Five Ways to Uplevel Your End-of-Year Finances

End of Year To-Do's

Visit any Costco or Target (two of our favorites!) and you’ll see that fall is officially over and the holiday season is upon us. Not to despair, however. With a solid nine weeks left in 2021, now’s a great time to run through some important “to-do’s” and finish the year with your finances in good order.

To keep things easy, we broke it into our top five categories:

 

Be Mindful of Deadlines Ahead

With only a few pay periods remaining in 2021, make sure you’re on track to maximize your retirement plan contributions, especially if your employer offers a match. You can contribute up to $19,500 this calendar year to a 401(k) or 403(b), plus an additional $6,500 if you’re over age 50. 

If you want to increase contributions before the December 31st deadline, reach out to your HR department or payroll provider ASAP. It’s also a great opportunity to get next year’s contributions set up, as the maximum contribution amount jumps to $20,500 in 2022, for a total of $27,000 if you’re over 50. 

 

Use It or Lose It

A Flexible Spending Account (FSA) or Dependent Care FSA allows you to save pre-tax dollars throughout the year and use those funds to reimburse yourself for out-of-pocket expenses like copays, prescriptions, or child care expenses. While these accounts are a great way to save on taxes, typical FSA accounts have a “use it or lose it” provision whereby the balance in the account needs to be depleted by the end of the year. 

Employers do have the discretion to offer wiggle room and allow for some money to be carried over, usually $550. Due to the pandemic, the government is giving employers even more leeway, allowing for deadline extensions and larger balance carryforwards, including up to the total balance in an FSA. 

Be sure to find out what deadlines and limits apply to your plan, as you may want to contribute less money next year if you can carry-over an existing balance. If not, now’s the time to use up remaining funds and schedule doctor visits or stock up on FSA-eligible items, a handy list of which can be found here

 

Tax Planning Isn’t Just for April

While impending tax changes have been rumored since President Biden took office (check out our past blog posts on proposed tax changes) nothing has officially passed as of this post. Despite the uncertainty, it’s still a good idea to take a look at your income and deductions in 2021 and how they might compare to 2022 and beyond. 

If you were part of 2021’s Great Resignation and left your job, a Roth conversion in a lower-income year could be of great benefit. Conversely, if you were fortunate enough to receive a significant windfall, such as Restricted Stock Units (RSUs) vesting, other stock options, or a large bonus, make sure you are paying enough in estimated tax payments to avoid penalties come tax time. 

 

Double Check Your Portfolio

Though stocks have been on a winning streak for the last year or more, it’s worth taking a peek at your portfolio to see if any holdings are currently at a loss. Those investments can be sold and their losses used to offset capital gains realized this tax year or carried forward to a future tax year until depleted. 

If you don’t already have capital gains, you can offset up to $3,000 in ordinary income with realized capital losses. A word of caution however – be sure to familiarize yourself with wash sale rules before repurchasing a security sold at a loss, or you may find yourself in a bit of hot water with the IRS.

 

Make a Difference

Helping friends and family or supporting beloved charitable organizations can happen any time during the year, but there are some timing considerations if you’re looking to maximize your giving. 

This year, you can give up to $15,000 to another individual without making a dent in your lifetime estate and gift exclusion. If you are married and file jointly, that amount doubles to $30,000. Limits for 2022 have yet to be announced, but there is speculation that this amount will increase to $16,000 for single tax filers and $32,000 for married couples. 

Giving to charities has its own set of financial benefits and strategies vary depending on your circumstances. If you find a bit of excess cash in your bank account, here are a few options to consider:

  • Cash donations – Congress extended a provision of the CARES Act that gives single taxpayers a deduction of up to $300 for cash donations to some charities and $600 for married filing jointly. This applies even if you claim the standard deduction.
  • Strategic Donations – In addition to outright cash contributions, there are other options available such as donating appreciated stock, funding a donor advised fund, or a qualified charitable distribution (for those ages 70.5 or older). We can help determine which option is best for you. 

 

Reach Out

In the coming weeks, as you trade Pumpkin Spice Lattes for Peppermint Mochas, don’t forget to take a few moments to check-in on your financial position to make sure you’re taking full advantage of all the options available to you. We’re here to help.

 

Trek to Retirement

In late March, I set out into the backcountry of central Oregon with eight other women, all on snowshoes or cross-country skis. We traversed more than 22 miles in the heart of the Oregon Cascades, breaking trail and staying in huts. The terrain was steep, the visibility was poor, the snow was deep and there was a stiff wind.

What does this have to do with investing? The trek was reminiscent in three ways:

Feeling inferior. I was among incredibly fit and experienced outdoors women. This was my first trip of this kind. The others were triathletes, competitive cyclists and expert mountaineers. If we were a sports team, I’d have been keeping the bench warm.

I suspect I saw myself as more amateur than my companions did. I can’t tell you how many competent, educated and bright women I meet who are reluctant to acknowledge all that they’ve done for their financial future or voice the insightful questions they have. They downplay their knowledge because they aren’t “experts.”

One of the best things about investing is that it doesn’t require expertise to begin. In fact, the quote of “80% of success is showing up” couldn’t be truer. Just getting started, by putting your money to work in the market, can be one of the best decisions you make. From there, you can always improve and adjust your portfolio, as you learn and grow along the way.

Constraints work. Our Oregon Cascades adventure was a last-minute trip, so I didn’t have time to do a ton of research or prep beforehand. This worked in my favor. I could only concentrate on what gear to pack, food to bring and the correct mapping software to download. I couldn’t overthink it.

The same approach can be helpful with investing. You can easily get sucked into the latest articles on bitcoin, the “next Amazon,” why you ought to buy gold and how to invest in today’s economy. But in all likelihood, you’ll fare far better if you stick with the essentials—a handful of mutual funds that give you broad diversification at low cost.

Start small. A few hours into the trek, we lost some gear and our physical map. The visibility was poor and it was snowing hard. An hour of backtracking failed to locate our lost items. Our 25-pound backpacks became heavier and our pace slower. We became concerned we wouldn’t make it to the first hut in eight hours, let alone by dark.

The experience gave new meaning to putting one foot—or snowshoe—in front of another. Our success depended on this simple approach.

Retirement can seem like an incredibly daunting and distant goal. There may be a house that needs work, daycare and education costs that seem to go nowhere but up, and aging parents to comfort and care for. There will be days when getting out of bed and dressing yourself seem like an accomplishment. And they are. Every action you take, every decision you make, toward your long-term goals are a step in the right direction, no matter what your pace. Remember, you’re human.

Taking action builds momentum. Before you know it, your regular savings toward retirement will compound and grow. Your eight-hour trek will seem like six hours. Conditions will improve and the wind will be at your back—and all that was made possible by taking those initial steps.

This article first appeared in HumbleDollar.