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10 Financial New Year’s Resolutions for 2021


Jan. 8, 2021

The start of a new year goes hand in hand with making resolutions, and financial health tends to be one of the most popular topics. Although not all new year’s resolutions are successful, the list below should give you a good idea on how to keep financial resolutions throughout this year and beyond.

  1. Ensure Required Minimum Distributions (RMDs) are back “on". If you took advantage of the CARES Act waiver of RMDs in 2020 and turned “off” your automatic annual RMD distribution, you should ensure that it is ready to resume for 2021, as some custodians may not do this automatically. When determining the factor used in calculating your RMD, treat it as though RMDs were required in 2020 (i.e., you do not need to make-up for 2020 by using last year’s factor). Furthermore, only the calculated RMD for 2021 is required for this year; there is no second make-up distribution for 2020 required.
  2. Increase your retirement plan contribution. The new year is generally a time when pay raises happen, so take advantage of that (hopefully!) larger paycheck and increase the percentage you defer to your retirement plan – especially if you are not getting a full company match or are not deferring at least 10% yet. This allows you to save more while not “missing” anything from your net paycheck.
  3. Start collecting tax documents. February 1st, 2021 is the last day that Form W-2s and most Form 1099s must be mailed out. However, some accounts that receive a Form 1099-INT, for interest income reporting, may be delayed as late as March 15th, 2021, to allow extra time for additional tax reporting on Widely Held Fixed Investment Trust (WHFITs) and Real Estate Mortgage Investment Conduit (REMICs). In some cases, custodians will send a Form 1099-INT by February 1st, 2021 and send an amended Form 1099-INT in March. Keep this in mind, as it may make sense to wait to file until you are sure you have the final form. If not, you may have to file an amended tax return.
  4. Make IRA contributions for 2020. You have until April 15, 2021 to make IRA contributions for 2020. A maximum contribution of up to $6,000 can be made to both traditional and Roth IRAs, with an additional $1,000 allowed for those age 50 and older and, thanks to the SECURE Act, contributions can now be made beyond age 70 ½. You must have earned income to make a contribution and contributions/deductibility are subject to income limits.
  5. Review tax withholding amounts. If you receive a large tax refund check, your withholding amounts might be too high. In contrast, if you tend to owe taxes at year end, you may want to consider increasing your withholding or making estimated payments on a quarterly basis to avoid underpayment penalties.
  6. Check your asset allocation Especially with a year like 2020 behind us, it is important to regularly monitor your asset allocation to ensure that you are still on track to meet your financial goals. In general, your allocation should be appropriate for the long-term, but if something big has or will change, such as planning to retire this year, you should ensure your allocation will meet your changing needs.
  7. Reassess your spending habits. Start with a monthly budget and go from there. Especially if you are at or nearing retirement, having a solid grasp on what your cost of living is will help you plan better for the future.
  8. Review your insurance needs. As circumstances change, so too should your insurance coverage. Now is a great time to check in on your health, home, car, and life insurance. Make sure your policies are up to date and review the extent of what they do and don’t cover. Now may also be an appropriate time to consider your long-term care insurance needs.
  9. Create or add to your emergency fund This year may turn out to be just as unpredictable as the last and having a substantial emergency fund is more important then ever. Total up your cost of living, including debt payments, bills, groceries, mortgage or rent, and then make sure you have enough for about 6 months in a savings account.
  10. Check your beneficiary designations. While this isn’t specifically a financial goal, revisiting your accounts and plans is the perfect occasion to check in on your beneficiaries, both primary and secondary. This applies for retirement accounts, investment accounts, and insurance policies. Now is also a good time to revisit your Will, and who you have designated as your health care proxy and power of attorney, if applicable.

Remember this all takes time and commitment, take one step at a time and strive to make real progress on your financial journey this year. Eating healthy and exercising are just as important as ongoing attention to your finances, this also includes knowing your long-term plan and not overreacting to the market volatility.

Where do you go from here? Check out our resources on financial planning or reach out to us to learn more about the services we offer to help you reach your goals.

Please consult with an attorney or a tax or financial advisor regarding your specific legal, tax, estate planning, or financial situation. The information in this article is not intended as legal or tax advice.

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