12 Year-End Financial Planning Tips for 2020


With the holidays approaching, the end of the year can be a busy time. However, it’s also an important time to focus on your finances. Here are 12 year-end financial planning tips to help you start the new year right.

Of course, please be sure to consult with your financial advisor or CPA to see if these tips apply to your specific situation.

1. Review Your Retirement Savings

While there’s not a lot of time left to contribute to your 401(k), you still have time to contribute toward an IRA or Roth IRA if you’re eligible.

You can contribute up to $6,000 (or up to $7,000 if you’re over age 50) to an IRA or Roth IRA. The good news is that you have until April 15th of next year to make the contribution, so you don’t have to rush.

2. Check Your RMDs

In a normal year, you’ll need to take an annual required minimum distribution from your retirement account if you’ve reached the requisite age or have an inherited IRA. Well, 2020 is not a normal year! The CARES Act suspends RMDs this year.

We also had a rule change in 2020. With the SECURE Act, RMDs now start at age 72 instead of the prior age 70-1/2. However, if you turned age 70-1/2 before June 30th, 2019, the old RMD rules apply.

Either way, make sure you take your RMDs before year-end in 2021 and beyond.

3. Check for Tax-Loss Harvesting

If you expect to have capital gains in your portfolio, you may want to see if there are any investments that are currently at a loss. You can sell these investments in order to offset any capital gains. This is known as “tax-loss harvesting” and can be useful during your year-end portfolio rebalancing.

Again, 2020 is an unusual year; based on what we’ve seen, there may not be many opportunities for this strategy.

4. Rebalance Your 401(k)

Speaking of rebalancing, the end of the year is a great time to go back and review your company retirement plan. First, you should review your investment choices to ensure your investment options haven’t changed. Funds can be replaced over the course of the year.

Once you’ve reviewed your investment option, check your asset allocation. Are you taking too much risk or not enough? Rebalance your holdings to your desired allocation. Some funds will have gone up or down over the course of the last year. Rebalancing allows you to reset the overall risk in your portfolio.

5. Consider a Roth IRA Conversion

A Roth IRA conversion may be a good idea if a couple of scenarios exist. First, if your income is lower than it would normally be in any given year, then talk to your CPA to determine how much of your IRA you can convert while still staying in the same tax bracket.

Another condition that lends itself to a year-end Roth IRA conversion would be a dip in the markets. It doesn’t look like that’s going to happen in 2020. However, in years where asset prices drop, you can convert more while paying less in taxes. Be sure to check out my blog post on Roth IRA conversions.

6. Consider a Charitable Donation

If you are already charitable, you may have the ability to lower your taxes. Charitable giving may be deductible. However, because the standard deduction was increased back in 2017, fewer people itemize these days. If you don’t itemize, this strategy will not work for you, so check with your CPA.

If you’ve had a year with higher-than-normal income, a Donor Advised Fund may be a great way to front-load several years’ worth of charitable giving and get a great tax deduction. Check out my blog post about Donor Advised Funds for more information.

Even if there’s no tax benefit, I would encourage you to consider contributing to a good cause.

7. Review Your Beneficiary Designations

Next in our list of year-end financial planning tips, it’s good practice to review your life insurance policies and retirement accounts to ensure your beneficiary designations are just the way you want them.

A lot can happen in a year. Who knows – you might want to cut someone out of an inheritance!

8. Check Your Tax Withholding

If you have time to sit down with your CPA, ask about your annual tax withholding and confirm that you’re not over-paying or under-paying each month.

9. Take Advantage of Your HSA

Just like putting money away into an IRA, you have another chance to save money and defer taxes with an HSA. Single filers can save up to $3,550 and joint filers can save up to $7,100. If you’re over age 55, then add $1,000 to that.

Just like an IRA, you have until April 15th to make the contribution. What’s great about an HSA is that, once you turn 65, it essentially becomes an IRA. What a great way to save a little bit more toward retirement, right?

10. Spend Your FSA Money

If you’re participating in an FSA, start spending that money now! While you may be able to roll as much as $550 over to next year depending on your employer, these funds exist on a “use it or lose it” basis. So, make a plan to visit the drugstore and stock up!

11. Check Your Credit Report

Once a year, make it part of your routine to check your credit report. Go to annualcreditreport.com for free, government-mandated access to your credit reports at all three major credit reporting agencies.

Make sure everything looks correct and there are no new or unusual accounts are listed. Don’t forget to dispute anything that doesn’t look right.

12. Make Your 2021 Resolutions

Finally, get started on your 2021 financial resolutions. My advice is to pick only one and focus on it. Do you need to start reducing your debt? Do you need to increase your retirement savings? It can be tempting to try and do too much at once. Instead, pick one goal and focus on creating a process to get it done.

If you need help implementing any of these year-end financial planning tips (or if you need help getting your finances on track in the new year), click here to set up a quick, complimentary introduction call to see if Prana Wealth is a good fit. We do still have the capacity to take on new clients.

As a fee-only financial advisor in Atlanta, we can (and do) work virtually with clients all across the U.S. and we’re here to help you when you’re ready.

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