I'd recommend keeping the 2020 and adding a Studio M3 + Studio next to it. It gives you plenty of time to transition your heaviest workloads over to the Studio while allowing you to run stuff on the iMac if some software doesn't run well on Apple Silicon. It will also give you a backup system.
Very interesting! My only concern is the requirement of allowing keyboard and trackpad to connect to both.
Does Luna Display adapter work well?
Or alternatively, I thought about having a 2 in/2 out USB switcher and Being able to press a button to toggle between which Mac the keyboard and trackpad are connected to. Luna would certainly be easier, although if I ever ran independently I’d still need the USB switcher too.