Year-end Tips Help Keep Your Financial
and Life Goals in Check
By Jennifer Mellace
Another year is drawing to a close, and what a year it has been—a year of uncertainty that has likely left many of us wishing for a do-over. While we can’t turn back the clock, we can review the things that will protect us and our loved ones in times like these: financial and retirement goals, tax preparation and security strategies, estate planning, and insurance and disaster preparedness procedures.
Local experts in each of these areas have given tips to help guide you through your year-end review and prepare you for the days ahead.
Review Finances and Retirement Goals
Before you begin holiday shopping, Tyler Lerman, financial advisor with Smith Wealth Advisory Group of Janney Montgomery Scott LLC, recommends you review your financial status and progress toward desired retirement and other goals. “Be sure to establish appropriate revisions and update financial plans accordingly,” says Lerman. “Consider increasing deferral percentages into retirement accounts and banking, rather than spending any bonuses or other increases to income. If you don’t already have a financial plan in place, make it your highest priority as you establish resolutions for the New Year.”
If applicable, ensure Required Minimum Distributions (RMDs) are properly satisfied from relevant retirement accounts.
If you are 70 1/2 years old or older, be sure to initiate charitable rollovers from IRA accounts to satisfy any charitable donation intentions.
Assuming insufficient deductions are available to itemize, consider bunching several years of intended annual charitable donations into a single tax year by establishing a Donor Advised Fund (DAF) and issuing subsequent charitable grants from the fund over time as desired.
Review projected taxable income and capitalize upon potential tax planning opportunities. Ensure that available tax deductions are fully used to offset income and are not wasted. Consider the merits of Roth IRA conversions and/or additional taxable withdrawals from retirement accounts if necessary.
Review the amount and status of retirement account contributions and consider additional contributions within relevant annual limits if feasible. Maximize contributions to a Traditional and/or Roth IRA as appropriate if eligible, and capitalize on any potential “catch up” contributions if you’re age 50 or older.
Review your portfolio allocation to ensure it remains aligned with your objectives and risk tolerance and that it’s appropriate given changing personal and/or market circumstances. Rebalance to intended portfolio targets as necessary given that its composition may have changed as markets fluctuate.
Ensure that appropriate beneficiaries are designated among all retirement accounts, insurance policies, and other benefit plans. Consider taking advantage of the annual gift tax exclusion to efficiently transfer monies to future heirs that might otherwise be subject to estate taxation.
Year-End Tax Review & Security Strategies
The time to prepare taxes will be here before you know it. Scott Hill, an investment advisor with Hill Financial Solutions, offers year-end suggestions on how to prepare not only for tax season but how to check your credit scores and protect yourself against identity theft. “Review your password maintenance and security strategy,” Hill advises. “Aside from choosing unique passwords for all the sites you visit, where do you store these passwords? On a Post-It note on your computer monitor? That’s probably not the best place.
“While there are a number of apps designed to store your passwords, many people fear having them all in one place,” he continues. “Despite that fear, I recommend that you use one of several simple phone apps that allow you to store encrypted notes on your phone. These programs require a password to get in, so even if someone were in your phone, these files would have an added level of security, and they are not stored on a server somewhere.”
If you have children who are planning to go to college, consider setting up a 529 plan and contributing before the end of the year. Any growth used for qualified expenses is tax-free. Also, in Pennsylvania at least, you can deduct the contributions on your state tax return, so you save over 3 percent on the investment from the beginning. Unlike IRA contributions, these need to be made before December 31 to deduct on this year’s tax return. You don’t necessarily need to use the 529 plan in your state.
If you have a brokerage account, including Robinhood or similar accounts, remember you will need to pay taxes on gains. You can minimize the tax burden by tax-loss harvesting. Basically, this means selling securities that have lost value to counteract the gains. If you are down for the year, remember to deduct some of those losses against income.
Check your credit score and learn to monitor it to be aware of any changes. While there are programs such as LifeLock, you can also check your credit for free at annualcreditreport.com. However, several banks and credit card
companies provide access to your credit score through their apps or websites.
Log in to your Social Security account at SSA.gov. If you haven’t done so, it is good to verify the information. Also set up two-factor authentication so no one else can log in to your account.
If you have a child in the 10th grade who plans to go to college, next year will be the tax return that is used to determine financial aid. If you need a new car, need to make major repairs, or have funds to pay down your mortgage, you may be able to reduce your expected family contribution used to determine financial aid by taking care of any deferred maintenance.
It can be uncomfortable to think about what will happen after you’ve died. But thinking about that now will ensure that your loved ones are well cared for and that your wishes are met. Todd King, of Salzmann and Hughes, Attorneys at Law, often hears people say that they don’t care what happens after they die, but he cautions clients that their loved ones left to handle their affairs will care.
“Not only will they be mourning your loss,” King says, “but they will have to go through the process to manage your estate. This means they will have to liquidate bank accounts, notify companies of your death, and sell your property. Imagine if you were told that you needed to inventory all of your assets and debts, sell them all, and then distribute the money. If your first thought is, where do I start? … imagine the response of your child being tasked with the same request without any knowledge of your financial information.”
Review and/or write a will, which allows you to dictate to whom your property passes and identifies who will control your estate.
Review and/or write a power of attorney, which allows you to appoint someone to act on your behalf financially.
Review and/or write an advance healthcare directive, which allows you to appoint someone to act on your behalf medically.
Plan your final arrangements, and tell your family your wishes. This will make it easier for loved ones to handle a very difficult process; the more they know, the easier it will be.
Secure your digital assets and make sure there is a plan for how someone should be able to access and delete your accounts.
Gather important documents like your will, account information, and contacts in a folder with instructions and information on assets and debts. This will make your life easier, and it will be easier for the individuals who will be administering your affairs.
Review Insurance and Disaster Preparedness Plans
If this year has taught us anything, it’s that disaster can strike at any time and that insurance plans need to be in place. “Now is a good time to review your plans and make sure they still achieve your original goals,” says Tammy Crouse, an agent with Everoak Insurance Group. “If they don’t, ask yourself what needs to change to make sure that plan works as intended. If you have a baby, get married, get a divorce, move, buy a home, start a new job, have a new driver in the household, buy a recreational vehicle or new vehicle or have retired, these are all reasons to have a discussion with an insurance advisor.”
Automobile Insurance: Did you pay off your vehicle bank loan? This avoids any complications when you have a claim check issued with the bank’s name on it and they no longer have an interest. Do you still commute to work? Do you still work at the same company? Do you have a company vehicle?
Home Insurance: Have you made any improvements on your home? Have you added any additional sheds, finished basement, etc.?
Life Insurance: Is your coverage enough; have you had any major changes in life like increased debt, school loans, or mortgage debt? Have you had more children? Have you been married or divorced? Do you need to make any changes to your beneficiaries?
Business Insurance: Have there been any major changes in your revenue? Any changes in payroll or employees? Any changes in your scope of operations? Any claims? Any additional purchases that you need to adjust your coverage?
The year’s end is also a good time to review your disaster preparedness plan. If you don’t have one, it’s a great time to start. This plan should include knowing where your important documents are located and ensuring you have a backup copy off premises. This backup could be in the cloud or at a trusted friend or relative’s home. The plan should clearly outline what happens in the case of an emergency, be it to your property, yourself, or a family member.
Keep your items in a safe place, and make sure to let your loved ones know where they can find these policies or that they know your agent’s name and contact information. Paper and electronic backup with user ID/passwords written down for loved ones to be able to access the information
Always be Prepared
The most important advice for your year-end review—or anytime—is to be prepared. “Most people have a checklist of all the things we put off throughout the year,” says Cindy Fremont, a financial advisor with Edward Jones in Hanover. “I tell my clients, just do it. Make sure everything is in order so that no matter what happens you are prepared.”
Fremont makes it a point to review and rebalance her clients’ accounts. “There is a lot of movement in the market, so it’s important to make sure you reconnect with your financial advisor to make sure everything is rebalanced. Just like checking fire alarms, check your plan and make sure everything is in place,” she says. “Sit and have an in-depth discussion about your goals with your financial advisor. You need a plan to put behind what you’re looking to do long-term.
“Life changes, and those changes could affect the plan, causing long-term consequences if you’re not careful,” Fremont continues. “When this happens, I might be last person you think of, but I might be the most important.”
Your Local Experts
J. Scott Hill, MA, AIF®
Hill Financial Solutions
18 Carlisle St., Suite 105, Gettysburg
Assess your emergency fund strategy. How many months of expenses you should have? Do you have it? Most financial planners recommend between three and six months of expenses. Where you keep that is somewhat flexible, but it needs to be accessible and protected from market fluctuations.
Ask your advisor, or assess for yourself, whether your investment assets have drifted in a way that makes your portfolio riskier than you may want. By keeping your portfolios within a certain risk profile, it helps to reduce volatility and can help you sleep better knowing you are sticking to a plan.
Tammy J. Crouse
Director of Sales, Agent
Everoak Insurance Group
1 S. Queen St., Littlestown
Review your life insurance plan to make sure it still achieves its original goal. If not, what needs to change to make sure it works as intended?
Review your disaster preparedness plan. If you don’t have one, it’s a great time to start. This plan should include knowing where your important documents are located and ensuring you have a backup copy off premises. This backup could be in the cloud or at a trusted friend or relative’s home. The plan should clearly outline what happens in the case of an emergency, be it to your property, yourself, or a family member.
805 Baltimore St., Suite 287, Hanover
Assess your gains and losses for the year.
Prepare for the unexpected and have a plan in place. Make sure everything is in order—your estate plans, will, power of attorney, living wills, life and long-term care insurance.
Smith Wealth Advisory Group of Janney Montgomery Scott LLC
2315 N. Susquehanna Trail,
Suite A, York
Todd A. King
Salzmann Hughes, P.C.
112 Baltimore St., Gettysburg
717-334-9278, ext. 1420
Gather important documents and make a file that you can share with the person who will handle your affairs if you are unable or deceased. Imagine being asked to handle the financial affairs of someone, like your parents, but not knowing anything about where they bank and what they own. It might be difficult for someone to share their personal information, but it makes it much more efficient for those who will ultimately handle your affairs if they know where to look and who to call.
Write a will. It’s important because it dictates who gets your property after you die, and it allows you to designate who will be responsible for handling all of your property and distributing it to your beneficiaries. Choosing a good personal representative to handle your affairs will help the process to run smoothly.