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Financial Actions You Should Consider Taking BEFORE Year's End (If You're Still Working) Thumbnail

Financial Actions You Should Consider Taking BEFORE Year's End (If You're Still Working)

Estate Planning Investment Planning Tax Planning Insurance Planning Retirement Planning


As we come to the end of the calendar year, people love to put together an end-of-year checklist for things that normally get overlooked throughout the rest of the year.  Just as importantly, there are some opportunities that simply go away (at least for that calendar year) come December 31.  If you’re looking to tidy up your finances going into the new year, here are ten places to start. 

  1. Increase your workplace retirement plan contributions 

If you’re not already maxing out your retirement plan contributions, here’s a good chance to look at your paystub.  While you might not be able to max out your retirement plan (up to $19,500 in 2021, with an additional $6,500 for savers age 50 and older), you probably can find a way to save an additional 1% in the next year. 

  1. Adjust withholdings on your W-4 

Hopefully, you’ve got a good tax planning relationship with your financial advisor or accountant.  If so, cover your withholdings as part of your annual tax planning meeting.  If not, then take a look at your most recent tax return.  If it’s off by more than $1,000 (either way), you might want to see what adjustments you should make to your paycheck.   You might either be: 

  • Paying underwithholding penalties that you can easily avoid (if you owe each year) 

  • Giving Uncle Sam that interest-free loan that all the tax experts love to complain about (if you get a huge refund). 

The biggest opportunity lies in freeing up cash flow throughout the year.  Picture this—would you rather have $200 extra per month as you earn it, or get $2,400 the following year (when you finally get around to filing your taxes)?   

If you need the cash flow, look at adjusting your withholdings.  If you don’t have a financial advisor or accountant, the IRS has a straightforward tax withholding estimator 

  1. Spend down your flexible savings account (if you have one) 

Not every employer offers an FSA.  However, if your employer does, then you should know about the end-of-year restrictions. Unlike a health savings account (HSA), an FSA has a ‘use-or-lose’ provision.  In other words, whatever money you don’t spend by year-end, you lose.  There are two options your employer can offer to mitigate this ‘use-it or lose-it’ scenario: 

  • A grace period of up to 2 ½ months to use your money in the following year 

  • Carrying over up to $500 from year to year 

It’s important to note that your employer may offer one of these options, but is not required to.  Also, your employer cannot offer both.  So you need to pay attention to what your employer does offer, and proceed accordingly.  And if it looks like you need to make a change to your FSA, you might not be able to do so outside of open enrollment season unless you meet certain criteria. See your HR department for details. 

  1. Evaluate your stock options  

If you have stock options, you need to have a deliberate plan on what you’re going to do with them.  Without a deliberate plan in place, you run several risks, from paying more taxes than you need to losing the complete value of the stocks if your options expire before you do anything with them. 

Instead of trying to hash out the details in this article, just know that you should talk with your financial advisor (or hire a financial advisor who has experience in taxes and stock options). 

  1. Take advantage of tax-loss harvesting opportunities 

What is tax-loss harvesting?  Simply put, it is taking advantage of tax losses from securities you were going to sell anyway (in the course of rebalancing your properly designed investment portfolio), so that you cancel out any taxable gains you might have accrued over the year.  Done properly, tax-loss harvesting can help you reduce your ordinary taxable income by as much s $3,000 per year. 

The hard part is in the ‘How.’  That depends on how complex your investments are, and how you invest.  Many robo-advisors, like Betterment, include automated tax-loss harvesting in their investment implementation.   

If you have a financial advisor, they should be evaluating tax-loss harvesting opportunities in your portfolio routinely.  If they haven’t mentioned it, check with them to see how they approach tax-loss harvesting. 

  1. Decide whether you’re going to make Roth conversions (and how much) 

If you want to make an IRA contribution (Roth or traditional), the IRS allows you do so up until the tax-filing deadline for that year’s tax return (not including extensions).  This is usually April 15th of the following year, but not always. 

However, for Roth conversions, any tax impacts are recorded in the year the transaction is performed.  If you’re performing a ‘back-door’ Roth conversion, there won’t really be a tax impact, assuming your IRA balances wholly consist of after-tax contributions (which have already been accounted for in your tax calculation).   

The real impact is if you’re planning to do any Roth conversions on existing, pre-tax traditional IRA balances.  If you’re planning to do a Roth conversion, be aware that a Roth conversion occurring on December 29th will be taxed in a different year than a Roth conversion occurring on January 2nd.  Since many custodian transactions can take several business days to settle, you’ll want to ensure that everything gets done well ahead of time (or that you’ve planned for it occur the following year). 

  1. Strategize your charitable donation contributions 

Tis the season—as soon as those Salvation Army Red Kettles come out, most people start thinking about charity.  And if your goal is to give what you can to causes that are important to you, that might be the focus point.  

But if your charitable contributions are a significant of your budget, they might play an important role in your tax planning as well.  If this is the case, you should talk with your accountant or financial advisor about how you can make your charitable contributions more tax-efficient.  

  1. Evaluate your disability insurance 

If you don’t have disability insurance, you should at least look at what’s available through your employer.  Employer-sponsored disability insurance is usually lower-cost, and provides some financial protection in the case you lose your job.  

Even if you do have disability insurance, you should look each year to be sure that you have enough insurance.  Over time, people might take out disability insurance through their employer, or get a policy that covers their current income level.  Over time, as their earning potential grows, so does their need for disability insurance—which many people overlook.  Take the time to evaluate each year, particularly if: 

  • You change employers  

  • You get a significant pay raise 

  • You meet a significant career milestone (like a doctor coming out of residency, or a lawyer making partner in the law firm) 

Also, if you have an existing policy, be sure to see if you can increase your coverage without having to go through medical underwriting.   This might be known as guaranteed insurability, guaranteed purchase option, or future increase option.  

  1. Check your credit report 

By now, almost everyone knows about the 2017 Equifax breach.  Odds are, you were probably affected by it.  Since you have free access to an annual credit report from each of the three major reporting bureaus, you should take advantage of it.  Ideally, you would do this 3 times per year (once for each bureau), but at a minimum, you should do this at the end of each year. 

When you’re doing this, you’re not looking for your credit score.  You’re looking for accounts that shouldn’t be there, payment histories that aren’t accurate (I know I paid that credit card bill), and other things that don’t look quite right.  Don’t wait for your credit score to come in lower than expected—that’s like my son waiting for C’s to come in before he starts doing homework.  Take the time. 

  1. Review the beneficiary designations and transfer-on-death designations  

While your will might tell people where you want your things to go after you pass away, your beneficiary designations tell financial institutions where you want your money and financial assets to go.  This goes for investment accounts (known as transfer on death or TOD), banking accounts (known as payable on death or POD), and insurance policies. 

You can change these at any time.  And you should look at them each year just to ensure: 

  • That you actually have a designation for each account 

  • That you have designations for any new accounts you might have opened 

  • That your designations reflect any major life changes (so your ex-spouse doesn’t get the bank account that you want your current spouse to receive) 

  • That you have primary AND contingent beneficiaries designated. 

At a minimum, your financial advisor should be covering this when they go over your estate planning.  But a good advisor will also point out when changes occur, and prompt you to look how this might impact your beneficiary designations. 


End of year checklists are great to have…if you actually take the time to check things off.  If you don’t have the time, ask your financial advisor how they might be able to help make things simpler for you.  And if your advisor can’t do that, or if you don’t have an advisor, contact us at Lawrence Financial Planning!  We’d be more than happy to see how we might be of service! 


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