As we mercifully swing into the end of the year 2020, along with all the political and social issues we are still dealing with as a nation, there is always TAX PLANNING! As the days march closer to December 31 it is important to consider possible year-end moves to reduce the amount of money you’ll ultimately send to whoever is President.

One simple way is to structure your year-end retirement distributions to take advantage of low tax rates and your relative position in them.

Consider this:

Foregoing Required Minimum Distributions (RMD) for 2020 is allowable this year. If you were previously forced to pull money from your retirement accounts but would prefer to just leave it there, you can avoid taking your RMD this year and not incur the tax. Money saved, right?  But you might want to pull some money out of that IRA. If foregoing your RMD in 2020 leaves you in a very low tax bracket, say 10%, but next year when you are back with the normal routine you will be in the 22% (or higher) bracket, taking some money out of your retirement accounts before year-end makes sense if you will be taking dollars out taxed at lower rates.

Managing bracket creep to smooth out swings is a worthwhile strategy but requires an analysis. The worst-case scenario I see is when someone sees us do their taxes after the end of the year and we determine they had little or negative income in a year that we could have used to absorb retirement distributions or possibly a ROTH conversion at little or no cost.

We don’t know what the tax landscape will be for 2021 yet, but regardless of political outcomes, I think its safe to say that rates will not get lower. And the probability of them going up is something greater than zero. Planning can make that less painful.