It’s not too late to take advantage of these tax strategies for your 2021 tax return, but don’t delay: Each one needs to be completed by Dec. 31 of this year.
1. Maximize 401(k)/TSP Contributions
While you can make contributions to an Individual Retirement Account (IRA) and Health Savings Accounts up until April 15, 2022, the window to contribute to employer-sponsored retirement plans closes at the end of the year.
[RELATED: You’ve Maxed Out Your TSP or 401(k) Account. Now What?]
2. Convert Money from a Traditional IRA to a Roth IRA
As mentioned above, you can make contributions to an IRA up until tax day, but if you are converting money from a Traditional IRA to a Roth, you must do it before the year ends.
Remember, you will owe taxes on the converted amount.
3. Take Your RMD
If you are a retiree who must take a required minimum distribution (RMD) from your account, make sure you take it before Dec. 31.
Last year, the Coronavirus Aid, Relief, and Economic Security (CARES) Act waived RMDs, but they are required this year. Failure to take the required distribution results in a 50% penalty – ouch.
[RELATED: 65 and Beyond: Understanding Medicare and TRICARE For Life]
4. Give a Gift
Many people use the strategy of giving annual cash gifts during their lifetime as part of their estate plan. You can make a gift of up to $15,000 to an unlimited number of individuals each year without either party having to file a gift tax return or pay tax on it. But the gifts must be given by year’s end.
5. Charitable Contributions
Ordinarily, filers who choose to take the standard deduction (i.e. don’t itemize) cannot deduct charitable contributions. This year, however, a special tax provision allows filers to deduct up to $600 in cash donations to qualifying charities on their tax returns without having to itemize ($300 if filing as an individual). Contributions must be made by Dec. 31.
MOAA’s Financial Calculators
Whether you’re planning for retirement, buying a home, managing your investments, or more, these tools can help you make informed decisions.