End of the Year Financial Checklist

2020 has been a whirlwind of a year, with no signs of slowing down. As families continue to figure out how to balance significant changes in school and work schedules, many people may not be thinking beyond their immediate emotional and physical stressors. 

But with the end of the year right around the corner, it’s best to start checking in with your financial situation now to help avoid any last-minute surprises and prep you for the upcoming tax season.

Here are six items that need to be on your end of the year financial checklist.

Review and evaluate your financial goals

Sit down and evaluate where you stand with your 2020 financial goals. 

Have you hit your savings goal for the year? Did you pay off the debts you originally planned for? What steps are needed to check off any lingering goals before the end of the year?

If you haven’t met some of your goals, decide whether you want to pivot and achieve a different marker. Or take hard steps now to meet your original goal by year-end.

And don’t forget to assess your non-financial goals, too. Your overall well-being helps set the foundation for your financial success. So, make sure to check in with your personal and family goals while you’re at it.

Track down documentation for tax deductions

Even though the year is coming to an end, you still have time to take advantage of various tax breaks.

Check in with your accountant or search online for ways to lower your tax burden. For example, you may be able to write off certain business expenses, like a portion of your cell phone or internet bills. Or make strategic tax-deductible charitable contributions to your favorite cause.

Make a physical or digital file with any documentation that is needed in order to claim tax deductions, such as receipts or statements. By getting organized now, you can save yourself money and a huge headache come tax season.

Maximize your retirement accounts

Avoid leaving money on the table this year by maximizing your contributions to any tax-advantaged accounts, like your 401(k) or individual retirement account (IRA). Any money that is set aside can help save you on taxes either now or later during retirement, depending on the type of account you have.

The 2020 contribution limit for a 401(k), 403(b) and most 457 plans is $19,500. But individuals aged 50 or over can contribute up to $6,500 additionally as a “catch-up contribution”. 

Whereas, the contribution limit for traditional and Roth IRAs is $6,000 total, with a $1,000 “catch-up contribution” for individuals aged 50 and over.

If you have an employer-sponsored retirement plan, you may still be eligible to deduct contributions made to a traditional IRA if you meet certain income and filing status conditions

Even if you can’t afford to max out your retirement contributions for the year, you should at least take advantage of any company match opportunities, which is essentially free money.

Make additional HSA contributions

You still have time to max out your Health Savings Account (HSA) annual limit, as well. HSAs are only available to those with a high-deductible health plan. And are designed to be used for qualifying healthcare costs that aren’t covered by insurance.

Contributions are typically made through an employer-sponsored plan in the form of pre-tax payroll deductions. But you can make contributions outside of your employer at any time.

Contributions made by you, your spouse or anyone else — excluding your employer — are tax-deductible.

For 2020, HSA contribution limits are:

  • $3,550 for individuals.
  • $7,100 for families.
  • Once you hit age 55, you’re allowed an additional $1,000 “catch-up contribution.”

While the limits aren’t particularly high, your HSA can help shelter some of your income, while building a medical nest egg.

Plan to drain your FSA

A flexible spending account (FSA) is designed to pay for out-of-pocket medical, dental, and vision expenses — and sometimes dependent-care costs — that are incurred within the same calendar year.

But, unlike HSA funds that are yours forever, an FSA requires you to spend all of the funds in your account by the end of the year or risk losing the money altogether. This is referred to as a “use-it-or-lose-it” account.

In some cases, you may be eligible to roll over a portion of your funds into the next year or take advantage of a short grace period. Check with your employer to determine if either option is offered, so you can plan to drain your account accordingly.

But keep in mind that it’s best to purchase qualified goods or services that you already need or will use in the future. This may include services like a chiropractor or physical therapy sessions. Or everyday expenses like first aid supplies, over-the-counter medications or feminine hygiene products.

Budget and save for the holidays

Even if you’ve had a great financial year, the holidays can quickly undo all of your budgeting hard work. Between the constant travel, expensive gifts and numerous festivities, the holiday season can put you in a deeper financial hole if you don’t properly plan for it.

Spend some time creating a holiday budget now. And then start saving for it if you aren’t already. By having a plan in place ahead of time, you’re less likely to make impulsive purchases and get swept up in the spirit of giving. 

Final thoughts

As you take steps to maximize your money this year, make sure to pay attention to any special rules, limits or penalties related to your tax-advantaged accounts.

For example, there is a penalty for over-contributing to your retirement and HSA accounts. But you can avoid this penalty by removing the excess funds before that year’s tax filing deadline.

By checking in with your finances now, you’ll have a few months to make strategic changes to your financial plan that can benefit you for years to come.

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