Have You Performed Your Year End Financial Review?

Have You Performed Your Year End Financial Review?
November 12, 2020

2020 has been an unprecedented year in many regards. However, that should not serve as an excuse to ignore your personal finances. Right now is a great time to consider the following financial planning moves, if appropriate. It is always important to do your best to end the year on a positive note and position for a successful 2021.

Review and update your beneficiary designations

Has a marriage, birth, loss of a loved one or divorce occurred in your family in the last 12 months? Even if that is not the case, other circumstances may have changed in your life that warrant updating a beneficiary designation. Review and update as necessary your beneficiary designations on your retirement accounts, investment accounts, bank accounts, life insurance policies and annuities.

Review your withholding

2019 was the first year that filers submitted tax returns (for the 2018 tax year) under the new legislation and as a result, many people either received refunds or owed taxes in amounts they were not used to. Review your withholdings to help ensure you are withholding a sufficient amount of taxes from your paychecks. Failure to withhold the proper amount could result in penalties. Withholding too much is not ideal either, even though you will get your excess withholdings back in the form of a refund you are essentially gave the government an interest free loan.

Fund Retirement Plans

There is still time to max out your 401k (December 31, 2020 deadline) and your IRA’s (April 15, 2021). The chart below highlights the contribution limits for 2020 and the subsequent increases, if applicable, for 2021.

Contribute to Health Savings Accounts (HSA’s)

Contributions are tax deductible and any earnings in the account are tax-free. Withdrawals from HSA’s will not be taxed if they are used to pay for qualified medical expenses. The contribution deadline is the April 2021 tax deadline, without extensions. Confirm with your current health insurance plan to find out whether you are eligible to participate in an HSA. The chart below outlines the contribution limits for 2020 and the subsequent increases, if applicable, for 2021.

Spend money in Flexible Spending Account (FSA’s)

FSA’s allow for pre-tax contributions to be spent on eligible healthcare products and services by December 31st. With the end of the year approaching it is time to either use or lose your FSA dollars. For added flexibility, your employer may offer either of these two additional options for your FSA dollars:

  1. Two-and-a-half-month grace period to spend the dollars in your FSA
  2. Allow a rollover of $500 into the next year

Capital Gains & Capital Gains Distributions

Over the course of the year, as trades were placed in your account for various reasons, positions that appreciated in value may have been sold, resulting in a capital gain. If this occurred in a taxable account, taxes will be owed on these gains. In a similar light, mutual funds are required to pay out to their shareholders, any gains they realized on the sale of stocks or bonds during the year. If you own these mutual funds in a taxable account, taxes will be owed on these distributions.

Review Goals and Objectives

The end of the year provides a great time to sit back and reflect on the progress you are making toward you goals and objectives. Did you make meaningful progress in 2020? Did the events in the past year set you back? Additionally, major life events may have occurred that require updating or changing your goals. Take this time to make the necessary adjustments so that you can continue on the proper path toward success.

Heading into the holidays is a great time to review this past year from a financial standpoint and make any changes necessary, including the items mentioned above, to put yourself and your family in a better financial position for 2021. As always, if you have any questions specific to your situation please do not hesitate to contact us.

Sources: Benefit Advisors Network, John Hancock, Securian

*This article is for informational purposes only and should not be considered investment advice.

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