End-of-Year Financial Planning Tips

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As we wrap up the fourth quarter of 2020, it is a great time to start thinking about year-end financial planning. What can seem overwhelming at first does not have to be! There are plenty of ways to financially prepare for the end of the year to set you and your family up for the most successful year yet. 

Here, we review our top end of year financial planning tips that everyone can implement today.

1. Estate planning

The end of the year is an ideal time to review your estate plan. While it might sound like something reserved for the uber-rich, everyone can – and should – have an estate plan. If you do not, consider reaching out to an attorney to advise you and draft the necessary documents (the following financial documents are an excellent place to start). Before the end of the year, review your estate plan to ensure all documents are accurate and update if necessary.

  • Will: A will details your wishes for the distribution of your property once you pass away. It can also include, among other things, instructions regarding who will be the guardians of your minor children.
  • Financial Power of Attorney: In the event you cannot manage your finances, a financial power of attorney gives another person the right to act on your behalf. This would be an essential document if you were to become incapacitated. While most people do not like to think about this, taking the time to plan for the unknown can bring you peace of mind during the year to come.
  • Beneficiary Designation: The end of the year is the perfect time to review and update, if necessary, the beneficiaries on your various bank accounts, retirement accounts, and life insurance policies. Especially if you have gotten married, divorced, or had a child within the last year, you will want to check to make sure the beneficiaries on all of your accounts are accurate.

2. Make your charitable donations

The holiday season is the perfect time to make your charitable donations if you have not already done so. If you have room left in your budget, consider making a charitable donation before the year-end. While it will depend on your specific tax situation, if a charity qualifies, you may be able to earn some tax benefits for your donation, too. No matter what, you will certainly benefit from knowing you provided some much-appreciated aid to those in need.

3. Spend the money in your healthcare FSA

In 2020, employees can put away up to $2,750 in a healthcare flexible spending account (FSA). The money you use to fund an FSA is not taxed and can be used to pay for medical and dental expenses only. If your company offered an FSA and you took advantage of it, do not forget to spend the money you contributed: this is a “use it or lose it” benefit, so you will not be able to recover any unused funds at the end of the year. Stock up on contact lenses, glasses, and last minute dental or doctor appointments before you lose the funds. While some FSAs allow you to roll over a certain amount of your pre-tax FSA dollars to the next calendar year, be sure to double-check your specific plan, as you do not want to forfeit your contribution.

4. Max out your retirement Account contributions

The end of the year is the best time to make sure you are taking full advantage of your retirement benefits. Consider the following:

  • 401(k): If your company offers a matching 401(k) contribution, check to see up to what percentage they match and make sure you have contributed at least that amount. If you can, top off your contribution so that it maxes out, which, in 2020, is $19,500 (with an additional catch-up amount of $6,500 for those over 50).
  • Traditional or Roth IRA: if you are eligible, consider contributing to either a Traditional IRA or a Roth IRA, both of which can provide tax benefits either in the future or today. It is best to check with an accountant or financial planner to determine what, if anything, you can contribute. Be sure to reach out to a professional before the end of the year to discuss your options.

5. Develop a plan to tackle your lingering debt

Are you among the majority of Americans who are in debt? The end of the year is the ideal time to get serious about getting out of debt. While known for a time of high-spending, the holiday season can actually be the best time to start tackling your debt. Start by reining-in your holiday spending. Next, develop a plan to tackle your debt in the New Year. Whether you choose to try the debt snowball method, debt avalanche method, or any number of tried and true debt relief strategies, if you choose one method and implement it before the end of the year, you will be more likely to start the next year strong and on your way out of debt. The best debt relief options out there can help you either consolidate or settle your debt so you can start the New Year on a solid financial footing.

6. Assess the status of your emergency savings account 

Do you have an emergency fund? In these challenging economic times, it is best to have at least six months’ worth of expenses saved in a readily accessible account because you never know what unexpected emergency might occur. The end of the year is the perfect time to reassess your savings. You may choose to increase your emergency savings to an even higher amount or realize that you need to focus on saving during the next year.

7. Meet with a financial advisor and/or your accountant

The end of the year is a great time to meet with a financial advisor or accountant. Most people only talk to their accountants during tax season, but if you meet with your advisors before the end of the year to review your finances, you will get the most out of your relationship. As a bonus, you will probably end up saving even more when tax season rolls around. You can discuss items like your retirement plan contribution limits, business expenses, the best debt relief options, and more.

End of year financial check-in will lead to a prosperous new year

So there you have it – seven end of year financial planning tips to set you on the right track for the year ahead. The end of the year is a notoriously busy time, but it is worth it to take some time to focus on your finances and implement these tips. You will be happy you did so and you will set yourself up for a successful and prosperous New Year.