This week, I’m talking about  year-end tax planning to help you take advantage of opportunities to potentially lower your taxes this year. 

Today, I’m talking about how and why you should plan for higher future taxes now. Since the Tax Cuts and Jobs Act was signed into law at the end of 2017, it has been one of the most favorable tax climates in recent history. So right now is arguably the best time to do tax planning and take advantage of the current favorable tax environment...because it’s not likely to last. 

Here are just a few ideas you may want to consider in light of the high probability of future tax hikes: 

Exercising stock options or selling stock that has a low cost basis. Capital gains tax rates are pretty low by historical norms, so now is a good time to look at exercising options or selling a long-held large stock position. Even if you don’t sell all of it, it’s wise to consider selling some in this tax climate. 

Another strategy to consider is converting a traditional IRA into a Roth IRA. The more money you can save inside of a Roth IRA or 401k, the lower the taxes will be on your IRA distributions in retirement. That’s because every penny you withdraw from your Roth IRA in retirement won’t be taxed. 

A Roth conversion allows you to convert money from a Traditional 401k or IRA to a Roth 401k or IRA and pay the taxes now. Since tax rates are low right now, and especially if you have substantial assets in traditional IRA or 401k accounts that will be subject to tax down the road, you’ll want to look seriously at a conversion before the end of the year. 

If you’d like some help determining if a Roth conversion makes sense for you, I can help you answer that question with a free Roth conversion analysis. Just send me an email to [email protected] with your age, the dollar amount you want to convert, and your expected income for 2020, and I’ll send you your free personalized results. That’s [email protected]. 

That’s it for today. Thanks for listening. My name is Ashley Micciche and this is the One Minute Retirement Tip.

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