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10 Financial Must-Do's Before the End of the Year

Start your year-end financial planning now before it's too late.

Your holiday shopping isn’t the only thing that should start early, so should your year-end financial planning!

This time of year brings about holiday parties, time with family and an even more hectic schedule than usual.

But it is also a critical time to button up your finances for 2021 before its too late and to start thinking about the year ahead.

Let’s review a few topics that you should be sure to address before the end of the year.

Review your cash flow

The past 2 years have brought a lot of changes to cash flow. As spending continues to normalize and certain government benefits expire, such as the student loan forbearance in January 2022, it is more important than ever to review your income and expenses and ensure that your cash flow isn’t being negatively impacted by the continued normalization. You don’t need to account for every penny, but make sure you’re not putting yourself in a financial bind, that your savings rate is adequate - in the range of 10-20% - and that you are putting any extra cash to work for you.

Max out retirement accounts

Are you able to contribute more to your workplace retirement plan? The 2021 employee contribution limit 401(k)’s and the like is $19,500 for people under 50, with an additional $6,500 allowed for those over 50. Contributions must be made by December 31st. If you receive a year-end bonus, and your plan allows, then consider using this money to top off account contributions for the year.

IRA contribution limits for 2021 are $6,000 for people under 50, with an additional $1,000 for those over 50. Although you technically have until April 15th of the following year to make 2021 contributions, now is the best time to get any extra money into accounts. Don’t forget there are income limitations for using certain types of IRA’s or deducting contributions.

Max out 529 contributions

If you have children and hope to assist in paying for their college education then consider using a 529 college savings account, if you don’t already have one. You can contribute $15,000 per person, per recipient gift tax free. If you are a resident of Maryland and use the Maryland 529 plan then you are also entitled to a state income tax deduction for contributions up to $2,500 per person ($5,000 per couple!). Save for your kid’s education AND receive a tax deduction. It doesn’t get better than that!

Take advantage of an HSA – Health Savings Account

HSA’s are available to individuals and families that have a high deductible health plan. Depending on your insurance coverage you can contribute up to $3,600 for individual plans or $7,200 for family plans. These contributions are tax deductible and tax free if withdrawals are used for health related purposes. Even better, you can carry your balance over from year to year. HSA’s are essentially an additional retirement savings account!

Review your investments

2021 was an active year for both the stock and bond market. Although your investments should be actively monitored and adjusted throughout the year as needed, the end of the year is a good time to make any forgotten adjustments if needed, such as rebalancing. If you owned stocks and bonds at the beginning of the year then it is likely that your percentage of stocks has increased relative to your bonds and therefore you may be taking more risk than you intended.

Take advantage of any tax-loss harvesting. This is the process of selling investments at a loss in taxable accounts in order to offset capital gains produced throughout the year. The goal is to lower your taxes attributed to your investments. And remember, you can claim up to $3,000 per year in losses in excess of your gains to deduct against ordinary income.

Take your Required Minimum Distributions

You may not have been required to do so in 2020 due to temporary relief passed by Congress, but Required Minimum Distributions on retirement accounts are back in effect. This can impact those with Inherited IRA’s and those who are older than 70.5 or 72, depending on when you reached that age. Review your situation and make sure not to miss your required distribution otherwise you will be facing an additional penalty.

Make charitable contributions

The holidays are a time where we all feel more charitably inclined. If you plan to make gifts to charity then create a plan for how you can also maximize your charitable deductions and lower your taxes. For individuals that take a standard deduction, you are still allowed to deduct up to $300 in charitable contributions. For those who itemize deductions, the limits are much higher and are dependent on your income.

Given that stocks have been on the rise, gifting appreciated stock as opposed to cash may be more advantageous. It could allow you to give higher amounts and lower your taxes both now and in the future.

Consider Roth conversions

Roth conversions are a technique in which you convert pretax or non-deductible retirement contributions to a Roth account. You pay taxes now in exchange for the money going into a Roth account which grows tax free. This strategy requires detailed planning so proceed with caution or seek advice.

Plan for the year ahead

The best time to plan for the future is now! Spend time planning for what is to come in the year ahead to the best of your knowledge such as a change in income, large purchases, the arrival of a new child, moving homes, etc. By sitting down to think about the year ahead you can plan in advance rather than find yourself overwhelmed as the year progresses.

Meet with your financial advisor and CPA

Your financial advisor and CPA are instrumental in making sure you are taking advantage of all opportunities available to you and avoiding any mistakes. If your financial advisor has not been in touch with you – which they should be – then reach out to them to make sure you are planning ahead rather than having to go back and make mistakes or rush at the last minute. 

Final Thoughts

As you can see there is a lot to plan for toward the end of the year. And it is no easy feat as our time and attention is being taken in more directions than ever. But ignoring your financial planning is no way to work toward financial freedom. If you are not confident in your ability to plan and navigate the planning strategies that are available to you then contact Crest Wealth Advisors. Schedule a complimentary call today!

Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Jason Dall’Acqua, and all rights are reserved.