Here's Your 2020 Financial End of the Year Checklist

Financial Wellness By Noah - December 10, 2020

After the year we’ve had, it’s understandable if looking ahead makes you feel more apprehensive than anticipatory. It’s tough to imagine what the new year will bring, or how to prepare for it. Will leaving 2020 behind bring relief in 2021?

In the spirit of optimism, our end-of-year goals are focused on rebuilding financial weak spots and reinforcing a sturdy foundation for your family. These six tips aren’t meant to overwhelm an already long to-do list. Instead, think of our year-end financial checklist as an opportunity to provide a secure home base, so you can look forward to the new year.

Check Off Open Enrollment Tasks

The open enrollment deadline is coming up fast, on December 15. If you haven’t reviewed your options, don’t put it off another moment. This is your chance to make adjustments for the year ahead:

  • Check healthcare coverage. Do you need to switch plans?
  • Decide if you want to use a flexible spending account (FSA) or health savings account (HSA) to pay for some medical expenses like co-pays, deductibles, and other qualifying healthcare costs and lower your taxable income at the same time.
  • See if there are benefits you want to stop or suspend for now, due any pandemic-related life changes you've experienced in 2020. If part of your pretax income went to fund a commuting, carpooling, or parking benefit this year, you may not need or want that fringe benefit anymore.

Review Life Insurance

If you have financial dependents, life insurance can help provide a financial safety net if you pass away. For many families, this means term life insurance, although some families prefer a permanent life insurance policy (such as whole life insurance), or a combination of both types.

First things first: Do you have coverage? If not, put finding a reputable provider on next year's financial checklist. Life insurance premiums tend to be more expensive as you get older or if you have health conditions, so starting early tends to help you get better rates.

If you have coverage already, this can be a good time to double-check details, such as who’s named as your beneficiary. If anything in your life has changed (e.g., separation or divorce), you may need to update who’s listed to receive any death benefit on the policy. You can also check if the level of coverage matches what your loved ones would need. Some insurance providers will let you adjust coverage amount after purchasing a policy, although not all do.

Review Homeowners Insurance

While you’re in insurance mode, check on your home, too. If you can find a homeowners insurance provider with lower rates or better service, you may be due for a refresh.

It’s a good idea to reassess your homeowners insurance about every three years. If you made modifications to your home in the last year, especially renovations that add square footage or change your bedroom or bathroom numbers, you may need to adjust your coverage accordingly.

Pay Down Debt

Starting the new year with a fresh slate can be a great financial and psychological pick-me-up. With holiday gift shopping out of the way, you can assess whether you’ve got enough extra cash to leave a debt behind for good.

One common question is, which debt should I tackle first, credit card debt or student loans? Credit card debt can come with high interest rates, which weigh down credit reports and can lead to borrowers ultimately paying way more than the total they swiped at the register. Student loans from federal agencies have their interest indefinitely suspended due to coronavirus. President-elect Joe Biden has outlined possible measures for education loan forgiveness, so it remains to be seen what may ultimately go into effect. While you should check with a trusted financial advisor, there are some indications that clearing other forms of debt while you wait to see what student loan debt relief will take effect could be a good choice for some families.

In some cases, making plans for the next stretch of your homeownership journey is also a chance to become debt-free. Some homeowners choose to use the home equity they've built up to help fund home renovations and pay off debt. If tapping into home equity could help you accomplish important financial goals now, you don’t need to wait until you’re ready to sell your home – a Home Value Investment could provide the upfront cash you need without adding monthly payments or additional debt to your plate.

Plan for the Future

Reviewing your year end financial planning checklist is a good time to think ahead further than only one year. How secure do you feel about more long-term plans?

Check how savings stand for your retirement and your children’s future education. A contribution to a 529 plan can get you a tax deduction in some states, so take advantage of any of those opportunities. Or if you're in a position where you're looking to reduce your estate and save on estate taxes, you can contribute up to $15,000 to a 529 for a child's future education without incurring gift taxes.

When reviewing your retirement plan with your tax advisor or accountant, remember that The Tax Cuts and Jobs Act of 2017 changed the rules about “recharacterizing” conversions or rollovers into a Roth IRA.  As you complete any planned IRA contributions, including catch-up contributions you may be eligible for, ask your advisor about the best retirement savings strategy for you.  You may have less flexibility to change account types than was once the case.

Some coronavirus relief measures in the CARES Act of 2020 are due to expire in 2021, unless legislation renews them. The CARES Act let people withdraw money from retirement accounts for coronavirus financial without the typical 10% penalty. That’s expiring in the new year, so you may need to plan other ways of accessing extra funds if you need them. The waiver on required minimum distributions (RMD) is also due to expire in 2021 unless it is reenacted.

If you expect that your family will need some extra funds to be on solid financial footing in the new year, add some strategies to your year end checklist. Applying for a loan, reaching out to family and friends, or tapping into your largest asset – your home – are all ways to access the money you need. Home equity financing can often provide you more cash than you could easily borrow from a friend, and you can use it any way you like. A Home Value Investment with Noah doesn’t accrue interest the way a home equity loan or HELOC does, which can make it an attractive choice for some homeowners.

Tax Law Updates for 2020

Most years, slight (or not-so-slight) adjustments to tax law can make a difference in how you file taxes and what kind of tax return you might expect.

The standard deduction amount has increased to keep up with inflation. Married couples can take $24,800, up from $24,400. If you are over 65 and/or blind, you are eligible for an additional standard deduction. Taxpayers filing singly or as head of household can claim an additional $1,650. Married couples filing jointly can claim an additional $1,300 if one spouse fits the criteria, and $2,600 if both do.

Doing good for others in 2020 can be good for you, too. Most years, you can only deduct charitable contributions if you’re itemizing your deductions. But in 2020, taxpayers taking the standard deduction may also take up to a $300 deduction for cash contributions to qualifying charitable organizations.

A new year, and the promise of a fresh start, may be just what you need to feel a little brighter after months of muddling through lockdown. Following a few end of the year financial tips can help you feel accomplished, maybe even a little more ready to take on new aspirations. Here’s to making 2021 your year.