No one could have predicted what 2020 had to offer. The stock market saw wild swings that hadn’t occurred since the 2008 recession. Concerns over Iranian tensions and an oil war quickly took a backseat as Covid 19 spread across the world. Many other notable things happened this year, but let’s discuss how you can end the year financially strong.
Here are the top 8 tips from our financial advisors.
1. Consider rebalancing your portfolio.
The stock market’s major recovery since March may have left your portfolio overweight in some areas or underweight in others. Be sure that you’re taking on the correct amount of risk by rebalancing your long-term asset allocation.
2. Assess your financial goals.
Starting now, assess where you are with the financial goals you’ve set for yourself. Take the necessary steps to help meet your goals before year-end so that you can begin 2021 with a clean slate.
3. Know the estate tax rules.
For those with estates over $5M, be sure to review your potential estate tax exposure under both a Republican and Democrat administration.
4. Review your employer benefits package and retirement plan.
Open enrollment runs from Nov. 1 through Dec. 15. Review your open enrollment benefit package and your employer retirement plan. Don’t gloss over areas such as Group Life and Disability Elections as most Americans are vastly underinsured. Many 401k plans now offer an “auto increase” feature which can increase your contribution 1% each year until the contribution level hits 15%, for example.
5. Take advantage of tax planning opportunities.
Such as tax-loss harvesting in after-tax investment accounts or Roth IRA conversions. Many folks have a lower income in 2020 which could present an opportunity to move some money from a traditional IRA to a Roth IRA while in a slightly lower tax bracket.
6. Boost your cash reserves.
It’s so important to have cash savings to cover unexpected expenses or income loss. Having a solid emergency fund can prevent you from having to sell investments in a down market or from taking on high-interest debt. Ideally, families with two working spouses should have enough cash to cover at least 3 months of expenses. While single income households should have cash to cover six months. Take the opportunity to review your budget and challenge yourself to find additional savings each week through year-end.
7. Contribute more to your retirement plan.
Increase your retirement account contributions for long-term savings, great tax benefits, and free money (aka an employer match).
Contributions you make to an employer pre-tax 401k or 403b are excluded from your taxable income and can grow tax-deferred. Roth account contributions are made after-tax but can grow tax-free.
If your employer plan and financial situation allow for it, you can accelerate your savings from now until the end of the year by setting your contribution level to a high percentage of your income. Many employers allow you to contribute up to 100% of your pay.
8. Give to charity.
Is there a charity you would like to support? Make a charitable donation! Salvation Army and Toys for Tots are popular around this time.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of the author and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability. Conversions from IRA to Roth may be subject to its own five-year holding period. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals of contributions along with any earnings are permitted. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion. Matching contributions from your employer may be subject to a vesting schedule. Please consult with your financial advisor for more information. 401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty. Contributions to a Roth 401(k) are never tax deductible, but if certain conditions are met, distributions will be completely income tax free. Unlike Roth IRAs, Roth 401(k) participants are subject to required minimum distributions at age 72.
