Before 2021 Ends, Check These Items Off Your Financial To-Do List

At this time of year, it’s only natural for our thoughts to turn toward what we can do better in the future. And that extends to our finances as well. (It’s no coincidence that “save more and spend less” ranks high on most people’s list of resolutions year after year.)

So as the end of the year rolls around, here are a few tips that can help you close the year out right.

Sell losers to offset gains

Despite recent inflationary concerns, the U.S. economy has enjoyed a bull market for over a decade and that can mean substantial capital gains for taxable (non-retirement) accounts. Any “losers” in your portfolio – whether mutual funds, ETFs, or individual securities – could be sold to offset those gains. (The tax nerds among us like to call this process “tax-loss harvesting.”)

Increase retirement savings

A good rule of thumb has always been to save 10-15% of your income in retirement accounts. Examine your 2021 contributions to make sure you’re on the right track. Contributions to 401(k)s and 403(b)s must be made before year-end to receive a deduction for 2021, but contributions made to IRAs can be made up until your tax filing deadline. 

Make your charitable contributions

Many nonprofits receive substantial donations during the last month of the year. To receive a tax deduction for 2021, gifts must be made within the calendar year. For investors who may be holding highly-appreciated securities in a taxable account, these securities can be donated to a charitable organization. It's a process that relieves you of the taxes on those capital gains. Many organizations accept gifts of stock directly, or you can consider gifting your stock through a donor advised fund. When gifting through a donor advised fund, you receive a tax deduction for the year the securities are deposited, and the gift to a charity of your choice can be made at a later date.

Consider a Roth conversion 

Do you have a retirement account, such as a 401(k), 403(b), IRA, etc.? If so, make sure you know what tax bracket you’ll end up in this year. If your income is lower this year than previous and/or future years, it may make sense to pay taxes now, rather than at a higher rate in retirement. This is particularly timely advice given many of the tax changes in President Biden’s new American Families Plan.

Remember that contributions to IRAs are different than Roth conversions. While contributions are cash additions to IRAs, a Roth conversion means that a traditional, pre-tax IRA is being “converted” to a Roth (after-tax) account, and, as a result, will not be taxed upon distribution in retirement. 

Take a look at next year’s budget

Despite everyone’s best intentions, (and despite us all having calendars on our phones), the end of the year has a way of catching people by surprise. But a little planning can go a long way toward minimizing holiday stress. While it’s not always possible to predict the future, look ahead to what you think the new year will hold.

What will be different in next year’s budget, and how can you adjust? Consider income changes and expenses – from basic needs like groceries and housing to long-term goals like retirement and college savings. Even something as simple as setting a monthly savings goal for Christmas presents can help enormously at the end of the year. Online budgeting tools can help keep the process simple and organized, all at no (or very little) cost.

As 2022 approaches, it’s only natural to look ahead. But while planning for the future, don’t forget to take a moment and reflect on your progress to date. After all, those earlier successes have paved the way for the bright future you’re building.

Hunter Yarbrough, CPA, CFP, is a vice president and financial adviser with CapWealth. He is passionate about taking a holistic view of personal finance, including investments, taxes, retirement, education, estate planning, and insurance. For more information about Hunter and CapWealth, visit capwealthgroup.com.