Financial Planning

Year-end Financial Planning Checklist


It is hard to believe the fourth quarter is already upon us. The leaves have started to turn, the days are getting shorter, and before you know
it we’ll be fully engulfed in the chaos that is the holiday season. With that in mind, we wanted to provide a helpful list of financial to-dos to take care of BEFORE things get too busy.

Charitable giving:

The Tax Cuts and Jobs Act increased the standard deduction for 2021 to $12,550 for single taxpayers and $25,100 for married taxpayers
filing jointly. This increase means many taxpayers no longer benefit from itemizing deductions which is how they would normally deduct charitable contributions. Below are some strategies that may allow you to keep supporting your favorite causes and organizations with some tax benefits depending on your charitable intent and immediate and longer-term goals:

  • Gift appreciated securities: If you itemize deductions, this will keep you from realizing capital gains and reduce your taxable income. This deduction is limited to 30% of your adjusted gross income for the tax year; but if you gift more than the 30%, you can carry forward any unused deductions for up to five years.
  • Bunch contributions to a Donor Advised Fund: You can maximize your itemized deduction in the current year by prefunding future years of charitable giving. This strategy is beneficial if you are close to the standard deduction level or if you had an unusually large income year.
  • Qualified Charitable Distribution (QCD) from your IRA: Giving some or all (up to $100k) of your Required Minimum Distribution (RMD) directly to qualified charities can fulfill your RMD obligation and the amount will be excluded from your taxable income. Reducing your income may have additional benefits like reducing your Medicare premiums in future years. You can use the standard deduction and still receive a tax benefit from charitable giving.

Take your Required Minimum Distribution (RMD):

  • Do Not Forget: there is a 50% penalty on the amount not taken out.
  • The SECURE Act moved the RMD starting age from 70½ to 72 for individuals who turned 70½ after 12/31/19.
  • Use these funds to help pay for living expenses, reinvest in a taxable investment account, or consider a QCD if you don’t need the funds.

Annual gifts to loved ones:

Annual exclusion gifts of up to $15k (or $30k for married couples) can be given to individuals free of gift tax consequences. These limits also apply to 529 college savings plan contributions. Also, you can pay qualified education or medical expenses on behalf of loved ones directly without gift tax considerations.

Review benefits of a Roth conversion:

Evaluate converting all or some of your pretax Traditional IRA to an after-tax Roth IRA (read more in our recent note on this topic1). You will be
required to pay taxes on the amount converted, but some reasons it might make sense are:

  • Income tax rates are likely going higher.
  • You can pay taxes using cash outside of your Traditional IRA.
  • Legacy planning; non-spouse beneficiaries are now required to withdraw the entire account balance within 10 years of inheriting an account. Roth funds will come out tax-free while Traditional IRA funds will be taxable income to the beneficiary.

Review taxable investment accounts for realized gain/loss status:

Evaluate the optimal timing of taking losses to offset gains. If tax rates are likely to go higher, it may make sense to wait; but if this is an above-average income year, it may be more valuable to realize a loss now*.
(*As always, be sure to consult with your tax advisors before taking action.)

401(K) checkup:

Employer retirement plans are very often ignored even though they can be one of your largest sources of income in retirement. Review your allocation and contribution rates.

Health Savings Account (HSA):

If you are enrolled in a high deductible plan, you are eligible to contribute to an HSA account (2021 – $3600 individual, $7,200 family coverage + $1,000 if over age 50). You technically have until April 15th of the following year to make the full contribution amount. Consider using a custodian that allows you to invest assets if you’ve accumulated a large balance. If you have a Flexible Spending Account (FSA), make sure you use it all before year end or the balance will be forfeited.

Review your estate documents:

This should be done every five years or whenever you have a change in your personal or financial circumstances.

Review your insurance coverage:

Make sure your coverage limits are sufficient. Many homes have increased in value, or maybe
you did a home improvement recently. Make sure your umbrella coverage is enough to cover your investable asset levels.

This newsletter is intended for educational purposes only. For financial planning advice specific to your needs or for further information, please consult your portfolio manager.

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