Strategies For Financial Planning Towards The End Of The Year

Reviewing your finances every fourth quarter of the year is an excellent idea. As we draw approach to December, you still have more than a month to implement financial planning strategies to maximize your financial plans for the year. It’s also an excellent opportunity to complete those planning tasks you’ve been putting off.

Many of these measures must be completed before year-end so they can count toward the 2021 tax year. You can speak to your financial planner about implementing them successfully and on schedule. A month and a half may not seem like a long time, but the holidays are approaching rapidly, and many individuals are making last-minute meetings with their consultants and accountants to finish their year-end paperwork. Don’t wait until the last minute to use these techniques, or you’ll risk running out of time.

Many of them entail utilizing simple tax features and tactics.

Review Your Health Insurance Policy

The start of the open season is just around the corner, which means it’s time to start thinking about your finances. While many people choose to keep their current health plan, it’s crucial to double-check that coverage hasn’t changed or that there isn’t another plan that is better suited to your needs.

Contributions to IRAs and TSPs

If you’re still working, see how much you’ve put into your TSP this year. If you’re under 50, you can give up to $19,500 in 2021, and if you’re 50 or older, you can contribute up to $26,000. If you aren’t near to maxing out your Thrift Savings Plan for the year, you can boost your contributions from now till the end of the year to get as close as feasible. The TSP is a fantastic savings instrument, and you should do everything they can to maximize your earnings.

If you have other sources of income, you may be able to contribute to an IRA in addition to your TSP commitment for the year. Contributing to an IRA allows you to shift more of your assets to long-term savings, which can help with both savings discipline and tax reduction. Just keep in mind that the deductibility of your IRA contributions is limited by your income. You may lose the ability to deduct your Traditional IRA contribution if you have a work-retirement plan (TSP/401k/403b/etc.). This doesn’t mean you can’t contribute; it just means you might not be able to deduct it. You can, however, transfer your non-deductible IRA contributions to a Roth IRA without incurring taxes.

Back Door Roth IRA Contributions

A backdoor Roth IRA contribution involves transferring non-deductible IRA funds directly into a Roth IRA. If you do it correctly, you may be able to put more money into a Roth, which is a tax-free investment vehicle. When using this method, use extra caution and make sure you have the right people on board. The pro-rata rule, for example, is one of the many tax restrictions that surround this method and might be complex. It’s a wonderful benefit if done properly, and it may be gone soon, so make use of it while it’s still available this year.

Tax-Loss Harvesting

To refresh your memory, tax-loss harvesting is a practice used by portfolio managers to lower capital gains tax liabilities associated with realized gains on winning investments. While rebalancing a taxable account, you could sell off certain positions in your portfolio that aren’t doing well while realizing the winning investments, thus reducing your tax bill.

Not every investment will pay off every time. You can enhance the potential of your portfolio by properly utilizing volatility. This is another strategy to discuss with your financial planner and accountant. It, too, has a plethora of restrictions and concerns surrounding its appropriate usage, but it may be a very beneficial instrument that can save you thousands of dollars in taxes.

“Anyone can set up his affairs in such a manner that his taxes are as low as possible; he is not compelled to choose the arrangement that gives the government the most money,” Justice Learned Hand once observed. It isn’t even a patriotic responsibility to raise taxes… Nobody owes the government a public obligation to pay more than the law requires: taxes are imposed exactions, not voluntary contributions.”

Donations to Charities

If you and your family are giving, meeting with your financial planner to discuss your philanthropic goals should be on your financial planning to-do list. By the end of the year, you should have a clear sense of how much money you’ll make, allowing you to plan your charitable gifts accordingly.

Instead of offering cash, you might donate appreciated stocks. You will owe capital gains taxes if you sell an appreciated asset in a non-retirement account. Many nonprofit organizations accept stock gifts in addition to cash. By donating your appreciated shares, you effectively absolve yourself of the tax penalty. This satisfies your charitable goals while also allowing you to manage your cash intelligently.

If you or your spouse has ever been rewarded with stock options from the corporate sector, they, too, could be good charity investments. Stock options have more complications, so be sure you understand how to manage them if they apply to you.

RMDs and QCDs

Following charity, donations are everyone’s favorite subject: Required Minimum Distributions (RMDs). The IRS demands that you take a particular amount from your retirement accounts if you are 72 years old (officially 70.5, as altered by the SECURE Act), requiring the realization of regular income on those dollars, and hence the tax liability for which they desire to collect. Remember that every dollar you withdraw from a non-Roth retirement account is taxable as ordinary income.

Taking your RMDs before the end of the year should be an essential part of your financial planning. Due to the epidemic, RMDs were waived last year (CARES Act) but will be reinstated this year. RMDs for 2021 will be calculated as if the year 2020 waiver did not exist, implying that there will be no “make-up” RMD.

If you’re 72 years old and want to give back, you might want to investigate Qualified Charitable Distributions (QCDs). The notion is similar to the previously described stock donations in that it allows you to fulfill two goals with one action. Certain qualifying charities will allow you to make a straight distribution from your retirement account to the charity – meaning you will not be able to take ownership of the distribution – thereby excluding it from your taxable income. The perk is that the money you give directly to certified charities counts toward your annual RMD. This allows you to do good for the world while also benefiting yourself.

Beneficiary Confirmations

The fourth quarter is an excellent opportunity to reflect on the events of the year. Do you have any new grandkids to whom you would like to leave a legacy? While children under the age of 18 cannot inherit directly, you should update your estate planning arrangements to allow them to benefit as you intend, regardless of their age.

If you buy a new home or your family grows, you’ll need to notify your estate attorney so that the necessary revisions may be made to your legal records. If you divorced this year, you should review the designations of your beneficiary on your insurance and investment accounts plans.

Be Aware of Any Potential Legislative Changes

Many modifications to the tax code are being proposed right now. Don’t worry about reading the law; we’ve already done that and provided a summary. Some of the tactics accessible to investors may be eliminated as a result of the planned changes, so make sure you research up on anything you want to use before the laws change.

Taking the Initiative

Review your strategy: what activities did you promise yourself you’d take? Have you contacted the estate attorney that your financial planner recommended? Consider how each of the plans listed above can help you improve your financial situation. Because many of them involve complicated rules, be sure you’re well-informed before making any judgments; mistakes can be costly to fix.

The year-end is the time to wrap up all of your planning efforts so that you don’t have to start the new year with a vow to “not postpone my financial planning.”

After all, it’s not just about the money; it’s also about the future.


Contact Infomration:
Email: [email protected]
Phone: (623) 251-1574

Disclosure: Investment advisory services are offered through BWM Advisory, LLC (BWM). BWM is registered as an Investment Advisor located in Scottsdale, Arizona, and only conducts business in states where it is properly licensed, notice filed, or is excluded from notice filling requirements. BWM does not accept or take responsibility for acting on time-sensitive instructions sent by email or other electronic means. Content shared or published through this medium is only intended for an audience in the States the Advisor is licensed in. If you are not the intended recipient, you are hereby notified that any dissemination, distribution, or copy of this transmission is strictly prohibited. If you receive this communication in error, please immediately notify the sender. The information included should not be considered investment advice. There are risks involved with investing which may include market fluctuation and possible loss of principal value. Carefully consider the risks and possible consequences involved prior to making an investment decision.

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About Todd
Todd Carmack
Financial Advisor / Fiduciary Bedrock Investment Advisors

I grew up in Dubuque, Iowa, where I learned the concepts of hard work and the value of a dollar. I spent years in Boy Scouts and achieved the honor of Eagle Scout. I graduated from Iowa State University and moved to Chicago and spent a few years managing restaurants. I then started working in financial services and insurance helping families prepare for the high cost of college for their children. After spending years in the insurance industry, I moved to Arizona and started working with Federal Employees offing education and options on their benefits. I became a Financial Advisor / Fiduciary to further help people properly plan for the future. I enjoy cooking and traveling in my free time. Read More