Personal Finance

Wells Fargo Advisors: Year-End Planning – 2020 Changes and End-of-Year Checklist

Among its countless impacts, the coronavirus pandemic led to the passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which brought investors a number of changes to deal with this year. In addition, investors are seeing changes in 2020 that were created by the Setting Every Community Up for Retirement (SECURE) Act, which was signed late in 2019.

Because of these acts, investors have new issues to consider for the remainder of 2020, including:


Retirement Plan Distributions
What changed: Required minimum distributions (RMDs) are waived for 2020 from certain qualified retirement plans (QRPs), such as 401(k) and 403(b) plans, and IRAs, including Inherited IRAs, and 2019 RMDs not taken in 2019 with a required beginning date of April 1, 2020.

Next steps: Although you’re not required to take an RMD in 2020, you may want to take it anyway.

  • If you believe you are in a lower tax bracket now than you expect to be in the future, a current distribution may result in long-term tax savings.
  • Distributions you take now will reduce your year-end balance, which could decrease the amount you have to distribute in future RMDs.
  • If you do not need the cash flow, consider converting the distribution to a Roth IRA to take advantage of the possibility for tax-free growth.

Consider the amount of income you expect over the next five-ten years. Are there times when it might be lower or higher? It may be beneficial to take retirement plan distributions in these lower-income, lower-tax-bracket years to capture some tax savings.

Charitable Contributions
What changed: If you’re unable to itemize deductions, you will be allowed a charitable deduction of up to $300 for this year (2020). If you can itemize, the adjusted gross income (AGI) limitation is waived, letting you offset more of your taxable income. These provisions apply only to cash contributions and not to contributions to donor advised funds or other supporting organizations.

Next steps: If you’re charitably inclined and itemize your deductions, you may want to increase your cash gifts to offset Roth IRA conversion income or significant capital gains from the sale of a concentrated position (a large holding in a single investment) or real estate.

Coronavirus related Distributions (CRD) from Retirement Accounts
What’s new: Qualified individuals of any age can take up to $100,000 from IRAs and QRPs. These distributions are exempt from the 10% additional tax for early or pre-59 ½ distribution and not subject to the 20% withholding requirements for qualified retirement plans. A qualified individual is someone who is diagnosed or their spouse or dependent is diagnosed with the virus SARS-COV-2 or coronavirus disease (COVID-19) by a test approved by the Centers for Disease Control and Prevention. Or they experience adverse financial consequences due to one or more of the following factors: being quarantined, furloughed, laid off, having work hours reduced, unable to work due to lack of child care due to SARS-CoV-2 or COVID-19, closing or reduced hours of business owned or operated by the individual due to COVID-19, or other factors as determined by the Treasury Secretary. Keep in mind these distributions will be taxable evenly over three years beginning with this year and if you want,you may repay the distributions within three years.

Next steps: If you’re eligible and considering taking distributions, consult your financial advisor about the potential impact on your long-term plans.


Traditional IRA Contribution Age Limit Removed
What changed: Starting in 2020, you can contribute to a Traditional IRA no matter your age as long as you or your spouse, if filing jointly, have earned income. You have until April 15, 2021, to make a 2020 contribution, which could be deductible.

Next steps: If you are age 70½ or older, consult your financial advisor and tax advisor to determine if additional contributions make sense for your investment strategy.

Inherited IRA
What changed: If you inherit an IRA as a non-spouse beneficiary, and the IRA holder died on or after January 1, 2020 your options are limited. Most non-spouse beneficiaries and qualified look-through trusts will be considered a Designated Beneficiary (DB) and the account must be emptied by the end of the tenth calendar year following the year of death of the IRA owner or plan participant. Eligible Designated Beneficiaries (EDB), which are a spouse, children of the account owner who have not reached the age of majority (yet to be defined), chronically ill or disabled individuals, or individuals not more than 10 years younger, the same age, or older than the IRA owner will still be able to take advantage of the stretch IRA strategy. Stretching an IRA refers to the ability to take RMDs over the beneficiary’s single life expectancy (using the term-certain calculation method) rather than over the life expectancy of the original IRA owner.

Next steps: If you inherit an IRA this year, check with your financial advisor to determine if this change might affect your distribution requirements and strategy. And if you have included an IRA in your estate plan for others to inherit after your death, check with your attorney to determine the possible impact on your estate planning strategy.

Editor’s note:This article was written by Wells Fargo Advisors and provided courtesy of Tom Jaeger, CFP®, Financial Advisor, Managing Director-Investments in Dubuque, IA at 563-557-9400.

Investments in securities and insurance products are: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE.

Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC, Member SIPC, a registered broker-dealer and non-bank affiliate of Wells Fargo & Company.

© 2019 Wells Fargo Clearing Services, LLC. All rights reserved.

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