Your Fourth Quarter Financial Checklist is Here!

Your Fourth Quarter Financial Checklist is Here!

October 06, 2020

Welcome to the fourth quarter of 2020!  As you are considering your Halloween costume options, visiting apple orchards,  pumpkin patches, and corn mazes and strolling through the woods to enjoy the fall colors, make sure you are also thinking through year end financial planning considerations.  As long and strange as 2020 may be feeling right now, it won’t be here forever and there are ways you can end it on a strong financial note.

Here is a quick year-end financial checklist:

  1. 401(k) contributions – Spend some time making sure your 401(k) is properly configured. Are you on track to invest the desired amount into your workplace retirement plan?  The limit for 2020 is $19,500 for 401(k)s and investors 50+ have an additional $6,500 catch up contribution.  Also review the 401(k)’s fund lineup, as it will change periodically, to make sure your account doesn’t need a rebalance.  Sometimes the entire plan fund lineup can change during a year.  The 4th quarter is a great time to do a check in on this account.
  2. Transitions in 2020 – If there was ever a year of change and transitions 2020 is it. If you were transitioned out of a job in 2020, you may want to think about options you have regarding your old workplace retirement plan.  Please call us to discuss these options.
  3. Funding for IRAs and Roth IRAs in 2020 - There is no longer an age restriction for IRAs.  It used to be if you were over the age of 70-1/2 you weren’t allowed to contribute to an IRA.  That has been removed by the SECURE Act.  Roth IRAs are also one of the best places to invest some extra cash that you may have for investing. Many of us have extra cash from cancelled vacations, less eating out, and cancelled sports leagues.  Put that cash to work for you in a tax-advantaged Roth IRA.  This is especially valuable with the looming potential for higher tax rates on the horizon. 
  4. Rebalance - If you do not have automatic rebalancing set up on your accounts, make sure you review your accounts and see if you should rebalance the allocation.  It’s a good habit to periodically review the asset allocation of your accounts.
  5. Required Minimum Distributions - RMDs are not required this year from retirement plans, IRAs, and inherited accounts.  If you do not need your RMD from your retirement plan account, you can decide to leave it within the account.
  6. Capital Losses - These can be realized in taxable accounts.  If you have not done so you can investigate whether this strategy makes sense for you.
  7. Roth Conversion - If your income is down for 2020 it may make sense to do a Roth conversion. This makes a lot of sense if you are thinking these accounts will go to your beneficiaries one day and you have the cash on hand to pay the extra tax from the conversion.
  8. Qualified Charitable Distributions (QCD) – charitable distributions from IRAs to a qualified charity need to be completed by December 31.  Sooner is better here. 
  9. Future Tax Hike - A tax rate hike in 2026 is a matter of law at this point.  Current tax rates of 10%, 12%, 22%, 24%, 32%, 35% and 37% will revert to previous rates of 10%, 25%, 28%, 33%, 35%, and 39.6%.  Consider strategies such as funding Roth IRAs and life insurance to build a more tax efficient investment plan.
  10. Tax Free Gifting –The annual amount you may gift another person without being taxed is $15,000 in 2020, which is the same it’s been for several years. You may give up to $15,000 each to any number of individuals without triggering a gift tax.   
  11. Insurance Needs – Its likely you review your health benefit options each year during open enrollment if your employer offers health benefits, but do you also review annually other insurance types such as auto, home and life? If you take some time to review your coverage annually, you may discover the policy you have been auto-renewing for years is no longer a good fit or is no longer the best value you could receive from a different company. 
  12. Flexible Spending Accounts (FSAs) – You may have opted for a medical FSA using pre-tax dollars. Over-contributing can be common for these.  Check on whether this is depleted, or if there will be a ($500) medical roll over amount into next year.  If not, your contributions will be forfeited unless you find a qualifying expense.  For dependent care FSAs, there is currently no rollover provision for unused balances.
  13. Timing of 529 contributions – The calendar year end is a break between college semesters. Before the new year semester, colleges send out tuition bills and a problem can occur if you take funds from a 529 plan in December for a tuition bill paid in January.  A portion of your 529 could be classified as a non-qualified distribution and subject to income tax and a 10% penalty if 529 total withdrawals for the year were more than the qualified higher education expense paid.  Issues could also arise if a distribution was made in January to cover December expenses. 

Have questions or need help in accomplishing some year end tasks?  Give us a call at Seagraves Financial Group. 


This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. The information is based on data gathered from what we believe are reliable sources. It is not guaranteed by Waddell & Reed, Inc. as to the accuracy and is not intended to be used as the basis for any investment decisions. The information presented does not constitute a solicitation for the purchase or sale of any security and is not a recommendation of any kind. Keep in mind that rebalancing may have tax consequences and transaction costs associated with this strategy.  Waddell & Reed and its representatives do not offer tax advice.  Please consult your tax and financial advisors before making financial decisions.  (10/20)