax rate is huge. It’s rare for the stock market to provide a similar return! 

One great example of a smart tax strategy is a Roth IRA conversion. Your retirement plan balances may not be back to their pre-COVID levels, but that drop in value actually provides an opportunity and could work to your advantage if you can roll a traditional IRA into a Roth IRA. 

Here’s how it works. You take assets in your traditional IRA (maybe just enough to push you to the limit of a specific tax bracket) and transfer that to a Roth IRA. That’s the “conversion.” 

Although you’d have to pay income tax on the rollover amount, the tax would be less (potentially much less) if your current IRA has dropped in value. 

And like any retirement account, the funds grow tax-free in the years to come. The difference with your converted Roth IRA is that down the road—regardless of what the account value may grow to—any qualified withdrawals will be tax-free! 

Skip RMDs in 2020 if you can
Usually, people age 72 and older have to take required minimum distributions (RMDs) from most retirement plans and IRAs. However, that requirement has been waived for 2020. This lets you keep your money invested and working for you.

Time is of the essence
Since many of these charitable incentive are unique to 2020, you have just a few weeks to take action. Touch base with your financial advisor right away if you need guidance. Stay well!

Michelle Mahoney

 

Michelle R. Mahoney, CFP® and co-founder of General Wealth Management, has a strong history in the financial industry and is an active member in our community, including being a member of United Way of Central Iowa Tocqueville Society.

 

 

 #GivingTuesday is just around the corner!
#GivingTuesday, December 1, is about uniting around a common goal: to ensure everyone in central Iowa has an equal opportunity to thrive. Discuss one of the options above to be ready for #GivingTuesday – a day when your gift be amplified by millions of others around world. Don’t want to wait to do good for your community? Donate through your workplace campaign, one of the options listed above with the help of your financial advisor, or give now on our Give page.

TAGS: Tocqueville Society, Income

Sara Kurovski

About The Author: Sara Kurovski

Sara Kurovski is the director of United Way of Central Iowa's Tocqueville Society.