What You Need to Do With Your Money Before Year-End

The end of 2020 is fast approaching and with the hustle of the holidays and the unpredictability of the pandemic, handling your money may not be your first priority — when in reality it should be. One way to maximize your funds is by making necessary year-end adjustments to maximize your financial benefits.

If you have a retirement account, employee benefits, or a carefully crafted estate plan, the end of the year is an important time! Let’s find out why.

Prioritize your retirement savings accounts

The end of the year is the perfect time to reevaluate your retirement saving strategy. Put in as much as you can into your retirement savings accounts — 401(k), IRA, and HSA — before year-end. The more you contribute to these accounts, the lower your taxable income will be.

If you received a year end bonus or earned a raise, allocate the extra income accordingly to your retirement accounts. At a minimum, make sure you contribute enough to receive the full company match.

As a reminder, your max contributions for your retirement savings accounts are as follows:

  • 401(k) - You can contribute up to $19,500 if you are under the age of 50. If you are over the age of 50, you can contribute up to $26,000 — known as a catch-up contribution.
  • IRA - You can contribute up to $6,000 if you are under age 50. There is also a catch-up contribution option if you are over the age of 50 allowing you to contribute up to $7,000.
  • HSA - For 2020, you can contribute up to $3,500 for a single coverage health plan, or $7,100 for family coverage. Learn more about your HSA options here.

Make your charitable contributions

The end of the year and the holiday season is a great time to donate to charity. Donating to charity helps further causes you are passionate about, while also providing tax benefits.

One charitable-giving strategy is a donor-advised fund or DAF. A DAF is like a charitable investment account where you can contribute cash or assets to charitable organizations. Within a DAF, your contributions grow tax-free and allow you to make tax-deductible donations.

Another giving strategy is a qualified charitable distribution or QCD. A QCD is a direct transfer of your IRA funds to a qualified charity. Unlike traditional withdrawals from IRAs, a QCD excludes the amount donated from taxable income so you’ll still be able to take advantage of a lower taxable income.

If you have stocks with large taxable gains, you can transfer them to your favorite charity for a tax deduction. The charity can sell the stock and does not pay taxes on the realized gain. It is a win for you and a win for your favorite charity. Keep in mind that the maximum amount you can deduct from charitable donations varies, so be sure to talk with your financial advisor about your limits.

Check-in on your estate plan

Have you gotten married, had a child, been divorced, or lost a spouse in the past year? When is the last time you have verified your beneficiaries on your accounts to ensure you are not leaving out a loved one? It’s important after any major life event to verify your beneficiaries on your life insurance, retirement accounts, or other accounts.

Before year-end, take the time to update your will, take a second look at your beneficiaries, and be sure that you have your financial affairs in order. Life is unpredictable and by updating your estate plan, you’re ensuring that your family will be taken care of.

Use your employee benefits

All too often, employees ‘bank’ their benefits throughout the year in case anything unexpected happens and scramble in December when work is busy and taking a vacation doesn’t seem possible. Benefits aren’t just limited to vacation time— utilize your wellness options, dental visits, eye appointments, annual physicals, etc. If you have extra vacation time with nowhere to go, take a couple of days to fit those appointments in.

One benefit you don’t want to lose out on is your Flexible Spending Account (FSA). FSA money must be spent in the calendar year it was contributed or you lose it. Make sure you do not leave money on the table with unspent FSA dollars. This is also the time to adjust your 2021 FSA contributions either to increase or decrease based on your needs.

Utilize your employee benefits to the fullest extent— you’ve earned it.

Rebalance your portfolio

Rebalancing is a healthy habit to build so you maintain the right allocation and risk for your financial situation. It’s an opportunity to understand what is and isn’t working within your portfolio.

Remember what your investment goals were at the beginning of the year. Was your main goal income, investment growth, or both? This will greatly impact your plan for 2021 investments.

Investments are always moving — either increasing or decreasing in value. Rebalancing is a strategic way to improve returns and maximize your financial health.

Set new goals

Year-end is the perfect time to reflect on the past and look forward to the future. What are your personal and financial goals for 2021? How can you build on the work you did this year? Always talk with your financial advisor and write down your short-term and long-term goals and create an actionable plan.

Evaluate your goals that have been completed, partially completed, or missed altogether. Maybe you didn’t complete some goals as they didn’t end up aligning with the events that happened this year or you simply had a change of heart. Understand why some goals were or were not achieved, come up with a plan to improve unfulfilled goals, and establish new ones.

Make sure your goals are challenging — putting in the hard work to achieve something that’s important to you will be far more rewarding than ticking off the boxes of several easily achievable targets.

Talk with your trusted financial advisor

First Dakota Wealth & Trust has the experience and team to assist you with your investing needs at any stage of life. Our team develops customized strategies for clients so they can achieve their goals and are positioned to make changes when life doesn't go as planned — and 2020 has certainly thrown all of us for a loop.

Don’t let your money and savings end the year on a lackluster note. Maximize your contributions, achieve your goals, and take advantage of what you’ve earned this past year. Take control of the end of the year and give our team a call if you need any guidance.

First Dakota Wealth & Trust is the fiduciary investment department of First Dakota National Bank with trustee powers to serve clients during their lifetime, during incapacity, and after death. We help clients develop a financial roadmap to help simplify their financial future.

Please note that neither First Dakota National Bank nor First Dakota Wealth & Trust Department, or its employees provides tax or legal advice. This is intended for informational purposes and is not intended to constitute legal or tax advice. Please consult your attorney and/or tax professional for advice related to your specific situation.