Thursday, 10 December 2020 14:20
By Stephen Kyne, CFP, Partner at Sterling Manor Financial, LLC | Families Today
Year-End Financial Planning

The end of another year is rapidly approaching, and just as you cross items off your checklist and prepare your home for the winter, it’s also important to complete maintenance items to prepare your finances to close-out 2020.

The first piece of financial housekeeping will be to begin to gather documents you’ll be needing just after the new year to prepare your taxes. Compile receipts for medical bills, tuition payments, child care and charitable contributions, among others.

While many of us will no longer be able to itemize deductions due to recent tax law changes, there are credits for things like child care and education expenses which you may still be eligible for. For those with large medical bills, mortgage interest, or who have been particularly philanthropic this year, you may still be able to itemize, so it is important to have those receipts handy.

When it comes to planning for your retirement, this is the perfect time to evaluate your contribution levels to your retirement plans at work. If you have the ability, and you’re not yet contributing to the maximum levels allowed, consider topping these accounts off to take advantage of the possible tax deduction this year, as well as the ability to simply squirrel as much away for the future as possible. Even if you can’t contribute to the maximum, be sure to at least contribute enough to take advantage of any employer matching contributions. 

You may not be aware, but once you reach age 50, you are eligible for higher contribution levels than in prior years. So, if you’ve turned 50 this year, consider increasing your contributions. For 401(k) and 403(b) plans, you can contribute an additional $6,000 to a max of $25,500 from $19,500 for those under 50. For SIMPLE plans, you get to contribute an additional $3,000, up to a new max of $16,500. Take advantage of this opportunity to catch-up on contributions you may not have been able to make when you were younger. 

On the subject of milestone birthdays, if you turned 72 in 2020, you would normally have to start having to take withdrawals from IRAs and certain company sponsored retirement plans. These are called Required Minimum Distributions (RMDs). Your contributions to these accounts have been allowed to grow tax-deferred all this time, and now Uncle Sam wants his share. This age limit was increased from 70 ½ by the SECURE Act in late 2019. However, due to COVID and the resulting CARES Act, you won’t need to take an RMD for 2020. RMDs from inherited IRAs have also been suspended for this year, but you should expect both to resume in 2021.

Even if you can’t itemize charitable contributions on your taxes, you may still be able to make those contributions on a pre-tax basis! If you direct distributions to be paid directly from your IRA to your charity of choice, you won’t be taxed on that portion of the distribution. This is a great option if you are subject to the standard deduction.

The end of the year is a perfect time to review your various forms of insurance, including your home and auto. Take note of various coverage limits and deductibles. If you can, consider a higher deductible in order to save on premium expenses. 

Ensure that your homeowners coverage amounts reflect the value of your home. Your home has probably appreciated since you purchased it, but have you increased your coverage limits to keep pace? 

An often-overlooked task is to review your beneficiary declarations each year. Families grow, as new members are added, and shrink with death and divorce, which means that beneficiary and Transfer-on-Death declarations can easily become outdated and no longer reflect your true wishes. 

Since these declarations are a matter of contract, they will overrule what your Will may say. So, even if you’ve updated your will to exclude an ex-spouse, but you left them as beneficiary on your IRA, your new spouse won’t be able to inherit those assets, but the ex will, and it can’t be challenged in probate.

Your Certified Financial Planner® professional is perfectly suited to help you mark most of these items off your list. Review your beneficiaries, gather tax documents, maximize funding of your various retirement plans, take required distributions, and review your insurance coverage with your advisor each year, to help ensure that your financial plan is well-tuned as you prepare to turn the page on 2020.

Stephen Kyne CFP® is a Partner at Sterling Manor Financial, LLC in Saratoga Springs and Rhinebeck, NY.Securities offered through Cadaret, Grant & Co., Inc. Member FINRA/SIPC. Advisory services offered through Sterling Manor Financial, LLC, or Cadaret Grant & Co., Inc., SEC registered investment advisors. Sterling Manor Financial and Cadaret, Grant are separate entities.

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