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Year-End Financial Planning

Carlos J. F. Lopez, MBA, CFP®

Director of Financial Education

Last Updated
November 23, 2021
financial planning

Top Financial Tasks to Complete Before the End of 2021

As we near the end of the year, now is a great time to check in on your finances and end 2021 on a positive note. The following tips can help you wrap up the year with confidence.

  • Check your FSA balance – If you have a flexible spending account (FSA), you usually have until the end of the year to spend your balance on qualified medical expenses. Failing to do so means you may lose any balance left in your account, unless your employer opted to adopt the recent laws that were passed. Due to special COVID-19 legislation, any 2020 FSA contributions must be used by December 31, 2021. Any unused 2021 contributions you made can be carried forward to be used by December 31, 2022 (but if you carry forward 2021 amounts into 2022 you may reduce the amount you can contribute to an FSA in 2022). It is important you check with your employer to see if they adopted these rules and, if not, what the plan provides for instead.
  • Donate to charity – Making charitable donations to organizations close to your heart offers you a two-fold benefit of helping a worthy cause while potentially reducing your 2021 taxable income. Most gifts must be completed by December 31, 2021 to be credited to the 2021 tax year. Don’t wait any longer to donate as the “end-of-year rush” burdens processing times, especially if you’re gifting appreciated stock or other securities.
  • Take or establish your RMD – If you have reached age 72 (or 70 ½ prior to January 1, 2020), you’ll need to take a required minimum distribution (RMD) from your traditional IRA(s) in 2021. Your wealth manager can help you determine the amount of your RMD. Your RMD must be withdrawn by December 31, 2021, or you face a 50% IRS penalty on the amount you should have withdrawn.
  • Review your retirement contributions – If you have an employer-sponsored retirement plan, make sure you’ve contributed enough throughout the year to take full advantage of any employer matching contributions. You have until December 31, 2021, to make any additional 401(k) contributions to reach the $19,500 maximum (plus an additional catch-up contribution of $6,500 if you have reached age 50) and until April 15, 2022, to contribute the maximum of $6,000 to your IRA (plus a catch-up of up to $1,000 if you have reached age 50). Special note: 401(k) contribution limits are rising to $20,500 per year in 2022, so be sure to adjust your future withholdings to ensure you put in the maximum amount next year!
  • Consider a Roth IRA conversion – If your earnings dropped in 2021, it might make sense to take advantage of your lower tax bracket to complete a Roth conversion. Converting your pre-tax retirement plan(s) to a Roth IRA can help protect against future tax rate increases, avoid the Social Security tax on excess earnings and prevent the need to take additional RMD payments. Please be aware that completing a Roth conversion triggers a taxable event and also raises your income – impacting government benefits and potentially increasing Medicare premiums – so it’s wise to seek guidance from your wealth manager prior to taking action. Roth conversions must be completed by December 31st.
  • Harvest tax losses – Tax-loss harvesting is a strategy of realizing investment losses in order to offset capital gains in your portfolio. Speak with your wealth manager about any potential opportunities to harvest losses and reduce your taxes before December 31st.
  • Review your goals and plan for any life changes – Year-end is a great time to review your goals and evaluate any recent changes in your life to make sure your financial plan remains relevant. Also take some time to consider any major events or changes you anticipate happening in the coming year. Do you need to save for a major purchase or health event? Do you anticipate getting married, having a baby or retiring? Work with your wealth manager to plan for these major life events.
  • Review your estate plan – Make sure all your estate planning documents remain up-to-date and relevant, given any changes that have occurred over the course of the year. Pay special consideration to your will, trust and powers of attorney.
  • Review your beneficiaries – Double check all accounts to ensure your beneficiary designations remain accurate and relevant.
  • Enroll in benefits – Many employers conduct annual benefits enrollment during the fourth quarter. Use this as an opportunity to reevaluate your benefit elections, including medical, dental and vision coverage, as well as optional insurance benefits, flexible savings accounts, health savings accounts and more.
  • Review insurance policies – Make sure your home, auto and life insurance policies continue to provide an adequate amount of coverage given any changes that have occurred in your life over the course of the year.
  • Review your credit report – Each of the major credit bureaus – Equifax, Experian and TransUnion – allow consumers to access one free report each year. Take advantage of this opportunity to double check your credit score and identify any unexpected errors.
  • Contribute to your kids’ college savings accounts – If you already have a Section 529 college savings account in place, review your contributions and make any additional contributions needed to achieve your annual savings goals. If you haven’t started saving for college, your wealth manager can help you establish an education savings strategy to meet your needs.
  • Plan for a fun purchase – Year-end planning doesn’t have to be only about checking the boxes. Take some time to plan for something fun such as a family vacation, home renovation or long-anticipated purchase. The satisfaction of enjoying something you’ve saved for can help you stay motivated toward achieving your goals.

For additional information, you can download our Year-End Financial Planning Checklist at the end of this article, or contact your wealth manager. We look forward to helping you wrap up 2021 and prepare for 2022 and beyond.

For more information about FSA accounts, retirement contributions, withdrawals, conversions and other tax-related questions, visit irs.gov.

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This commentary is provided for general information purposes only and should not be construed as investment, tax or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.

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