End of Year 2020 Financial Tips
This year has been a challenging time for so many people. But with it came unique opportunities to financially position ourselves better with several new short-term laws enacted. Take a look to see if any of these situations might benefit your household or someone you know. Contact me if you have questions or want to move some money around.
IRA and 401k withdrawals before Dec 31st: Penalty tax free in 2020 so you have a few weeks to evaluate if you should pull up to $100,000 out by Dec 31st or roll-it-over into an IRA. Thanks to this opportunity, I have helped clients buy their dream house and other clients pay off burdensome credit card debts. Others have used it to rollover their 401k into an IRA that tends to have more flexible investment options and professional management. The flexibility is that you can withdraw the money now and later decide to pay some or all of it back within 3 years. Or you can keep it and pay income taxes on it this year or spread the tax out over 3 years to help avoid the higher marginal tax. Don't do the 401k loan, just withdraw it. If you were out of work for much of the year then you might find yourself in a low or no tax bracket and this might be a great time to pull the money out or transfer it into a more tax efficient account like a Roth IRA.
Kids college funds from Stock trading gains in taxable accounts: With more people at home this year and a drop in living expenses with so much on hold this year, many people have opened investment accounts and starting trading from home. I'm helping a number of clients with tax harvesting where you might buy or sell shares to minimize income taxes before year-end. One strategy is to gift the stocks that have gone up in value to your kids by transferring them into your kids' UTMA accounts. You save on income taxes and you start your kids' college fund...WIN WIN!
Stock market: The stock market has recovered most of the drop earlier in the year and continues to go up. I am recommending staying invested in the stock market and even selecting specific companies to own. I have 3 households that achieved $100,000 in their investment accounts this month, and one household that achieved $1,000,000 net worth. Keep up the great behavior of saving money to invest!
PPP Loans: I helped many clients understand their options and apply for PPP loans and unemployment back in April when our world seemed to shut down. Some banks, like Oxford Bank, are accepting Forgiveness applications. If you are an Independent Contractor and we factored your loan amount based on 2019 net income, I’m recommending you apply for the Forgiveness. For those of you who received the maximum presumptive 2020 forecasted income, or you have employees, you will probably want to continue waiting to see if more favorable forgiveness legislation gets enacted.
Student Loans: Federal student loans automatic forbearance for everyone was just extended again until Jan 31st 2021. It still doesn't apply to Private, Perkins, or FFEL loans. I'm sure more news of relief will be coming after Biden gets into office Jan 20th.
If you're child is in college, I recommend you continue paying for it with Federal student loans instead of your savings, in the possible case they forgive up to $50,000 for everybody and new loans are counted.
College planning and FAFSA applications: Contact me before you submit your FAFSA forms to double check you're getting the most financial aid available. Keep sending me your acceptance offer letters so I can compile local Michigan results for helping other families. The CollegeAidPro software I have is very informative for planning how much each college will cost for each of your children. It's especially helpful when kids get into high school, but also useful for families with younger kids starting to think about it.
Futures for Frontliners program makes community college in Michigan free, deadline to apply is Dec 31st.
Charity donation: Everybody can claim up to $300 as a charitable tax deduction this year, even if you don't itemize. So be generous if you can with your wealth.