How much longer will you enjoy the tax benefits from the 2017 Tax Cuts and Jobs Act (TCJA) and the 2019 SECURE Act? It’s anyone’s guess, and it’s critical to squeeze out as much upside as possible before the new Biden administration raises taxes for high-net-worth taxpayers as planned.

Without careful planning, the current tax laws might work against you. These three time-sensitive tax tactics help you avoid creeping into a higher tax bracket — and could result in your lowest taxes for years to come.

STRATEGY #1

Create tax-free income by converting to a Roth IRA while tax brackets are lower

One powerful way to lock in today’s lower effective rate is to convert some of the money in your tax-deferred Traditional IRA to a Roth IRA this year. You’ll owe income tax on the entire amount you convert, which then grows tax-free for the rest of your life.

There are two major potential benefits for converting to a Roth in 2021.

Juice up your retirement funds with a lower tax rate on the conversion, at the same time bypassing probable future tax-rate creep that could have you paying higher taxes in your retirement.

Your Traditional IRA account balance decreases, which in turn potentially shrinks your required minimum distributions at age 72, keeping more of your money in your pocket.

This strategy isn’t right for everyone. Crunch the numbers first, and talk with your advisors.

Why now might be a good time to convert: Under the old, higher tax brackets, a married couple filing jointly with an income of $250,000 paid an effective federal tax rate of 23.09%. That dropped to 16.9% under the 2017 tax changes. Though the exact numbers are up for debate, we’re likely to see an increase in rates in the near future.

What you need to know before you pull the trigger:

• You might be better off waiting until retirement if you expect a sizable drop in income at that time
• Conversions are now permanent, so unlike previous years you can’t recharacterize if need be

STRATEGY #2

Do more good by amplifying the charitable power of your IRA

Although the required minimum distribution (RMD) age is now 72, taxpayers 70½ and older are still eligible to make a Qualified Charitable Distribution (QCD). Under current rules, up to $100,000 can be withdrawn from your Traditional IRA and sent directly to the qualified charity of your choice, with no tax consequences for you.

The charity isn’t the only beneficiary of this approach. If you have RMDs this year, you won’t be taxed on the amount you donate. Haven’t started your RMDs yet, but still eligible for the QCD? You’ll shrink your Traditional IRA just as Strategy #1 does, without the taxation on the Roth conversion.

However, this may not be the right game plan for you. First, you need to be over age 70. But talk with your professional advisor to ensure this strategy will work in your situation.

STRATEGY #3

Overcome the standard deduction limitations

Many taxpayers lost the ability to itemize deductions due to TCJA limitations on state and local tax deductions and the larger standard deduction. We don’t know what future tax changes will mean for your ability to itemize, making 2021 a potentially critical year for deductions.

Fortunately, there are several ways you can accelerate expenses and/or deductions into this tax year.

1. Stack charitable donations. Rather than granting your usual annual amount, make a larger contribution that covers several years.
2. Accelerate or prepay medical expenses before year-end. As a reminder, your medical expenses must be at least 7.5% of your AGI to be deducted. Many expenses can be prepaid, including long-term care premiums, some home modifications, and some Medicare plans. Some plans even provide a discount when you pay upfront.
3. Pay certain taxes this year, for example, your property taxes. If your 2022 taxes are assessed in 2021, you can pay and deduct them in 2021.

Is this the right tax tactic for you?

• Bunching your deductions in 2021 might not make sense for your portfolio
• Your long-term financial plan could be adversely affected

You’re ahead of the game, now that you have identified ways to use current tax laws (which could disappear after 2021). Take full advantage now without jeopardizing your future.

Taxes can be complex, and decisions for the current tax year must be made in the context of the overall portfolio and plan for the future. Be confident that you’re optimizing your tax return this year.

And of course, if you want help with any of this…call me.

Risk Disclosure: Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results.

This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. The content is developed from sources believed to be providing accurate information; no warranty, expressed or implied, is made regarding accuracy, adequacy, completeness, legality, reliability or usefulness of any information. Consult your financial professional before making any investment decision. For illustrative use only.