Last minute money movements to make before ringing the new year
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The year is almost over. Yet you still have time to do some financial movements and prepare the ground for a new start in 2021.
While it’s a good time to consider tax savings, it’s also a good time to assess your budget and other money matters.
“We as humans tend to want to wrap things up in a nice little knot at the end of the year to start the new year off right,” the certified financial planner said. Douglas bonparth, President of Bone Fide Wealth, based in New York and member of the CNBC Financial Advisors Council.
Here are eight strategies that can improve your financial outlook before you say “Happy New Year.”
This year was unlike any other.
You may have lost your job or seen your income decline. You may also have gotten breaks through the CARES Act, such as student loan forbearance or a penalty-free withdrawal from your 401 (k) or individual retirement account.
However, you will soon have to start repaying your student debt again. The relief was not included in the last stimulus bill and expires on January 31.
“If you’ve spent this money that was being used for your student loans, you’re going to have to deal with it,” CFP said. Lazetta Rainey Braxton, co-founder and co-CEO of New York-based consulting firm 2050 Wealth Partners.
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“If you saved that money, good for you,” she added. “You have enjoyed this relief, then you will be back in February.”
Those who withdrew money of their pension plan have three years to pay it back tax-free, if they so choose. They can also take it as a withdrawal and have three years to pay taxes on it.
If you plan to pay it back, you will need to add it to your budget. Otherwise, plan to pay a third of the taxes on it at tax time.
Another important part of your budget is your expenses. Look at where you spent your money last year and where you didn’t.
“Due to the pandemic, we haven’t been able to travel as much and eat so much in restaurants,” said Braxton, also a member of the CNBC Financial Advisor Council.
“It’s a good time to reflect on the year to see how, in fact, you were able to save money because you weren’t able to do these things.”
Think about how you can carry over some of these spending cuts as the economy opens up again.
“It’s a good reset button to make sure you’re disciplined and intentional with how you want to live your lifestyle and stay within that frame, too.”
If you cash in on investments that have made you money this year, you will end up paying taxes on those gains. To minimize the impact, you can also consider selling assets that have lost value.
It’s called harvest of tax losses. By selling assets at a loss, this will offset some of the gains you have made and should reduce the amount of taxes you will have to pay.
With a strong, albeit volatile market year, it can be difficult to find investments to sell at a loss, Boneparth said.
However, you have until December 31 to offset any gains you have made from selling investments, as well as up to $ 3,000 in non-investment income.
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It’s the season of charitable giving – and this year, even more so, with so many struggling.
“In a really tough 2020… there will be a lot more people who will need help,” Bonparth said.
In addition to spreading goodwill, you can also get tax relief, even if you don’t itemize your taxes. The CARES law allows those who benefit from the standard deduction to claim up to $ 300 deductions for charitable donations.
With unemployment still high and the direction of the economy uncertain, make sure your resume and online professional profiles on sites like LinkedIn are up to date.
“You have to stay on top of your profession, your job, so that you can get a salary that matches your experiences,” Braxton said.
Position yourself as someone competent and worthy of being paid at market rate. This is even more important with the income and wealth gap that has really oppressed marginalized communities, she said.
“For most people, their greatest asset is themselves,” added Braxton. “The income you can generate based on your talents will make it so important to maintain your lifestyle and prepare for the future as well.”
Now is a good time to find out who will receive your benefits after your death.
This means reviewing all of your retirement and life insurance plans to make sure the beneficiaries are up to date and correct.
Also, have your estate planning documents in place. This includes both a medical and financial power of attorney, a living will and a will.
“These are tough conversations to have, but they have to take place because no one would have imagined a pandemic of this magnitude, the number of deaths that have happened, as quickly as it has happened,” Braxton said.
“So planning requires that we are responsible for what life has to offer and that we are prepared accordingly. “
If you have any money left over after paying the bills, create an emergency fund.
Typically, experts suggest having three to six months of living expenses.
“[Plan] now so you can be prepared and enjoy the life that awaits you, ”said Braxton.