How to Financially Plan for the End of the Year

While this end of the year is different from years past, the holiday season buzz will likely lead to increased consumer spending. With an expected uptick in travel and gifts shipped across the country from Thanksgiving through the New Year, it is critical to prioritize financial planning. Zoe Financial shares the ultimate year-end financial checklist to plan for the rest of the year and kick-off 2021 on the right foot.

Why Financially Plan Every Year?

Looking at one's financial plan on an annual basis will help you stay on track with goals. A holistic financial plan makes it easier to cover all your bases including retirement planning, tax strategy, and investing. Often, people believe they are managing their finances effectively only to realize they forgot about a critical part of the puzzle. By conducting a personal financial inventory, it can become easier to see the whole picture. 

To start a year-end financial checklist consider goals, budgets, and debt to obtain a cohesive snapshot of financial health during the past year. Identify what needs improvement to optimize finances in the best way. The end of the year is also an excellent time to get ahead of tax planning.

 

A Personal Financial Inventory includes:

  • Assets and personal income records. 
  • Items such as emergency funds, retirement accounts, other investment and savings accounts, real estate equity, and other valuables. 
  • Debt, such as a mortgage, car loans, credit cards, student loans, and others.
  • Credit information, such as a credit report and score. 
  • A review of financial advisory services and fees.

Use this financial inventory to set goals for the upcoming year. This should include reviewing one's budget, creating or increasing an emergency fund, paying off debt, getting life insurance, and figuring out how much is possible to allocate to growing a retirement nest egg. Other usual goals are buying a home or setting specific savings goals like saving for a vacation

Year-end Financial Checklist

1. Check Flexible Spending Accounts (FSAs)

An FSA is a tax-free account that allows contributions to pay for services not covered by health care coverage. Employers can sponsor medical and dependent care FSAs. If the plan does not allow for money to be rolled over into the next year, the balance should be spent on qualified expenses to not lose out. 

Review both the balance and the deadline to use it. This is also a good time to estimate medical expenses for the year, as contributions depend on this. Consider the benefits of a Health Savings Account (HSA) over an FSA. It offers tax-deferred growth, tax-free withdrawals, and tax-deductible contributions when the funds are used to pay for qualified medical expenses. 

2. Review Retirement Account Contributions

Consider retirement contribution advantages available to account holders. For example, tax deductions and employer matching contributions are virtually free money for one's future retirement. Consider updating the contribution strategy for next year with that in mind. Additionally, check with Human Resources, a financial advisor, or directly with the account institution to find out the threshold to qualify for the matching contribution plan. 

Additionally, review the investment options available as these change periodically. There may be hidden fees that would significantly put a dent in achieving future goals. Another thing to consider is the value of a Roth conversion. Check with a fiduciary financial advisor for an overview of retirement account options. 

3. Evaluate Tax Losses 

Consider selling any losing stock positions in a portfolio for a tax loss. This will reduce taxable income and make up for some gains. Play by the rules that this entails or risk being penalized by the IRS. It is also valuable to go over the overall asset allocation. It may be necessary to rebalance the portfolio or take advantage of tax-loss harvesting. If there is no tax strategy or plan, this is an opportunity to build one based on goals, objectives, and risk tolerance. A financial advisor can be especially helpful in navigating tricky tax implications. 

4. Plan For 2021

A new year comes with new and exciting life events, such as a job change, having a child, or a home or car purchase. Most of the time, these require financial planning beforehand. It also comes with the possibility to review employer benefits with open enrollment, usually in December. Go over the options and take advantage of them. 

Go over the budget and see if there are any potential adjustments. Consider whether to refinance a mortgage or loans. Rethink insurance and ensure its meeting your current life stages. Look to future savings, too. Think about how to save better for a more robust emergency fund and find strategies to funnel income directly into a savings account. 

5. Take Required Minimum Distributions (RMDs)

Everyone over 72 is required to withdraw a minimum annual amount from their retirement account by the IRS. Known as the Required Minimum Distributions (RMD), if not taken, the person is subject to penalties and additional taxes. It is a good opportunity to go over the retirement planned budget and consider RMD withdrawal strategies

6. Consider Qualified Charitable Distributions (QCDs)

Making a charitable donation from an IRA may reduce the amount of tax owed. It is essential to do it right. Consider which giving strategies offer the best tax benefits. If looking for a larger tax deduction, it might be worth thinking ahead about prepaying next year's charitable gifts.

Amid a crazy year, the end of 2020 can feel even more haphazard than usual. To keep holiday spending in check and avoid long-term financial setbacks, conduct a personal finance inventory. Follow Zoe Financial's 6 point checklist for end of year financial planning to ensure nothing falls off the list. Above all, look to review your financial plan. If you do not have a plan, now is the right time to put one together. A great option can be to speak with a financial advisor to guide and empower your financial future and start the new year right

About Zoe Financial

Zoe Financial's award-winning algorithm enables individuals to discover and connect with highly vetted, top fiduciary advisors in their area. All financial advisors in the Zoe Network are vetted and verified fiduciaries, along with having top credentials, education, and experience. Zoe's service provides support from start to finish during an individual's financial advisor search. All consultation calls and interviews with Zoe's network of advisors are completely free and are offered via video chat or traditional phone call depending on an individual's preference.

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Source: Zoe Financial

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