Accretive On: Year-End Planning

December 4, 2020

2020 has certainly been a year that most of us will never forget. Most importantly, we hope that you and your loved ones have stayed healthy. As we approach 2021 and have now gotten through Election Day, year-end financial planning is front and center.

As we write this, there is no formal tax plan from the Biden campaign, although there have been some proposed changes introduced. Before jumping into what those are, and the year-end planning strategies to consider, it is important to note that the outcome for Senate majority has still not been decided. In the event we knew the outcome, the actual policy to be implemented in 2021 would be unknown as well.

Retirement Plan and IRA Contributions

If you are enrolled in your employer’s retirement plan, such as a 401(k) or 403(b), then you have most likely been contributing via payroll deduction throughout the year. The maximum deferral amount is $19,500 for 2020 (and $25,000 for those over 50), so now is a good time to revisit what you have contributed year-to-date and make sure you are on track for your yearly savings target.

Biden Tax Proposal

One of the more notable differences in tax policy from the Biden campaign would be the elimination of the tax deduction for retirement plan contributions. The proposal states that instead of a deduction, retirement savers would receive a credit equal to a specified percentage of the amount contributed to the pre-tax plan. (Estimated to be a 26% credit)

Portfolio Rebalancing

While it is never an easy time to invest, 2020 has been especially difficult. In March, equity markets in the US experienced their first bear market since 2011 (defined by a 20% decline from recent market highs), followed by a fast recovery that began on March 23rd. Beyond the overall market volatility, we have seen a large deviation between various asset class returns. You can see by the graphic below, that US Large Cap Growth stocks (Russell 1000 Growth) have outperformed US Small Cap stocks(S&P 600) by 28% and Developed International stocks(EAFE) by approximately 30% year-to-date.

As a result, now might be a good time to revisit your overall allocation to ensure that it properly reflects your risk tolerance and investment objectives.

Biden Tax Proposal

If you are a high-income earner, then rebalancing in 2020 rather than 2021 may save you tax dollars if Biden is elected. $400,000 of Adjusted Gross Income (AGI) is reportedly the threshold of earners that will likely see higher taxes under the new administration.


Year-end tends to be the most active time of the year for giving, and we expect this year to be no different. The Coronavirus bill signed into law on March 27th had two notable inclusions around charitable giving for 2020. The first, is a new $300 deduction for taxpayers who do not itemize their deductions. (Previously, only those who itemize their deductions could deduct charitable contributions) The second, is an increase in charitable contributions, up to 100% of AGI, previously capped at 60%.

Biden Tax Proposal

High-income earners who itemize their deductions will likely see a new cap, which is currently proposed to be at 28%. Therefore, any taxpayers that are in the 32%, 35%, 37%, or the newly proposed 39.6% bracket, could see a substantial increase in their effective tax rate. As a result, you may want to consider lumping multiple years’ worth of charitable contributions into 2020.

If you have any questions or would like to discuss any year-end strategies that may apply to your situation, please don’t hesitate to give us a call.

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