Money moves to make before the end of 2020

As we approach the end of a truly unprecedented year, it’s time to reflect on how 2020 has affected our lives, our families and our finances. Some people might have been able to save a little extra money this year, thanks to the ways in which social distancing and safer-at-home policies have reshaped our spending habits. (Fewer dinners out, fewer miles logged in the car.) Other people, especially those of us affected by furloughs and unemployment, might have experienced more financial strain.

Either way, it’s a good idea to ask yourself whether there are any money moves you need to make before the end of 2020, either for short-term tax advantages or long-term savings planning (or both, or something else entirely). To get the best financial advice possible, we put that same question to four of our favorite financial experts. Specifically, we wondered: Should you focus on maxing out your retirement contributions before end-of-year deadlines? Is it time to look into tax-loss harvesting? What about setting aside money for your children’s education, or helping your family prepare for an uncertain future?

Here’s some expert advice to help you make smart financial decisions — and to start thinking about the financial goals you might like to work towards in 2021.

Check in with your finances

Before you begin making any end-of-year money moves, start by checking in with your finances — and yourself. Have you been making smart financial choices throughout 2020?

“For year-end, take a look at your financial situation,” suggests Betty Wang, CFP® and founder and president of BW Financial Planning. “How are your finances? How are you feeling about your financial future and your long term goals? Are you on track? Or did 2020 throw some wrenches into your financial plan?”

If your 2020 financial goals got a little derailed, don’t be too hard on yourself — this has been a difficult year for a lot of people, whether you were dealing with furloughs, unemployment, illness or natural disasters. We’ve all been under a lot of stress, and it’s absolutely affected the way we manage our money.

If you want, you can use this check-in process to ask yourself how you handled the stresses of an unprecedented year. Did you cut back on inessential purchases, or did you invest in everyday comforts to help your household thrive during quarantine?  Did you find yourself doing more impulse spending, and did any of that spending end up being more than you could afford and lead you to debt?

Don’t place too much judgment on your past actions. Just ask yourself how you feel about your 2020 financial decisions, and whether you’ve learned anything about yourself that might change the way you handle money in 2021.

Then, take a few minutes to look at where your bank accounts, credit card balances and investment balances currently stand — and ask yourself how much money you can realistically put towards any outstanding 2020 financial goals.

Max out your retirement accounts

If you have a little extra money in your bank accounts, you might want to shift some of that money into your retirement accounts. Maxing out your retirement contributions every year is one of the smartest money moves you can make — and although you can postpone some of those contributions into 2021, a few types of accounts have a slightly earlier deadline.

As Mary Beth Storjohann, CFP® and founder of Workable Wealth, explains: “You only have until December 31 to max out your workplace retirement accounts like a 401(k) or your health savings account. If there’s a little extra wiggle-room in your annual budget, now is the time to make it happen.”

If you have an IRA or a Roth IRA, you have until the 2020 tax filing deadline to max out your annual contributions — which means that you could postpone some of your 2020 IRA contributions until 2021. This might be your best option if you don’t have a lot of extra cash right now. That said, procrastination can easily turn into inaction — which is why Sam Dogen, aka the Financial Samurai, advises making as many IRA contributions as possible before 2020 ends: “You might as well get your contributions out of the way within the calendar year and start fresh.”

Save for your children’s education

If you still have cash to allocate after maxing out your retirement accounts, Dogen suggests putting it towards your children’s education: “If you have children, I recommend contributing up to $15,000, the maximum annual gift tax exclusion amount, into a 529 plan.”

Helping your children afford a college education is one way to create generational wealth — but if you can’t afford to contribute to a 529 plan this year, don’t worry. You can still pass down wealth to your children by sharing your own skills and talents, working with them as they deal with the challenges of remote learning and supporting your children’s goals and dreams.

Remember, only some types of education cost money — so in addition to asking yourself how much you can contribute to your children’s college fund, ask yourself what you can do to help your children navigate an increasingly complex world.

Buy life insurance

On the subject of generational wealth: If you haven’t already taken out an affordable term life insurance plan, you might want to add “get life insurance” to your list of money moves to make before the end of the year. As Lynnette Khalfani-Cox, CEO of financial education company The Money Coach and author of Zero Debt: The Ultimate Guide to Financial Freedom, told us when we interviewed her about the importance of building generational wealth: “Life insurance is one of the easiest, no-brainer ways to help pass along wealth to the next generation.”

The Financial Samurai agrees: “Absolutely get life insurance if you have dependents. If there’s one thing the pandemic has taught us, it’s that tomorrow is not guaranteed! Protect your loved ones at all cost.”

Start by getting a free life insurance quote or by using Haven Life’s life insurance coverage calculator to determine how much coverage you might need. Then apply for a life insurance policy — because getting affordable life insurance is one of the quickest and easiest things you can do to improve your family’s long-term financial situation.

And if you already have life insurance, but your situation has changed — maybe you’ve been promoted at work, or your family has grown — you might consider getting additional life insurance to cover your additional salary and/or needs.

Look into tax-loss harvesting

If you have an investment portfolio, it’s time to see how the market treated you in 2020 — and time to ask yourself whether tax-loss harvesting might help you reduce your 2020 tax burden. If your investment portfolio is with a robo-advisor like Wealthfront, the service may automatically handle the tax-loss harvesting for you; otherwise, you might have to do it on your own.

“Check out your portfolio and evaluate its performance,” Storjohann says. “The market had some volatility this year, so you may have gained or lost money. Depending on your situation, discuss with your tax professional or financial advisor and see if it would benefit you to do tax-loss harvesting.”

Tax-loss harvesting is one of those financial endeavors that is best conducted under the guidance of a professional — but here’s a quick rundown of how tax-loss harvesting works, courtesy of Joe Saul-Sehy, former financial advisor and co-host of the Stacking Benjamins podcast: “If you have positions that are down this year, you might sell them to realize a loss for tax purposes, and then you’d purchase a similar position right away. (It couldn’t be  the same fund/stock because you’d miss out on write-offs because of the ‘wash rule’ that says you must stay out of a position for 30 days to write the loss off on your taxes.) Remember, this is only valuable in taxable accounts, not tax-sheltered accounts like IRAs.”

If this sounds complicated, that’s because it is. So while tax-loss harvesting can save you money on your taxes, we recommend taking Storjohann’s advice and talking strategy with a tax advisor or CFP before you consider tax-loss harvesting.

Make charitable contributions

For many people, December is a month of giving — and this includes giving to charities, nonprofits and other organizations doing work you value.

If you’re not sure where to put your charitable dollars this year, Haven Life has a guide to charitable giving in 2020. We’ve researched some of the best COVID-19 relief funds and non-profits working to help people rebuild their lives after natural disasters, as well as organizations working towards racial justice in America.

People who make charitable donations in 2020 can also take advantage of a new tax benefit. “For 2020, you can deduct up to $300 for charitable contributions if you itemize or not due to the CARES Act,” Wang says.

Here’s how the IRS puts it: “Previously, charitable contributions could only be deducted if taxpayers itemized their deductions. However, taxpayers who don’t itemize deductions may take a charitable deduction of up to $300 for cash contributions made in 2020 to qualifying organizations.”

The CARES Act also temporarily suspends limits on charitable contributions — which is one of the reasons why Dogen suggests that wealthy individuals consider increasing their 2020 charitable donations: “If you’re really wealthy and have an estate that will surpass the current estate tax threshold of $11.58 million per person, you might as well start aggressively giving more to your children and charities.”

That said, tax law can be complicated, as can different types of charitable contributions — so talk to a CPA or tax advisor if you have any questions about how your 2020 donations might affect your taxes.

Set your 2021 financial goals

There’s one more money move that you need to make before the end of 2020 — and that’s to start setting your 2021 financial goals.

Saul-Sehy suggests setting up automatic savings plans that begin transferring money into your savings accounts at the beginning of 2021. “The easiest way to get ahead with your money is to automate your savings. Set up automatic transfers into your emergency fund, maybe into a holiday/ vacation fund and into long-term investments.”

In addition to setting up automatic savings plans, you can also set up autopayment plans on your monthly bills — including your credit card bills. “I like to have the minimum autopay on my credit card,” Saul-Sehy says. “I try to always pay off my cards in full every month, but if I accidentally miss a deadline, I won’t be hit with late fees and my credit won’t be dinged.”

Wang agrees that saving money should be one of your top 2021 financial goals — and reminds us that saving money can help you achieve other financial goals as well, such as building an emergency fund or setting aside money for post-pandemic travel.

With that in mind, Wang offers this challenge: “For 2021, challenge yourself to save 1% percent more of your paycheck. Maybe the savings go to your 401(k), your emergency fund or the dream trip that you want to take.”

What financial goals do you hope to set for 2021 — and will saving a little extra money every month help you get there? If your finances are so tight that saving an extra 1% of your paycheck seems impossible, you might want to focus your 2021 financial goals on finding ways to earn more money or end each month with a little extra cash.

No matter which financial goals you choose, the simple act of setting your goals will help you focus your financial efforts in the right direction — and help prepare you for whatever 2021 might bring.