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Your 2020 Year-end Financial Checklist

October 26, 2020

Meagan Dow, CFA, CFP®
Senior Client Needs Research Analyst

The year 2020 has been one none of us will soon forget. To be honest, we won't be sad to see it go. As you look ahead to a hopefully less eventful 2021, it's a great time to step back, review your progress and your goals, and consider the steps you might need to take before Dec. 31.

Reflect on the Year, Your Progress and Your Priorities

Take some time to reflect on the year, your goals and your priorities. Maybe some of these have changed due to events of the past year. Have you had any major life changes, such as a relationship status, dependents or job change? Maybe you realized you'd feel more secure with a larger emergency fund or that supporting a charitable cause has become more important to you. The first step to any financial checklist is figuring out where you want to go, so take some time to reflect on what's most important to you. Then, have a conversation with your financial advisor to discuss any changes you want to make. Here are some other actions to consider as the end of the year approaches:

Prepare for Your Recovery

  • Review your budget. Many people's expenses fell this year with reduced travel and fewer activities, and some saw income fall as well. Review your budget to see if you can make small permanent cuts. Ensure you have a plan for when your expenses pick back up. If you can free up money in your budget, you can make quicker progress toward your financial goals.
  • Recontribute COVID-19-related distributions. If you took a COVID-19-related distribution from a retirement account, plan to recontribute it within the next three years. You don't have to make contributions each year, but getting a plan in place now can help ensure you meet the three-year deadline for recontributions.
  • Plan for assistance ending. If you took advantage of a financial assistance program, such as using mortgage forbearance or the student loan repayment deferral, ensure you understand the terms and are prepared to cover those expenses once assistance ends.

Ensure You (and Your Loved Ones) Have Stability

  • Build or replenish your emergency fund. If you had to spend down your emergency fund, create a plan for replenishing it as soon as possible. This may take priority over other goals for now, as it will create more financial stability by allowing you to cover unexpected expenses and/or a loss of income.
  • Do an insurance checkup. For many people, the pandemic has highlighted that their affairs aren't quite in order, encouraging them to ensure they have adequate life insurance coverage. Other insurance to review includes disability and long-term care insurance.

Maximize Your Progress

  • Maximize contributions. If you haven't maxed out your contributions to your retirement plan, health savings account (HSA) and/or individual retirement account (IRA), make additional contributions for 2020 if you can. Many employers have suspended 401(k) matches for 2020, so you may want to check with your employer. If they've suspended matches and you can afford it, consider increasing your contribution this year to make up for what they would normally contribute.
  • Rebalance. If it's been more than a year since you reviewed your existing account(s), review your asset allocation with your financial advisor and rebalance if the mix of investments has moved too far away from your original targets.

Talk Taxes with Your Tax Professional

  • Discuss strategies in a year without required minimum distributions (RMDs). If you're normally subject to RMDs, you got some relief this year since they're not required. That said, you may want to consult with your financial advisor and tax professional to determine if a distribution from a traditional/pretax account still makes sense. If you're in a lower tax bracket this year than you expect to be in future years, you may benefit from taking advantage of lower rates. If you don't need the distribution to cover expenses, you might explore if a Roth conversion makes sense.
  • Harvest losses or gains. Realizing losses in investments can potentially reduce how much you owe in taxes. Alternatively, if you're in a lower tax bracket this year, it may be a good time to realize gains. Either way, you'll want to understand your tax situation and ensure your investments remain in an appropriate balance to keep you on track to achieve your goals. It's best to work with your financial advisor and tax professional to determine if either of these is an appropriate strategy for you.

Review Your Legal Documents

  • Create or update your estate plan. If you don't have an estate plan in place, start now. Just as the pandemic had many people checking their life insurance, it also resulted in more people finally finishing their estate documents. If you already have an estate plan and have since had a major life change or haven't reviewed it in the past few years, review it and address any necessary changes.
  • Review your beneficiaries. The SECURE Act passed in late 2019 and changed the payout rules for beneficiaries of retirement accounts, including IRAs. Your financial advisor can help you understand the changes and review the beneficiaries for your retirement accounts. If you have a trust as a beneficiary to a retirement account, revisit the trust with your estate-planning attorney to ensure the SECURE Act hasn't affected it.

Entering 2021 with Confidence

This past year has certainly provided a lot of twists and turns, and it's likely highlighted the importance of not only having a strategy, but your ability to be flexible and adjust along the way. Your financial advisor can help you through these twists and turns. Discuss this checklist with your financial advisor to help ensure you are ready to ring in the new year.

Important Information:

Edward Jones, its employees and financial advisors are not estate planners and cannot provide tax or legal advice. You should consult your estate-planning attorney or qualified tax advisor regarding your situation.

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