By Greg Hart, CFP®
As we enter the final month of the year, in the midst of all the holiday hustle and bustle, the last thing you probably want to think about is taking care of your finances. But since finance-related resolutions consistently fall in the top five most popular New Year’s resolutions, why not give yourself a head start on your 2022 financial goals? Here are 5 critical financial actions you’ll be glad you tackled when the ball drops on New Year’s Eve!
1. Celebrate Victories and Set New Goals
What financial goals did you set when you rang in 2021? Did you stay on top of those goals or did they get swept under the rug? Take this time to reflect on the past year and mark how far you’ve come, celebrating your progress, no matter how small! Then evaluate your saving and spending from the past year, set some new goals, and adjust your financial plan, taking into account any life changes such as marriage, relocation, or a job change.
2. Save to the Max
If possible, max out your contributions to your 401(k) or other retirement plan by the end of the year to make the most of your retirement savings. For 2021, you can contribute as much as $19,500 (or $26,000 if you are age 50 or older) on a pre-tax basis. Remember, these are your contribution limits and any employer match would be in addition to this. You might also consider contributing to a Roth IRA, if you are eligible. For 2021, you can contribute as much as $6,000 (or $7,000 if you are age 50 or older). Also, if you already have a large 401(k) balance with your employer, then consider shifting some or all of your payroll savings into the Roth 401(k), assuming your employer provides one. Many companies do offer a Roth 401(k), but many employees are unaware that account is even available to them. Think you are not eligible because your income is too high? Think again, as Roth accounts inside of a 401(k) don’t have the same income limitations like a Roth IRA has. Finish the year strong by investing in your future!
3. Use Up Your Employee Benefits
While every employer has different rules that apply to the benefits they offer their employees, many benefits expire or reset at the end of the year. You work hard for these perks, so be sure to use them!
Medical and Dental Benefits
At the beginning of 2021, did you have good intentions of taking care of some dental work, blood tests, or other medical procedures lingering on your to-do list? Now’s the time to take advantage of all your healthcare needs before your deductible resets. Dental plans, in particular, often have a maximum coverage amount. If you haven’t used up the full amount and anticipate any treatments, make it a priority to set an appointment before December 31st.
Healthcare Spending Accounts (HSA)
In addition to getting your benefits right, why not take advantage of an HSA if your employer offers such an account? An individual with coverage under a qualifying high-deductible health plan (deductible not less than $1,400) can contribute up to $3,600 to a self-only plan, and a family contribution can be up to $7,200. If you are over 55 years of age, you can contribute an extra $1,000.
Using an HSA has four major tax advantages: (1)
- You make pre-tax contributions (lowering your total tax liability at the end of the year).
- You make tax-free withdrawals for qualified medical expenses.
- Your funds grow tax-free.
- Contributions from your employer are not included in your gross income.
Whether you use it to pay for medical expenses now, next year, or even in retirement, an HSA can be a great tool in your financial plan.
Flexible Spending Account (FSA)
Like your health insurance benefits, you’ll want to use up as much of your FSA (flexible spending account) dollars as possible by the end of the year since you are typically only allowed to carry over $500 each year. That being said, depending on your employer, you may be able to carry your full balance into 2022 thanks to a change by Congress due to the exacerbating circumstances of the COVID-19 pandemic. (2)
It’s estimated that $400 million in FSA funds go unused, (3) so make sure you’ve at least spent all of your 2020 funds before the end of your plan year and ask your HR department about your plan and the deadlines that affect you. Also, check the restrictions on your account to see what the money can and cannot be used for, and take care of any needs you may have as allowed by your plan.
Sick and Vacation Time
Depending on your company, your sick or vacation time might expire at the end of the year. Check with your HR department to learn about any expiration dates. If it does expire, fit in a last-minute vacation or even a staycation. If you need to make any trips to the doctor in the near future, schedule those appointments now to make use of these benefits before you lose them.
4. Make Some Updates
To your estate plan and insurance coverage, that is. If you have taken the time and energy to create an estate plan, you’ll want to check in periodically to ensure all the documents are up to date and no major details have changed. Any significant life event is a good time to think about updating your estate plan documents. If you change any of the beneficiaries in one place, such as a life insurance policy, make sure that they are consistent with the other documents so that there is no confusion.
Your insurance needs may have changed as the year has gone on, which is why it’s important to regularly review your insurance coverages and your designated beneficiaries to make sure they are up to date and reflect your current financial situation. For example, if you’ve paid off debt and your youngest child has just graduated from college, you may not need as much life insurance coverage since your family’s needs and liabilities have decreased. You might also want to evaluate your need for other types of insurance you may not currently have, such as long-term care insurance.
5. Create and Implement a Giving Strategy
If gifting is one of your long-term financial goals, it’s never too early to start planning for the legacy you want to leave your loved ones without sharing a good portion of it with Uncle Sam.
Each year you can gift up to $15,000 to as many people as you wish without those gifts counting against your lifetime exemption of $11.7 million. If you’ve yet to gift this year or haven’t reached the $15,000 limit for a particular recipient, make sure you do this by December 31st.
If you’re planning to itemize deductions on your 2021 tax return, be sure to make your charitable contributions before the end of the year. This includes donating appreciated securities, which may help you avoid paying taxes on the gains. Along with your other tax documents, find and organize any receipts you have from donations to charities, whether made in cash, as a securities contribution, or other type of gift.
End the Year Strong
Which of these steps do you need to take before the ball drops on New Year’s Eve? Our team at Haddon Wealth Management would love to help you finish the year strong and set you up for a successful 2022. Give me a call at (856) 888-1744 or contact us online to schedule a complimentary get-acquainted meeting.
Gregory M. Hart, CFP® is the founder and managing director of Haddon Wealth Management, LLC, an independent, fee only registered investment advisory (RIA) firm that provides comprehensive wealth management (in-depth financial planning and sophisticated investment management) for clients who value a relationship-driven approach that delivers customized solutions. Based in Haddonfield, New Jersey, Greg works with clients throughout the Delaware Valley, as well as nationwide. To learn more, connect with Greg on LinkedIn, visit our website at www.haddonwealthmgt.com, or call (856)-888-1744 to begin a discussion.