Tax Planning Strategies for 2021

Updated: Jan 13

With the close of this year fast approaching, we suggest the following tax planning strategies that may help you as you look to plan for 2021. Our goal is to help clients with these strategies to achieve tax-savings. Please don’t hesitate to reach out to us to see if one of these strategies may benefit you.

  1. Maximize tax-favored savings vehicles

  2. Consider Qualified Charitable Distributions

  3. Consider a Roth IRA Conversion

1. Maximize Tax-Favored Savings Vehicles

If you are planning to save in one of the following tax-favored savings vehicles in 2021, please note that the IRS has released the maximum contribution amounts as found in the table below. The amount that you can contribute to IRAs as well as the amount that you can defer into SIMPLE IRAs and 401(k) plans will remain the same in 2021. The amounts that can be contributed to Health Savings Accounts will be increased next year by $50 for self-only coverage and $100 for family coverage.

For More Information, See Sources:

- IRA Contribution Limits: IRS Website FAQs Contributions on IRS Website

- SIMPLE IRA Contribution Limits: see IRS Website

- 401k Contribution Limits: Retirement Topics - 401(k) and Profit-Sharing Plan Contribution Limits on IRS Website

- HSA Contribution Limits: IRS Rev. Proc. 2020-32

You may be able to make additional contributions to a SIMPLE IRA or 401(k). Please contact us for more information on your situation. If you have questions about funding any of these tax-favored savings vehicles, please don't hesitate to reach out to us.

2. Consider Qualified Charitable Distributions

For those of you who are 72 or older with an IRA, who make charitable contributions, you may save money in taxes by making those charitable contributions as a qualified charitable distribution (QCD) from your IRA.


If a married couple is 72 or older and plans to make charitable contributions of $10,000 in 2021, they could make those contributions in the following two ways:

  • Direct Contribution: Make a payment directly to their charity by writing a check. Assuming they have no other itemized deductions, the $10,000 of charitable contributions will not decrease their taxes since every married couple automatically receives a standard deduction of $25,100. Unless their itemized deductions are higher than that amount, the $10,000 of charitable contributions will not decrease their taxes. In addition, if this couple needed to take a required minimum distribution (RMD) in 2021 of $50,000, this amount would be taxed in their ordinary income rates.

  • Qualified Charitable Contribution (QCD): They could make a $10,000 charitable contribution from one of their IRAs. So $10,000 of their $50,000 RMD could be a QCD and only $40,000 of their RMD would be taxable. Assuming they didn't need to access any more of their IRA for living expenses, the benefit to them of this strategy is that they would save the tax that they would have normally paid on this $10,000 contribution. Assuming they were in the 22% tax bracket, their savings would be $2,200. If they were in a higher tax bracket, their tax-savings would be even more.

I have just used a $10,000 contribution as an example, but any charitable contribution, even small amounts, could qualify for this tax-savings. (Find more information see source IRA FAQs – Distributions (Withdrawals) on IRS Website). If you would like to consider it in your situation, please don't hesitate to contact us.

3. Consider a Roth IRA Conversion

If you are retired you may benefit from a Roth IRA conversion, especially if you have not started taking Social Security or distributions from your IRA.


This can work well for dentists who retire and sell their practice prior to age 70. Assuming they live off their practice sale proceeds for several years, they may be in a very low tax bracket. However, if they have a large IRA or retirement plan balance, they may be required to take large required minimum distributions beginning at age 72. They may also take Social Security by no later than age 70. Both events will increase their taxable income and thus their taxes.

However, prior to this time, when they are in a lower tax bracket, if they convert some of their IRA to a Roth IRA, they will be required to pay tax on that conversion, but the timing is key. The tax on conversion could be at a lower rate than they would have to pay tax on in the future if they are in a higher tax-bracket. (Find more information on IRA FAQs - Rollovers and Roth Conversions on IRS Website)

Our goal is to help clients maximize tax planning strategies like these when appropriate, so if you would like to consider it in your situation, please don't hesitate to reach out.

Financial planning strategies in the new year with tax strategies like these may benefit you, based on your specific situation and financial goals. We would love to help you implement the strategies that will work best for you.

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