2021 | Your Year-End Financial Planning Checklist

2021 | Your Year-End Financial Planning Checklist

Before the holiday season gears up, there are some things you should check off your list to stay on top of your finances. Good financial planning isn’t just about quality investments, it’s about strategic planning around taxes and thinking through the long-term implications of the moves you can make now. That sounds like more than anyone wants to tackle when holiday feasts and festivities are on the agenda, so we broke it down into bite-size chunks.

Hors d’oeuvre, anyone?   

Maximizing Tax-Advantaged Savings

401(k) Accounts

The maximum you can put into a 401(k) account in 2021 is $19,500 if you’re under 50 and an additional $6,500 for those 50 and above. With just a couple pay periods left in the year, it may be worth it to up your contributions and put in as much as you can afford. You’ll pay less taxes this year, and you’ll have another year of growth of the plan.  If you haven’t contributed at least enough into your plan to get the company match, it’s important that you do that. Otherwise, you’re just leaving money on the table that could come in very handy during retirement. 

Health Savings Accounts (HSA)

HSAs were created to be used alongside High Deductible Health Plans (HDHPs). (For 2021, the IRS defines a high deductible health plan as any plan with a deductible of at least $1,400 for an individual or $2,800 for a family).

They allow you to save and invest money to be used for medical expenses, including deductibles, co-insurance, prescriptions, vision expenses, and dental care. Unused balances are carried over to the following year, funds never expire, and they can be passed on to a surviving beneficiary. In addition, HSAs are “triple tax-advantaged”, meaning that they are funded with pre-tax dollars, they grow tax-free, and withdrawals are not taxed if they are spent on qualified medical expenses. This is why we invest our client’s HSA balances alongside the rest of their retirement portfolio if they can cover medical expenses from other sources. For 2021, individuals can contribute $3,600 and families can contribute $7,200.

Education Savings Plans

529 plans are tax-advantaged savings plans specifically designed to help parents pay for their child’s education (although, they can be used by more than just parents). 529 plans are not just for college – tax-free withdrawals may also include up to $10,000 per year in tuition expenses for K-12 schools. State tax treatment of K-12 withdrawals varies. 

Although contributions are not deductible at the federal level, earnings grow federal tax-free and there is no federal tax on withdrawals to pay for qualified withdrawals. Depending on your state, you may be able to deduct contributions from your state taxes. You can contribute up to $15,000 per year per individual, or you can put in up to five years’ worth of contributions all at once and really get things going and (hopefully) growing. 

Charitable Giving 

Record-setting stock market performance means many investors are recognizing higher capital gains this year. If you can donate to your favorite causes by gifting an appreciated stock directly from your account, you won’t have to pay capital gains but you will get the full market value of the gift as a tax deduction. We wrote about this strategy a few weeks ago, read it here.

Tax Loss Harvesting

Scouring your investment statement looking for losses – with a positive frame of mind – is definitely not the usual. But in a year with big market gains, those losses can offset your capital gains as you rebalance your portfolio back to your preferred risk tolerance or just reset for next year.

The Bottom Line

Before the gift buying, travel arrangements, and party planning gets into full swing, it’s a good idea to check these savvy financial planning strategies off your list. 

General Disclosure. Readers of the information contained herein should be aware that any action taken by the viewer/reader based on this information is taken at their own risk. This information does not address individual situations and should not be construed or viewed as any type of individual or group recommendation. Be sure to first consult with a qualified financial adviser, tax professional, and/or legal counsel before implementing any securities, investments, or investment strategies discussed. The information contained herein is intended to be used for educational purposes only and is not exhaustive.  Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return.  If applicable, historical discussions and/or opinions are not predictive of future events.  The content is presented in good faith and has been drawn from sources believed to be reliable. 

Legal & Tax Notice. This information should not be construed as investment, tax, or legal advice and may not be relied on for the purpose of avoiding any federal tax penalty. This is neither a solicitation nor a recommendation to purchase or sell any investment or insurance product or service and should not be relied on as such. 

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