If you are like many of us, you can’t wait for 2020 to come to an end.
It’s wise to make time to review personal financial planning items as the year comes to a close. Some opportunities could be lost as the calendar turns to 2021.
YEAR-END TAX CONSIDERATIONS
To reduce taxable income, be sure to maximize contributions to 401K and other retirement accounts. While 2020 IRA and Roth IRA contributions can be made until April, 2021, employer sponsored retirement plans typically have a contribution deadline of the end of the calendar year.
Deposits to Health Savings Accounts and 529 Savings Plans can be valuable ways to save for health care and education expenses while reducing current income.
Make any charitable contributions by the end of the calendar year and consider taking those contributions directly from an IRA account or using highly appreciated property.
It’s a good idea to estimate what your capital gains distributions will be for the year. Determine if capital gains losses are available and if so, whether it would it be wise to sell before the end of the year to “harvest” these losses and reduce capital gains taxes for 2020.
Ask your tax preparer if there are any tax considerations for you from the CARES Act passed earlier this year or any legislation that may pass before the end of 2020.
REVIEW YOUR INVESTMENT PORTFOLIO
There have been huge swings in the stock market in 2020. As I write, it appears we will have a new administration in place in 2021 and control of the US Senate is unclear.
Is your portfolio prepared for all possibilities? U.S. stock markets are near all-time highs and interest rates have fallen sharply throughout the year.
This is a good time to review your investment portfolio and determine if it’s time to rebalance. When markets are volatile, investment allocations can become out of balance and may need to be adjusted. Is your portfolio prepared for a post-COVID-19 economy?
REVIEW INSURANCE COVERAGES
It’s good policy to review your insurance coverages from time to time.
Do you have adequate life insurance in place for you and for your spouse? Have you planned for a potential disability where you suffer a loss of income?
In retirement, it’s wise to have a plan to pay for long-term care expenses. These costs are not typically covered by health insurance or Medicare.
An examination of your homeowners and auto insurance coverage amounts, premiums and deductibles can bring about savings or expose an unexpected potential financial loss.
Many people should have an “umbrella” liability policy in place in addition to their homeowners and auto policies.
Do you serve on the board of directors of a charitable organization? Do you have personal ID theft protection? A full understanding of insurance can help eliminate financial surprises.
YOUR PERSONAL FINANCIAL STATEMENTS
The end of each year is a good time to review your annual budget and net worth statements.
Review the current year’s income and expenses and evaluate them.
Are you saving enough? How much of your income is spent servicing debt? How do your income and expenses compare with the prior year? Create a budget for the coming year that will help you accomplish your overall financial goals.
Reviewing your net worth on an annual basis is good idea. Is it higher or lower than the prior year? And why? The goal of a financial plan is to increase net worth. Any increase in your assets or reduction in your liabilities will accomplish this result.
There are other financial considerations not discussed here.
For example, it is wise to review your estate plan each year and determine if you have the appropriate legal documents in place. Review your 2020 financial plan and set goals for 2021. Check your credit reports with credit reporting agencies to ensure accuracy.
There are many other items to consider and it is best to have a comprehensive financial plan in place.
