Six Financial Best Practices for Year-End 2020 

Has 2020 left you feeling like the fabled Sisyphus, forever pushing a boulder up a steep hill? Thankfully, with multiple COVID-19 vaccines in the works, there’s hope the load will lighten in the new year, fast approaching. While we prepare for a fresh start, here are six financial best practices for year-end 2020 and beyond, none of which require any heavy lifting.

1. Revisit your tax plans. Although the Tax Cuts and Jobs Act (TCJA) is now in full swing, you’re probably still following a few well-worn tax-planning paths that may no longer apply. You (with your tax planner) may want to revisit them. For example:

  • Holding a mortgage is much less likely to offer the tax-deductible advantages it used to. Have you altered your payment plans accordingly?
  • Ditto on charitable contributions. Have you looked at creative new strategies, like establishing a Donor Advised Fund, to continue engaging in tax-favored giving?
  • Unless Congress acts to extend them, TCJA’s lower individual income tax rates will expire in 2026. Have you considered how the current, lower-rate environment might impact your retirement planning? For example, performing a Roth IRA conversion with after-tax dollars may make more sense today than it used to.
2. Give as you’re able, get a little back. What the TCJA took from charitable giving, this year’s CARES Act partially gave back – at least for 2020.
  • A $300 “Gift”: Under the TCJA, it became much harder to realize itemized tax deductions beyond what the increased standard deductions already allow. But this year, the CARES Act lets you donate up to $300 to a qualified charity, and deduct it “above the line.” In other words, even if you’re taking a standard deduction, you can give a little extra, and receive an extra tax break back, without having to itemize your deductions.
  • Giving Large: If you are itemizing deductions, the CARES Act also temporarily suspends the usual “60% of your AGI” limit on qualified cash contributions. The exception does NOT apply to Donor Advised Fund contributions, and has a few other restrictions. But if you’ve already been thinking about making a large donation to a favorite charity, 2020 might be an especially good year to do so – for all concerned.

3. Revisit life’s risks. As the pandemic reminded us, life is full of surprises. That’s why it’s imperative to build wealth, and protect it against the inevitable unexpected. Is your current coverage still well-aligned with your potentially altered lifestyle? Perhaps you’re driving less, with lower coverage requirements. Or new health or career risks now warrant stronger disability insurance. Might it be time to consider additional life insurance or umbrella liability coverage? Bottom line, there’s no time like the present to prepare for your future greatest risks.

4. Consider rebalancing your portfolio. Have you stayed the course in 2020, with a globally diversified portfolio reflecting your financial goals and risk tolerances? If so, that’s fantastic! But if it’s been a while since you’ve touched your portfolio, you may find some of your strongly performing assets have now overshot their target allocations. Depending on trading costs and tax ramifications, you may want to sell some of your winning asset classes from 2020 (in which you’re now over-invested), and buy recently underperforming ones (in which you’re now under-invested). It may feel counterintuitive to sell “winners” and buy “losers,” but not if you recognize you’re selling high and buying low.

5. Harness an HSA. Health Savings Accounts (HSAs) are another often-overlooked tax-planning tool. Instead of paying for a traditional lower-deductible/higher-cost healthcare plan, some may benefit from a higher-deductible/lower-cost plan plus an HSA. If a high-deductible plan/HSA combination is available to you, it may be worth considering – especially if a career change, early retirement, or some other triggering event has altered your healthcare coverage. HSA assets receive generous “triple tax-free” treatment – going in pre-tax, growing tax-free, and coming out tax-free (if spent on qualified medical expenses).

6. Perform a cybersecurity audit. Protecting yourself against cybercriminals is another excellent use of your time at home. With the new year, consider revisiting a few basic, protective steps, such as: changing key passwords on your most sensitive login accounts (or using a secure password manager); reviewing your credit reports (using AnnualCreditReport.com); and placing a freeze on your credit file, to block unauthorized access.