Best Practices for Year-End 2020

December 11, 2020 By: Jackie Goldstick, CFP® and A.J. Hackett

Financial Planning-Investment Advisor-CFP-Napfa-Fee Only

As we approach the end of the year, it is prudent to review your situation and make sure that you have taken advantage of all that you can from a financial planning standpoint before December 31 st , as well as be sure you are positioned well for the year ahead. With that in mind, here are some things to consider.

Charitable Gifting

In 2020, the Cares Act allows you to deduct up to $300 for donations to qualified charities, even if you do NOT itemize . That means if you make a $300 qualified gift, you can claim the standard deduction as well as an additional $300 on your 2020 tax return.
If you do itemize, the CARES Act also suspends the deduction limit on qualified cash contributions of 60% of your AGI. If you have been thinking about making a large cash donation to a favorite charity, 2020 would be a good year to do it. (There are some restrictions on this. For example, this provision does NOT apply to Donor Advised Fund contributions).

Tax Planning

While it is uncertain what changes, if any, will be made to the tax code, federal income tax rates seem more likely to rise than fall over the next several years. Even before this year’s massive relief spending, the Tax Cuts and Jobs Act lowers individual income tax rates were set to expire after 2025, reverting to their prior, higher levels.

It may be worth deliberately realizing income today to avoid potentially higher taxes on the same income in future years. For example, consider converting or contributing to a Roth IRA or withdrawing IRA funds this year in anticipation of your 2021 cash needs.

Risk Management

As the pandemic reminded us, life is full of surprises. It is imperative to protect your wealth against the unexpected. Review your auto, disability, homeowner’s, life, long-term care, and umbrella coverages. Not only do you want to make sure your rates are reasonable, but also review your coverages; be sure they are adequate and that you are not carrying more insurance than is necessary.

Estate Planning

When it comes to reviewing your financial affairs, making sure your estate plan is in order is of paramount importance.

Review your beneficiary designations on your accounts and be sure they are consistent with your wishes.
Review how your accounts are titled and be sure they are consistent with your estate plan.
Ensure that you have powers of attorney for health care and property in place. For those with children who are 18 or older, be sure that they have powers of attorney in place and have signed HIPAA authorizations so that medical providers can talk to you as their parents.

Retirement Savings

For those that are covered under company retirement plans, to the extent you are able, be sure contributions are maximized prior to year-end. Contributions to IRAs can be made up until April 15 th, 2021 for the 2020 tax-year.

Flexible Spending Accounts (FSA)

If you have contributed to an FSA, be sure that you use the funds prior to year-end. Unlike Health Savings Accounts, FSA balances cannot be carried forward from year to year. Use it or lose it!

Financial Planning

As we prepare for a new year ahead, it is an ideal time to revisit your goals, both short and long-term.

Evaluate the progress you have made toward achieving your goals; take some satisfaction from what you have accomplished and consider what needs to be done to address any setbacks.
Consider whether the goals you had previously set for yourself are still relevant. After a year like 2020, maybe your priorities have changed, and if that is the case, your financial plan and investment strategy may need to be modified.
Renew your commitment to staying focused on the aspects of your financial plan that you can control, such as keeping costs and taxes low, staying on track with your spending and savings, and not letting the mania of the news cycle or some other outside force convince you to abandon your long-term plan.

While 2020 has been a challenging year in many respects, it has provided a great reminder of how true wealth encompasses so much more than a number or account balance. Family, friends, experiences, community, spirituality, nature, health…those are the things that make each of us truly wealthy. Hopefully, these priorities will remain top of mind as we embark on 2021.

Core Wealth Management is a fee-only wealth management firm located in Jupiter, FL. Our CFP® professionals provide investment management, financial planning and advisory services, while always strictly abiding by the highest fiduciary standards. For more information, contact us today at 561-491-0231.

Jackie Goldstick, CFP® is the Director of Financial Planning at Core Wealth Management. She is a member of the National Association of Personal Financial Advisors (NAPFA) as well as the Financial Planning Association (FPA).

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