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Year-End Financial Checklist

10 Essential To-Dos to Wrap Up Your 2020 Finances

Use any remaining flexible spending account balances.

Make sure you use up any remaining funds in your Health Savings Accounts, Flexible Spending Accounts for child care and dependent care, and transportation accounts. Typically, the expenses you are reimbursing yourself must have occurred in 2020.

Some plans offer greater flexibility. Check to see whether your plan allows you to file for reimbursement of 2020 expenses after the start of the new year (funds typically give you 90 days to file). Plans may also allow you to roll funds over for use in 2021 or allow you to use 2020 dollars to pay for expenses that you incur in 2021.


Maximize retirement plan contributions at work.

Make sure you put as much as you can into your employer-sponsored retirement plan, such as a 401(k) plan. You can contribute up to $19,500, or $26,000 if you are 50 or older.


Make charitable contributions now to get 2020 tax deductions.

Donations must be dated before Dec. 31. Stock donations to charities must be completed by then, too. Tangible gifts must also be received by the charity by Dec. 31 – make sure to keep a detailed list of what was donated for any gifts of this type. If you think you may be in a lower tax bracket next year, you may want to consider accelerating your charitable contributions to this year to get more money from deductions.


Reimburse yourself for college expenses from your 529 college savings plan.

The expenses you are reimbursing yourself this year must have occurred in 2020.


Think about receiving distributions from your annuities.

This can make sense if you are in a low tax bracket. Another consideration is if you die with annuities in your estate, your beneficiaries will be taxed at their ordinary income rates. If you are charitably inclined, you may also want to consider changing the beneficiary of the annuity to a charitable organization – it will not have to pay tax on the distribution.


If you are in business for yourself, set up a solo 401(k).

This account is also known as a Self-Employed 401(k) or an Individual 401(k). This can help you save a great deal on taxes and maximize your retirement savings. You must set these accounts up by Dec. 31.


Carry out transactions that can lower your 2020 taxes.

Review your portfolio and consider selling stocks or funds that have decreased in value at a loss. If you sell a stock or a fund at a loss, you can write off those losses on your taxes against any gains. Also, check on medical expenses and other tax deductions. You can only deduct certain expenses after they exceed a certain percentage of your Adjusted Gross Income – e.g., medical expenses must exceed 7.5% of your AGI – so you may want to accelerate those payments into this year or push them out until next year.


Consider making financial gifts to your children or grandchildren.

You can give up to $15,000 to any one person each year without paying a federal gift tax. For example, you could give $15,000 to your daughter and $15,000 to her husband, and your spouse could do the same, for a total of $60,000 ($15,000 x 4).

If you go above that limit, say $50,000 to help a child with a down payment on a home, you most likely won’t have to pay more taxes, but you will have to file an additional form with the IRS: the Gift Tax Form 709. For couples filing a joint return, the gift tax form threshold is $30,000 for an individual when the money is coming from separate accounts from the husband and wife.


Consider whether you should withdraw funds from your IRA.

If you are over 72 or have an inherited IRA, you must take money out as a Required Minimum Distribution based on age and marital status. If you don’t take out enough, the IRS will fine you 50% of the amount you were supposed to withdraw but didn’t. That is in addition to the taxes you already owe on the distribution. So, if you didn’t take out $10,000 that you were supposed to on the RMD, the IRS can take away $5,000.

If you are over 59½ and in a bracket that is lower than normal this year, consider taking money out of your account this year. Just make sure you don’t take out an amount that would bump you into a higher tax bracket.


Seek the advice of a financial planner.

Talk with a planner about your financial goals for 2021 and beyond. A financial planner can work with you to create a personal financial plan to help you achieve financial freedom and the secure retirement you deserve.



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