Last Minute Tax Planning for 2020

Clete Albitz, CFA, CFP®

Clete Last Minute Tax Planning 2020

With the 2020 tax filing deadline approaching, here are some post year-end tax planning strategies you may still be able to use and apply to your 2020 tax return. 

Retirement Contributions 

If you have not yet funded an IRA or Roth IRA for the 2020 tax year, you can still do so up until April 15th, 2021.  The maximum contribution to either type of account is $6,000 for 2020 with those over age 50 eligible to contribute an extra $1,000.  Due to the relatively low annual maximum, it is a good idea to ensure you contribute each tax-year.

If you or your spouse are covered by a retirement plan there are income limits for IRA deductibility.  Likewise, if your income is too high, you may be ineligible to fund a Roth IRA directly.  If this applies to you, funding a backdoor Roth IRA is often the ideal strategy as long as you are not subject to the pro-rata rule.

If you are self-employed, you can fund a SEP IRA (Simplified Employee Pension) with a maximum contribution of 25% of compensation or $57,000.  A SEP IRA can be funded up until the tax filing deadline plus extension, October 15th, 2021.  

Likewise, the SECURE ACT extended the deadline for employers to adopt a new 401(k) plan from the end of the year to the due date of that year’s tax return plus extension. Employees do not have more time to make salary deferrals, but employers can make a profit sharing contribution.

Health Savings Account

If you had an HSA-compatible High-Deductible Health Care Plan for all of 2020, you are eligible to fund $3,550 for an individual plan and $7,100 for a family plan by April 15th, 2021.  Those over age 55 can contribute an extra $1,000.  HSA contributions are fully deductible, and contributions grow tax-free and can be withdrawn tax-free if the funds are used for qualified medical expenses.    

Planning for 2021

With the increase in the standard deduction, fewer people are itemizing their deductions and as a result, charitable donations may no longer provide a tax benefit.  If you are over age 70 ½ you have the option to make a qualified charitable donation up to 100K from your IRA.  Funds paid directly to a charity from your IRA are exempt from tax and count towards your required minimum distribution requirement.    

Despite a difficult start to 2020, the financial markets recovered, and many mutual funds ended up paying out relatively large capital gain distributions toward the end of the year.  One strategy you can use to better control the timing of your taxes is to consider holding your more tax-inefficient investments in tax-advantaged accounts.  There are pros and cons to this strategy while capital gain rates remain lower than ordinary income tax rates.  However, putting thought into the asset location of any new and existing investments is a worthwhile effort for 2021 and future years.

Clete Albitz


Clete Albitz joined Albitz/Miloe & Associates, Inc. in 2005 and is dedicated to serving clients, specializing in investment portfolio management and retirement income planning. Clete is a CFA® charterholder, CERTIFIED FINANCIAL PLANNER™ (CFP®), and graduated with a degree in Economics from the University of California, San Diego. He enjoys playing baseball, basketball, and coaching Little League. Clete resides in the South Bay with his wife and three children.

More about Clete

For a comprehensive review of your personal situation, always consult with your legal or tax advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice. Distributions from traditional IRAs and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% IRS tax penalty. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.