Year End Financial Planning: Your Resource Guide

We only have a few weeks left in one of the longest and most eventful years in most of our lives. While 2020 brought a pandemic and recession, investments so far have been resilient. Make sure that you are prepared for what is next and use this year-end guide.

Make sure you download the important 2021 numbers including contribution limits and tax brackets.

Year-End Financial Decisions

Some financial decisions have a deadline. Make sure that you consider and review your personal situation prior to the end of the year.

Retirement Contributions

You have until your tax filing to contribute to IRAs and Roth IRAs. For your company retirement plans like 401k, 403b, and 457 accounts, your contributions must be received by the end of the year. You may have adjusted your contributions lower during this tumultuous year. See if you can revert to normal savings level or boost savings when possible. Self-employed? Review the retirement savings vehicles that might make the most sense for your business.

Investment Review

The stock market has had a wild ride in 2020, but as of publication, many of your investments may be higher. Take a minute to rebalance, examine internal expenses, and ensure that you have an investing game plan that is up to date.

  • Make sure your accounts are updated with appropriate titling per your estate planning, beneficiary designations assigned, etc.
  • Are your accounts invested or is cash sitting where it shouldn’t be? Do you need cash in the coming year and if so, do you have a plan for how to raise it when appropriate?
  • Review your portfolio. Is your portfolio expensive relative to current options? Are your tax costs high? Have your goals changed so that a different mix of stocks and bonds may be warranted?
  • Rebalance your accounts to your preferred mix of stocks and bonds if you haven’t done so recently.
  • Does it all feel like too much to manage? Consider a portfolio review or consultation with an investment or financial professional.

Tax Planning

Look at your personal tax situation to make sure that you are not missing any timely actions:

  • Has your income changed significantly this year? Review ­and discuss big shifts up or down with your CPA and financial planner.
  • Do you expect tax rates to go higher in the future? No one is certain if or when tax rates will change. If you think taxes are going higher, you may want to accelerate income into the current year. This is a complex decision best made in consultation with your financial team.
  • Roth conversions may also be considered in low tax years or if you think tax rates may go higher in the future. Your conversions through the end of the year will be taxed on your 2020 taxes at current tax rates.
  • Investments in taxable accounts may have tax consequences based on gains and losses. Review your portfolio with your financial advisor to determine if tax-loss selling or adjustments to avoid taxable distributions may be advisable.

Open Enrollment and Benefit Elections

Year-end is the time to make choices for your 2021 benefits including health insurance, life insurance, disability, and more. Make sure that you take the time to make the choices that best fit your life and if there are gaps in the benefits that are offered, evaluate access to options independently. For retirees, you may need to review your Medicare coverage during the annual enrollment period. And if you don’t have employer health insurance, open enrollment for state health insurance exchanges is occurring now. We’ve compiled recommendations in our open enrollment podcast episode and our Medicare update for 2021.

Estate Planning

2020 was certainly a year of change.  If there have been changes to your family, heirs, or the purchase/sale of assets it is important to review your estate planning documents. It is also a good time to complete your annual gifting.  The annual exclusion amount for 2020 is $15,000 (per year, per donee).  You can use your annual exclusion amount to contribute to a beneficiary’s 529 account, if college savings is one of your goals.

Kids and Education Planning

Use time together these holidays to discuss family values, share stories, and teach basics of money and finances. If you’re sick of toys for gifts, ask relatives for college savings presents instead. Make sure that your own education planning is on track and make a plan for next year.

Charitable Giving

If you are charitably inclined, evaluate whether your gifts will qualify for a tax deduction. It can be complicated as fewer Americans itemize on taxes. Revisit a more in-depth exploration of charitable giving strategies with our Tax-Smart Charitable Giving webinar replay.

Additional tax-advantaged giving possibilities include:

  • $300 gifts that are deductible with the CARES Act.
  • Gift of appreciated stock directly to charity.
  • Donor advised gifts. Donor advised funds can provide with you a current year deduction and allow you to give to charities over time.
  • If you are required minimum distribution age, you can still make your gifts directly from your IRA to your preferred charity to avoid the income associated with a normal retirement distribution.

Map Out Your New Year

Do not head into the new year without adjusting your plan for 2021 realities. Spend some time setting goals and expectations based on your current circumstances.

Get started with these steps:

  • Download our 2021 Money Wisdom Calendar. Use this to set goals, journal on money topics, and remember important dates throughout the year.
  • Set your 2021 budget. Have expenses crept up due to COVID adaptations? Do you need to cut recurring expenses you are not using or enjoying? Take time to assess and adjust.
  • Mark important dates on your calendar for next year including reminders for tax deadlines, nudges to review your goals, and investment refreshes.
  • Review and refresh your financial goals. Do you need to figure out if you are on track for retirement? Planning to save for a big purchase? Want to trim your expenses? Write down your goals and make sure that you have incremental checkpoints so you can get started and stay on track.

There’s a lot to tackle but staying on top of your money and financial decisions will be rewarding over time. If it makes sense to discuss your choices with us, do not hesitate to schedule an update call.

Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability.