Investors have seen ups, downs, twists and turns this year. One lesson from 2021 is that it’s important to focus on what you can control. This year-end checklist highlights actions you can take to help keep your financial strategy on track.

1. Review your goals and personal situation

  • Self-assessment – Have your goals changed this year? Talk with your financial advisor to ensure your plan captures your current goals and their appropriate time horizon.
  • Your comfort with risk – It can be easy to take on more risk when markets are relatively calm (as they were this year) but shy away from it when markets decline. Your financial advisor can help ensure you’re taking the appropriate amount of risk to achieve your goals.
  • Beneficiaries, estate plan and insurance checkup – Do your beneficiary designations and estate plan still match your intentions? Beneficiary designations on IRAs, 401(k) accounts and insurance policies generally supersede your will, so it’s important to align your beneficiaries with your estate strategy.
  • Your plan for the unexpected – If the past few years have taught us anything, it’s to expect the unexpected. Review your insurance coverage and emergency cash – we recommend three to six months’ worth of living expenses.

2. Give your portfolio a checkup

  • Portfolio balance – Market fluctuations can cause your portfolio to drift from your intended asset allocation. Your financial advisor can help you rebalance if needed.
  • Portfolio foundation – We think this bull market will continue, but with reduced monetary stimulus and ongoing pandemic uncertainties on the horizon, 2022 is likely to bring increased market volatility. Consider these steps to help position your portfolio for shifting conditions ahead:
    • Asset class exposure – In addition to U.S. large-cap equities, enhance diversification with additional domestic and international asset classes. Appropriate allocations to bonds can help position your portfolio for increased volatility.
    • Tax-loss harvesting – Recognizing capital losses can help lower your tax liability. Or if you’re in a lower tax bracket this year, it might be a good time to realize gains. Work with your financial advisor and tax professional to determine which strategies are right for you.

3. Maximize your impact

  • Charitable contributions – Consider “bunching” charitable deductions, potentially using a donor-advised fund or a qualified charitable distribution, to help reduce your tax liability. If you’re not itemizing deductions, there is a deduction of up to $300 ($600 for married filing jointly) for cash gifts made directly to public charities.
  • Annual gifts – You can make a $15,000 gift per person per year without incurring gift tax.
  • Wealth transfer – If you’re planning to make a large gift in the next few years, speak with your estate attorney about the timing of the gift. The current estate tax exemption is $11.7 million per individual.

4. Make progress while minimizing taxes

  • Retirement plan contributions – Consider maxing out on contributions to your retirement plan, IRA and health savings account (HSA) for 2021, including any catch-up provisions. If you’re in a lower tax bracket in 2021, discuss with your tax advisor whether converting some or all of your IRA to a Roth IRA could help your long-term plan.
  • COVID-19-related distributions – If you took a COVID-19-related distribution from a retirement account last year, make sure you’re on track to meet the three-year deadline to return that money to your plan.
  • Backdoor Roth conversions – If you’ve maximized your tax-advantaged retirement contributions, consider what’s known as a backdoor Roth conversion. It involves making after-tax contributions to IRAs and/or plans, and then converting them into Roth accounts. Speak with your tax professional about whether this makes sense for your situation.
  • Required minimum distributions (RMDs) – RMDs have resumed for the 2021 tax year and must be taken by Dec. 31 unless the taxpayer’s birthdate is between July 1 and Dec. 31, 1949, in which case the start date is deferred to April 1, 2022. If you have an inherited IRA, you may also need to take an RMD by year-end. If applicable, work with your financial advisor to meet your associated deadline.
  • 529s – A 529 plan can help you pay for education expenses and possibly provide a state income tax deduction. Review your education funding goals to see if a 529 plan contribution is appropriate.

Before the curtain closes on 2021, talk with your financial advisor about these and other strategies that may help you stay in control of your strategy toward achieving your important long-term goals.

Important information:

Edward Jones, its employees and financial advisors cannot provide tax or legal advice. You should consult your attorney or qualified tax advisor regarding your situation. This content should not be depended upon for other than broadly informational purposes. Specific questions should be referred to a qualified tax professional.

Diversification does not guarantee a profit or protect against loss in declining markets.