Key Takeaways

  1. Year-end planning is more than just last-minute tax moves – you need a plan for all facets of your life
  2. The end of the year is a great time to revisit your goals, reflect on the year, and learn valuable money lessons
  3. A personalized plan is essential to making smart, informed decisions before year-end deadlines
  4. A proactive strategy for the year ahead can help you set priorities, get organized, and put you in control of the life you want to live
  5. Planning doesn’t end when the year does – your plan needs to dynamically evolve as life, and the world around you, change

TABLE OF CONTENTS

  1. A Year in Review – Reflecting on the Year That Was
  2. Year-End Planning Strategies for Your Money
  3. Planning for Your Future – A Look at the Year Ahead

The end of the year is a crucial period of time in which you need to make time-sensitive planning decisions. There are critical choices that can affect your taxes, your investments, and your savings. It also presents opportunities to reflect on the year that was and to start planning for the year ahead.

With almost 5,000 tax code changes in recent years, sweeping tax legislation on the horizon, and uncertainty around inflation, interest rates, and the economy, having a plan is more essential than ever. Now is the time to create a personalized and proactive plan that dynamically evolves to meet your needs – personally, professionally, and financially – for years to come.

Here’s your complete guide to looking back at 2021, to closing out the year strong, and to navigating your future with clarity and confidence.

A Year in Review - Reflecting on the Year That Was
Financial planning is a personal journey; no two paths are the same. While we want to look forward to what we can do, it’s important to take a look back to understand what we did well, what we didn’t do well, and what we can learn from it all to guide us moving forward. If we do it right, we can learn invaluable lessons.

Reviewing your financial goals - Start by looking at the goals you set for the year and assessing your progress. Even if you missed one or a few, you can learn from what caused it and evolve your strategy accordingly. The good news is that there is still time to make last-minute adjustments. Here are some questions to help you reflect on your goals:

  • What were your financial goals for 2021? Was it easy to write down the specifics of each one – like how much you needed to save and by when?
  • Were you successful in making progress towards, or achieving, your goals?
  • What do you believe led to achieving, or not achieving, each one?
  • Were they the right goals to start with or did you change any during the year?
  • Did you take time to celebrate your achievements both big and small?

Exploring your mindset around money - The decisions we make with money are rooted in a complex web of emotions, beliefs, and values. How we think and feel – the psychology of money – determines how we make decisions and the actions we take. Understanding your beliefs may very well be the key to making smarter, more informed decisions that align your money with what matters most.

Here are some questions to help you explore how to make better decisions in 2022.

  • How do you feel about 2021 as it relates to your overall financial plan?
  • What steps did you take that you feel good about? Are there any decisions you don’t feel good about?
  • What habits do you want to continue? Are there any habits you want to break, change, or improve?
  • What can you learn from each situation and how can you apply those lessons to your plan moving forward?

A CFP® Professional at Facet Wealth can help you set goals and develop a plan to achieve them. Schedule a free, introductory call today.

Now let’s move on to the year-end deadlines you need to know.

Year-End Planning Strategies for Your Money

The end of the year is a critical time to make very important decisions in your overall plan to meet your goals, prepare for key life milestones, and lower your taxes for the year.

Here is a list of some planning moves you may need to consider.

Planning for taxes: Check your tax withholdings to see if you are on track to cover your tax liability for the year. Major items like bonuses, stock options, and retirement savings can impact what you owe come tax time. You still have time to make adjustments to your withholdings to get back on track and avoid IRS fees and penalties. 

If you experienced a major life event in 2021 – bought a home, got married, started a family – you need to understand the impact on your deductions and tax credits as they can materially impact the taxes you pay.

Retirement planning decisions before year-end: Check your contributions to your company plan – like a 401(k) – to ensure you are getting the full employer match. Keep in mind that you have until year-end to hit your annual contribution limit – $19,500 for those under 50 and $26,000 for those over 50. You still have time to adjust your contributions to hit your desired level of savings.

And remember, if you’re over 70, required minimum distributions (RMDs) are back for 2021 after they were suspended in 2020. Make sure you have a plan to take them or you could face a penalty from the IRS. Different deadlines may apply based on your age and the type of account. Some inherited retirement accounts may be subject to this as well.

Retirement planning decisions before your tax deadline: You can make IRA and Roth IRA contributions up until your tax filing deadline – typically April 15th of the following year. The amount you can contribute to a Roth IRA begins to phase out for singles at $125,000 and for married couples filing jointly at $198,000. If that applies to you, you may want to consider a backdoor Roth IRA, but make sure you understand IRA pro-rata rules and tax implications.

Here is a quick tip for parents with children who work: if they have earned income, they may be eligible to establish a Roth IRA. Rules vary based on their age, but it’s a great way to teach some valuable money lessons and to get an early start on long-term savings.

Strategies for your taxable investment accounts: With potential tax increases next year, 2021 may be a good year to sell investments that went up in value, which is called realizing capital gains. If realizing gains doesn’t make sense for your situation, take a look at selling any of your investments that have incurred losses – this is called tax-loss harvesting – which can offset capital gains dollar-for-dollar and ordinary income up to $3,000 per year.

Making the most of your workplace benefits: If you funded a flexible spending account (FSA), you may have to spend your money before year-end. Some plans offer a grace period for reimbursements, and there are even carryover extensions due to COVID-19. Check with your plan administrator to know your deadlines so you can plan accordingly.

If you are eligible to fund a health savings account (HSA), your savings can roll over into the new year. A lesser-known fact is that you can make HSA contributions for 2021 up until the tax filing deadline so you have time to top off your savings – $3,600 for individuals, $7,200 for families, and an extra $1,000 for those over 55.

Planning for your stock compensation: Having a plan for your vesting shares and when you will exercise stock options is critical to making the most of your stock awards and minimizing taxes. You need to consider the overall value of the stock awards that will be reported as income and if they will trigger the alternative minimum tax (AMT).

Education savings and college planning: If you want to contribute to a 529 education savings plan, the deadline is typically 12/31, but you need to check with your state as rules can vary. Keep in mind that these plans can be used for pre-K through college expenses and even student loans – limits may apply based on how you use the money.

Charitable donations: If you give to charity every year, there are a few things to know. First, in 2021, you can deduct up to $300 even if you don’t itemize deductions. A married couple can deduct up to $600. These must be cash donations to qualify. Payments made via check, credit or debit card, and electronic transfers also qualify. Second, if you itemize your deductions, you should consider gifting any taxable investments with unrealized capital gains instead of cash. Not only can you avoid the capital gains tax, but you can still take a deduction for the amount you give.

Small business owners and retirement plans: If you are looking to establish a retirement plan – or make a change to an existing one – you need to know the deadlines for setting up the plan. Whether it’s a SEP or SIMPLE IRA, a solo 401(k), or a defined benefit plan, deadlines range from October 1 of the current year to your tax filing deadline, with extensions.

With proposed tax legislation on the horizon, making the right decisions in 2021 may be more important than ever. And while we don’t recommend letting taxes drive the planning decisions you make, having a plan that integrates taxes into the decision-making process is essential to making the right choices.

A CFP® Professional at Facet Wealth can help you make critical year-end planning decisions. Schedule a free, introductory call today.

Planning for Your Future – A Look at the Year Ahead

It’s never too early to start planning for next year’s financial goals and life milestones. Financial planning is a process that should evolve to meet your needs as your life and the world around you change. Here are some questions to get you started. As you work through them, think about the impact they will have on your cash flow, your taxes, and other parts of your plan.

Planning for key life milestones:

  • Are you planning to get married, start a family, or both?
  • Are you planning to move, buy a new home, or sell a home?
  • Will your child be entering or graduating from college?
  • Are you planning on retiring next year, or in the next few years?
  • Is there a chance you may be financially responsible for your parents or someone else in the coming year?

Planning for your job and career:

  • Do you have plans to start a new job, change careers, maybe start a business?
  • Do you anticipate a change to your compensation – base, bonus, or other?
  • Is there a company stock-related event – options or restricted stock – on the horizon?
  • Do you plan on heading back to school to advance your career?

Planning for specific financial goals:

  • What life milestones will you be experiencing next year? Do you have a plan to prepare for them? Do you need to make changes to your budget or your savings plan?
  • Do you need to adjust your investment strategy? Are you comfortable with the level of risk in your portfolio? Do you have a plan for changes in inflation, interest rates, or taxes?
  • Can you and should you increase your retirement plan contributions? Should you consider funding a new account type to diversify how your accounts are taxed?
  • Do you feel prepared for an unexpected event or emergency? When was the last time you reviewed your insurance coverage or estate plan?

And a quick reminder for readers with federal student loans. Loan payments restart after January 31 so make sure you plan.

There is a lot to think about in the year ahead, and these questions just scratch the surface of what may be changing in your life. Starting to plan for them today is essential to navigating the year ahead with less stress, greater clarity, and more enjoyment.

Closing out the year the right way

Year-end planning is about more than making one or two tactical tax or investment-related decisions. Yes, there are critical planning moves you need to make before January rolls around, but year-end planning, done right, can be so much more.

A financial plan that looks at all facets of your life and dynamically evolves can help you make smarter, more informed decisions and put you in control of the life you want to live in the year ahead. From taxes, investments, and major purchases to life milestones big and small, financial planning is essential to navigating life with clarity and confidence.

To learn how a CFP® Professional at Facet Wealth can help you with critical year-end decisions, and in developing a personalized financial plan that sets you up for success in the year ahead, schedule a free, introductory call today.