The holiday season is a time for good cheer, family and friends, celebration of the present (and presents) and reflecting on the past year. And what a year it’s been…global pandemic, a race for a vaccine, or better testing. With your requests to Santa out of the way, it’s good to look at another important list: our year-end planning checklist. Take some time between the eggnog and champagne to go over these items.
- Financial goals. Did you meet your financial goals for 2021? Do these goals need to be changed or updated? Review your investments to help ensure you are meeting your financial goals both short- and long-term goals.
- Year-end review. Did you have any life changes during the year that need to be addressed? This would include selling, transferring, and/or purchasing a major financial asset; a change in marital status; an addition to your family; or receiving a gift or inheritance.
- Market Meltdown. Are you adequately prepared for another? If not, what steps should you be taking now?
- Emergency fund. 2020-21 has taught many a financial lesson, one being the importance of an emergency fund. Many financial experts recommended 3-6 months of expenses saved.
- Tax gain/loss harvesting. Higher capital gains tax rates make buy-and-hold strategies more attractive, the higher the tax rate, the more valuable the strategy. Similarly, it becomes more important to harvest tax losses to shelter gains that would otherwise be taxed at the higher rate. Remember the IRS only allows $3,000 of losses per year. Consult with your accountant on how to structure tax losses to offset gains for the year.
- Required Minimum Distributions. The SECURE Act of 2019 changed the age at which individuals must begin taking withdrawals from their retirement accounts. Before the SECURE Act, anyone turning 70 on or before June 30, 2019, was required to start taking RMDs for the year in which they reached the age of 70½. However, under the SECURE Act, if a person’s 70th birthday is July 1, 2019, or later, they now do not have to take their first RMD until the year they reach age 72. If you inherited any type of retirement account, check if you need to take a Required Minimum Distribution. If so, whose life is it based on: yours or the decedents? Check out our report on RMD’s: https://bowenasset.com/whats-new-72-how-the-rules-of-required-minimum-distributions-changed/
- Inherited Plan Benefits. The SECURE Act generally requires that designated beneficiaries of persons who die after December 31, 2019, take inherited plan benefits over a 10-year period. Eligible designated beneficiaries (i.e., surviving spouses, minor children of the plan participant, disabled and chronically ill beneficiaries and beneficiaries who are less than 10 years younger than the plan participant) are not subject to this rule. Conduit trusts and see-through accumulation trusts are required to use the 10-year payout rule unless the trust is for the sole benefit of a disabled or chronically ill beneficiary. Non-see-through accumulation trusts will continue to use the five-year payout period, which was required before the SECURE Act.
- Max out your 401(k)/IRA contributions, including any catch-up contributions. You have until April 15, 2022, to fund your IRA for 2021. Previously, individuals were not able to contribute to their traditional IRAs in or after the year in which they turn 70.5. However, the Secure Act eliminates this age cap. If you have an employer-sponsored retirement account, you should review where your money is invested and make changes to this account. Consult your investment advisor/tax accountant for any help. If you left a job and your 401(k) behind, take the time to consolidate accounts. For 2021, you can contribute $6,000 to a traditional IRA, plus a $1,000 catchup contribution if you are 50 or older. For a 401(k), you can contribute up to $19,500, plus a $6,500 catchup contribution if you are 50 or older. For 2021, those limits are projected to remain the same.
- Audit insurance policies. Too little coverage leaves you open to financial devastation, but as life circumstances change, you may not need as much as you previously did. Review all your coverage, including auto, homeowners (rental), life, disability, and umbrella.
- Cyber- Well-publicized data breaches within companies and government entities have highlighted the increasing sophistication of hackers. But the threat extends well beyond these settings. Be vigilant as cyberthreats continue to evolve and make it a priority to take extra steps to protect your personal information and financial security. By following a few guidelines, you can make your information less attractive to potential thieves. One of those guidelines is to change your passwords at a minimum, once a year. Foe more on this and mention of a password manager, see our recent report on Cyber-security.
https://bowenasset.com/use-that-cookie-jar-cybersecurity-and-you/
- Finding an accountant. If you need an accountant or are thinking of changing accountants, now is the time to search for a new one. When choosing an accountant, consider these questions: What degrees or licenses does the accountant have? How many years has the accountant been in the business? What fees will be charged? Is the accountant’s expertise relevant to you? Who will prepare your return? Will the accountant represent you if you are audited?
https://bowenasset.com/these-taxing-times-are-a-good-time-to-select-a-tax-pro/
- Research charitable contributions. If you are considering making any year-end charitable contributions, you may want to do the research now. Just as with investing in a for-profit firm’s stocks, it’s still important to ensure that the money you put into a charity will have a good return on your investment (i.e., making sure the money you give will be efficiently put to good use) so your donated resources are not squandered. Check out our Bowen Reports on charitable giving. https://bowenasset.com/category/charitable-giving/
For taxpayers who are planning on claiming the standard deduction in 2019, there are two strategies to consider. For those age 70½ or older, distributing funds from an IRA tax-free directly to a qualified charity (up to $100,000 per IRA owner and can include RMDs) may be a good option. Another strategy is the concept of “lumping” multiple years of charitable gifts into one year in order to itemize deductions on that year’s tax return. For example, instead of a couple gifting $10,000 annually to a charity, they may consider gifting $30,000 in one year, representing three years’ worth of gifts. The couple could benefit from itemizing deductions that tax year and claim the higher standard deduction the next two years.
Currently, individuals who make cash contributions to publicly supported charities are permitted a charitable contribution deduction of up to 100% of their AGI. The CARES Act suspends the AGI limitation for qualifying cash contributions and instead permits individual taxpayers to take a charitable contribution deduction for qualifying cash contributions made in 2021 to the extent such contributions do not exceed the taxpayer’s AGI. Contributions to non-operating private foundations or donor-advised funds are not eligible for the 100% AGI limitation.
Donate – In prior years, charitable donations could only be deducted by taxpayers who itemize. But thanks to the CARES Act, even taxpayers who don’t itemize deductions can take a charitable contribution deduction up to $300 for cash donations made in 2021 to qualifying organizations such as those with educational, literary, religious, scientific, or other charitable purposes. The maximum deduction is increased to $600 for married individuals filing joint returns.
- Cash gifts and taxes. If you can afford to be generous, in 2021 you can give up to $15,000 each to any number of individuals with no gift tax or reporting requirements. In 2022, that rises to $16,000. Also, there is no tax for the recipient. Unused portions can’t be carried over to the next year. Individuals can make unlimited gifts on behalf of others by paying their tuition costs directly to the school or their medical expenses directly to the health care provider.
- In an emergency or the event of incapacity, could those who need to know—adult children, caretakers, or others given power of attorney—quickly find the documents and information such as bank account numbers, house deeds, wills, and tax returns that they need in order to continue taking care of business?
https://bowenasset.com/when-life-goes-sideways-be-prepared-to-help-your-helpers/
- Check on all beneficiaries on life insurance policies, retirement accounts, and those named on Transfer on Death accounts to make sure these are accurate. These types of investment accounts pass to the beneficiary when the owner dies, despite what the will may state.
- Check on flexible spending accounts. If you have any type of flexible spending accounts, check to see how much money is left in them to make sure it is used it up before the year’s end.
- Look into 529 accounts. A grandparent–owned 529 account, which is free of federal income taxes until the money is withdrawn, is not reported on the Federal Student Aid (FASFA) form. Thus, it does not affect the grandchild’s financial-aid eligibility. However, once it is distributed, it is considered the grandchild’s income and may affect how much the grandchild will receive. Grandparents can also open IRAs for their grandchildren. They can contribute up to 100% of the grandchild’s earned income into the account. Check with your account and financial advisor for the best way to set these up. For more on this, look at our blog post “College Credit: 529 and Coverdell Educational Accounts.”
https://bowenasset.com/college-credit-529-and-coverdell-educational-accounts/
- Review financial and investment documents. It is easy to get into the habit of keeping every financial or investment document forever, just in case. But if your New Year’s resolution is to get your financial house in order, our blog post “How Long to Keep Important Financial Papers” has suggestions about retaining financial and investment documents.
https://bowenasset.com/how-long-to-keep-important-financial-papers/
If you would like a year-end review of your financial situation, or if you have questions regarding year-end strategies, contact Bowen Asset Mgmt at info@bowenasset.com or 610-793-1001
Best wishes to you and yours for 2022 from all of us at Bowen Asset Management!
*Disclaimer: While this article may concern an area of investing or investment strategy in which we supply advice to clients, this document is not intended to constitute a complete description of our investment services and is for informational purposes only. It is in no way a solicitation or an offer to sell securities or investment advisory services. Any statements regarding market or other financial information are obtained from sources which we and/or our suppliers believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. All expressions of opinion reflect the judgement of the author on the date of publication and are subject to change.
Past performance should not be taken as an indicator or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. As with any investment strategy or portion thereof, there is potential for profit as well as the possibility of loss. The price, value of and income from investments mentioned in this report (if any) can fall as well as rise. To the extent that any financial projections are contained herein, such projections are dependent on the occurrence of future events, which cannot be predicted or assumed; therefore, the actual results achieved during the projection period, if applicable, may vary materially from the projections.