Ten Year-end Money Moves

I’m sure we can all agree that the end of 2020 can’t come soon enough. With the events surrounding the pandemic, protests, and the election, you may have neglected the financial side of your life. It’s not too late to do the following:

• Invest excess cash. The chaos in the markets earlier this year caused many clients to keep more cash on hand than necessary. Unfortunately, they missed a fantastic comeback in the stock market. It’s never too late to put some money to work. Assess your risk appetite and review your portfolio. Then add accordingly.
• Look at online bank accounts. If your goal is to keep an amount safe, say for an emergency fund, or fund a purchase two to three years away, consider the higher yields offered by online banks: Ally, American Express, Capital One, and others. Rates range from 0.50 – 0.75%. That may not look like much but consider that the national average rate on savings accounts is 0.05% APY.   Minimums and restrictions may apply, and make sure your online bank is backed by the FDIC.
• Review your beneficiary designations. Did you experience a major life event this year: marriage, divorce, the birth of a child, death of a parent? If yes, review your beneficiaries on your retirement plans, IRAs, life insurance, and annuities.
• Rebalance your investment portfolios. It looks like stocks will have a good year. Are you still comfortable with the amount you own in stocks? Have your retirement plans changed so that now you’re closer to retirement? Is it time to add to international stocks and US value after years of underperformance? Look back to what you did (or didn’t do) this past March when the S & P 500 index dropped 35% in less than six weeks for clues to your risk tolerance.
• Donate to charity. 2020 has been a tough year for all of us, but many are especially vulnerable. Be generous. You can save on your income taxes too. The CARES Act re-incentivizes charitable giving by creating a $300 ($600 for a married couple) above the line deduction for qualified charitable contributions. This deduction is available to all taxpayers that take the standard deduction on their 2020 return. And for those of you who itemize your deductions, The Tax Cuts and Jobs Act (TCJA) had capped the deduction for cash contributions to public charities at 60% of a taxpayer’s adjusted gross income (AGI), but the CARES Act raised that limit to public charities (other than donor-advised funds) to 100% for 2020. If you’re aged 70 ½ and older, you can give traditional IRA funds to charity rather than taking them as IRS-mandated required minimum distributions (RMDs). RMDs are not mandatory this year, but you may still find it attractive to reduce the amount in your qualified accounts and achieve your charitable goals at the same time. You can contribute up to $100,000 as a Qualified Charitable Donation (QCD).
• Max out your employee retirement plan and IRA. The maximum contribution to your 401(k) and 403(b) is $19,500. If you’re age 50 and older, add $6500. For your traditional or Roth IRA, the maximum contribution is $6000. Add $1000 if you’re age 50 and older. Limits remain the same for 2021.
• Fund a Roth IRA for your children and grandchildren. Younger folks often find it difficult to save due to so many demands on their money. You can fund a Roth IRA for them. Maximum contribution for 2020 (and 2021) is $6000. Make sure they have earned income at least equal to your contribution. A Roth IRA is a great way for you to help your children save for a secure retirement. Income limits apply.
• Refinance your mortgage. If you think you will stay in your home for at least five years, now is a great time to refinance your mortgage. Rates are historically low. Rates on a 30-year fixed mortgage are below 3.00%. Try to reduce your term when you refinance to lower the total amount of interest you will pay over the loan’s lifetime. For example, if you have a 30-year now, get a 20-year mortgage. If you have a 20-year, get a 15-year or 10/1 adjustable mortgage.
• Review your credit report and update your passwords. Identity theft is on the rise. Review your credit report by going to www.annualcreditreport.com. Look for any errors. Place a freeze on your credit report if necessary. It’s free. Update your passwords. You should update your passwords every three months on sensitive accounts like your bank, brokerage, and health insurance. Think of a sentence or phrase that only you would know. I eat Italian food 2 times a week! becomes IeIf2taw!.
• Tip generously. Remember those frontline workers that helped us through this challenging year: your cleaning person, newspaper delivery person, mail carrier, UPS and FedEx drivers, hairstylist. And support your favorite local restaurants and small businesses.

Please let me know if you have any questions or concerns. 

Sincerely,

Henry Gorecki, CFP®

HG Wealth Management LLC

10 S. Riverside Plaza, Suite 875

Chicago, IL 60606

312-474-6496

henry@hgwealthmanagement.com