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December 18, 2020

Year-end Finance Checklist

The end of the year always seems to pass by in a flurry of holiday activity. After Thanksgiving, it’s easy to write-off personal goals or even stretch them out to the new year. With additional expenses that creep up out of nowhere and tax season a hazy memory, finances are usually put on the back burner. But there are a number of reasons to make year-end financial and estate planning a priority: you can start the new year on the right foot, take corrective action if needed, and set yourself up for future success. 

Here are six valuable tips for making sure you head into next year feeling confident about your financial health:

  1. Grade yourself

Nightmares of high school and middle school notwithstanding, it can actually be quite useful to give your finances a letter grade for the year. Schedule a 30 minute check-in with yourself and your family. During this check-in, come prepared to assess your current financial situation and review the past year. Some questions to consider when reviewing your finances: 

  1. Do an investment audit

Most people have multiple investment accounts spread out across asset types and platforms. It can be extremely valuable to take the time to log in and look at the annual reports for your investments. For example, you may have self-directed equity accounts, investment accounts through your job, a robo-advisor investment account, and special investments like lending loop or real estate. The year-end is a good time to think about rebalancing your portfolio, consider tax-loss harvesting, and ensure that your investments are in line with your risk tolerance and investment objectives. 

If you’re a passive investor and don’t regularly buy or sell equities, it can be extremely easy to forget to check up on your accounts. Using services like those of a robo-advisor, your portfolio is automatically rebalanced when required. But it’s still really cool to see how much you’ve invested and what your investment gains look like! It may also be worthwhile to see if you’re paying too much for your passive investments and if there’s a way to get onto a platform with lower fees.

  1. Max out your 401k (or plan how to before tax season)

You can reduce your adjusted gross income by contributing up to $19,500 to a 401k for 2020.  If you’re 50 or older, you can also take advantage of catch up contributions and contribute an extra $6,500 for a total of $26,000.

Your company may offer a matching 401(k) contribution as part of your employee benefits package. This is free money to you, so if possible, it’s best to contribute the maximum amount to your 401(k). Consider increasing contributions incrementally each year. If you get a regular pay raise, you won’t even miss the extra money from your paychecks.

  1. Tax Planning

Did you know that you can carry forward $3,000 of losses each year to offset ordinary income? Are you near the threshold that is going to bump you into the next tax bracket? If so, consider strategies to defer income or accelerate deduction to keep you in the lower bracket instead of floating into that higher bracket. 

Year end is also the season of giving. You may want to consider bunching your charitable contributions together and give every few years to maximize itemized deductions.

  1. Use your FSA and check your HSA if you have access to one

FSAs (Flexible Spending Accounts) and HSAs (Health Spending Accounts) are special accounts that can help you save money with tax benefits. You can contribute money into an FSA and HSA that will pay for services that your health care coverage doesn’t cover. Be sure to check with your benefits office to find out the deadline for using the money in this account so that it doesn’t go unused.

  1. Daydream and plan for retirement

Be ambitious about your financial goals and don’t be afraid to daydream a little when it comes to the future. According to a survey, the happiest retirees spend at least five hours per year (and usually more) planning for retirement. Everyone has a different path and different things that will make them happy, so it’s important to take the time to figure out what matters to you. Make sure you dedicate the time required so that you too can attain what truly makes you happy.

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