Financial Year-End Checklist

Dec 2, 2021
Financial Planning

Before you say good-bye to 2021, you would do well to make sure your finances are in order. Whether you do this for tax planning or estate planning purposes, or simply for the peace of mind it gives you, here are some end-of-year steps you may wish to take.

Review Your Beneficiary Designations

Check your current beneficiary designations on all of the following to make sure they still reflect your wishes:

•Life insurance policies
•Retirement accounts
•Investment accounts

Also check your transfer-on-death and payable-on-death designations on such things as your solely-owned bank accounts and vehicles

Maximize Your Pre-Tax Retirement Savings

Current law allows you to contribute up to $19,500 to your 401(k), 403(b) or federal Thrift Savings Plan. If you’re age 50 or older, you can contribute an additional $6,000 in catch-up contributions. Not only will maximizing your contributions increase the amount you’ll have in these accounts when you retire, but also increase your take-home pay.

Consider Converting Some of Your Traditional Retirement Accounts to Roth Accounts

While your traditional retirements may serve you very well when you retire, they can pose huge tax bills for your heirs. How? Any heirs other than your spouse must withdraw all the money remaining in your traditional retirement accounts within 10 years of your death. Since these withdrawals are taxable events, the larger the enforced withdrawal, the higher the heir’s income tax, likely at a higher rate, too.

To forestall such a conundrum, consider establishing a Roth 401(k) or Roth Individual Retirement Account and funding it with some or all of the current proceeds of your traditional retirement accounts. Withdrawals from Roth accounts, whether by you or your heirs, are tax-free.

Keep in mind, however, that your traditional retirement account withdrawals are taxable events on which you must pay income tax. Consequently, withdrawing too much from a traditional retirement account in order to fund a Roth account could bump you into a higher tax bracket.

Another thing to consider if you’re on Medicare or will apply for it within the next two years is that your Medicare Part B will cost you more if your adjusted gross income becomes too high.

Preserve Your Gift Tax Exclusion

Current law likewise allows you to gift $15,000 each year tax-free to as many people as you desire. This amount increases to $30,000 if you and your spouse make joint gifts. These are use-it-or-lose-it exclusions, however. They don’t carry over from one year to the next. Consequently, if you’ve been thinking about helping a son or daughter start a business, now may be a good time to do it.

You can make your gifts in cash, to a 529 educational plan, to a Uniform Transfer to Minors Act (UTMA) account, or to an irrevocable trust of which your gift recipient is a beneficiary.

Gifts between spouses are not considered taxable for either the annual exclusion or the lifetime exemption, assuming that the receiving spouse is a U.S. citizen. Furthermore, the same applies to tuition and medical expense payments you make on behalf of anyone, whether or not they’re a U.S. citizen.

Perhaps most importantly, always remember that the caring professionals as AmeriEstate Legal Plan can help you devise a personalized estate plan that can accomplish all your financial goals.