The end of the year gives us the chance to make the most of our financial gains and prepare for the upcoming year. Remember to keep your long term goals in the forefront as you plan. Here are 7 year-end financial moves. Be sure to check with your financial and tax advisors to optimize your planning.
1 How Is Your Portfolio?
Many stocks have suffered losses this year. You can balance your wins and losses for the year by selling more wins to offset the losses. In this scenario you would not owe capital gain taxes. Similarly, you can harvest your tax loses. An example of tax harvesting is selling the investment that lost you money in exchange for a similar investment.
2 Reevaluate Your Investments
This time of the year is great to reflect on your investments and plan for how they can benefit you going forward. Take time to look at your portfolio and the market so that you can foresee potential benefits and risks. This will help you be a little more prepared for stock decreases.
3 Retirement Planning
The deadline to contribute to your plan this year is December 31st. The 2021 retirement contribution limit is $19,500. Individuals 50 years of age or older can add $6,500 in addition to the $19,500 limit. Not only would this increase your retirement funds, adding pre-tax money to a traditional plan would also decrease your 2021 taxable income.
4 Roth Retirement Plans
A Roth conversion is when you move money from your traditional or employer retirement plan into a roth account. In this process you will pay the related income taxes. Roth conversions can be very beneficial right now. They can help grow your assets and tax free distributions.
It is healthcare enrollment season and it will soon be ending December 15th. Consider if you would prefer a health insurance plan with a high deductible or low deductible. Both options have their pros and cons. A high deductible has a cheaper monthly premium that you pay and provides health savings accounts. A health savings account can be greatly beneficial as you can add money pre-tax and your savings can rollover year to year.
6 Required Minimum Distribution
Individuals 72 and older should take advantage of required minimum distributions or you risk being penalized. Be sure to withdraw your money by December 31st.
7 Charitable Donations
The deduction limit this year is $12,500 for single filers and $25,100 for those filing jointly. This means that you have to exceed these thresholds in order to reap the tax benefits. With this being said, donating a greater amount in one year compared to over a few years may lead to greater tax benefits.
Contact us to help you strategize year-end moves and prepare for the future.