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2021 End-of-the-Year Financial Checklist

November 19th, 2021 | 5 min. read

By Jacob Schroeder

end of year financial steps

Your finances don’t necessarily follow the calendar, but some parts of the year are better for financial housekeeping than others. With tax season around the corner, the end of the year is a great time to review your finances and plan for the new year ahead.

Certainly, the events of 2021 may have impacted your financial plan in a variety of ways, whether you’re working, looking for work or retired. For one, this has been the year of “The Great Resignation”, as millions of Americans have left their jobs in hopes of finding higher pay or more rewarding career. Meanwhile, the share of the population in retirement over the past year grew far higher than it would have been if previous retirement trends continued.

All told, any changes in your life or economic situation means you should take a look at your financial pictures before the year comes to a close.

Whether you’re looking to successfully adjust to a new career or start retirement earlier than planned, now is the time to make financial readjustments so you can prepare for next year – and beyond. Here is a list of important steps to consider as part of your end-of-year financial planning.

Basic financial planning

Review and update your budget

Review your 2021 spending and build your budget for 2022. An annual checkup of your budget is a good way to keep you on track and help improve your spending and saving habits. Did you spend less than you earned this year? What expenses can you reduce to help you save more? If you are returning to the office, are there expenses you should prepare to add back in? On the other hand, if you’re going to work from home long term, look for expenses you can remove and then apply those savings elsewhere.

Replenish your emergency fund

An emergency fund is one of the most important tools to have in your financial toolbox. If you tapped your emergency fund in the past year, try to build it back up. Or, if you don’t have one, get it started. Generally, you want to save three to six months’ worth of expenses, depending on your situation. This cash reserve will help you cover unexpected expenses, such as medical costs or home repairs, so you don’t have to resort to using credit cards or taking from your retirement savings.

Check your credit report

To help protect your identity and catch any nefarious activity with your money, you should check your credit report. Sure, you can check your credit report any time of the year, including once for free. But the year-end makes for a good reminder.

Review your healthcare needs

For most people, November and into December is open enrollment season. You should review your health plan to make sure you have the right amount of coverage at an affordable cost. If you have access to a Health Savings Account (HSA), you may want to consider chipping in more savings to take advantage of the tax benefits (tax-free contributions, tax-free growth and tax-free withdrawals for qualified healthcare expenses). And, if you have a Flexible Spending Account (FSA), remember that those funds won’t carry over to 2022 – so use them or risk losing them!


Prepare for any unexpected taxes

If you lost your job this year and collected unemployment assistance, then you’ll likely have to report it on your 2021 tax return. Taxes may not have been withheld from your unemployment checks unless you filled out IRS form W-4V for voluntary withholding.

Also, your taxes may be impacted if you received the 2021 Advance Child Care Credit. Depending on the ages of your children, you may have to pay some of the money back.

Check your tax withholdings

If you changed jobs in 2021, you certainly want to check your tax withholding to help protect against having too little tax withheld. Or you could face an unexpected tax bill or penalty at tax time next year. You can check to see if the right amount of tax is withheld from your paycheck by using the IRS Withholding Calculator.


Try to max out your contributions

If your budget allows, try to save the maximum allowable contribution to your retirement account(s) (401(k), IRA, Roth, etc.).

In most cases, contributions to a workplace retirement account reduces your taxable earned income. The maximum you can contribute to a 401(k) is $19,500. If you’re age 50 or older, you can contribute an additional $6,500, for a total of $26,000.

If you are instead saving in an IRA, contributions to a Traditional IRA are tax deductible. Your deduction, however, may be limited if you (or your spouse, if you are married) are covered by a retirement plan at work and your income exceeds certain levels. Roth IRA contributions are not tax deductible. For 2021, you can save up to $6,000 in an IRA. The catch-up contributions for those 50 and over are $1,000, for a total of $7,000.

Rebalance your portfolio, if necessary

Throughout the year, market changes likely impacted the value of your investments, which means you may need to make some adjustments. You may have too much or too little risk. In other words, you may have to rebalance your portfolio – selling what has gone up and buying what has gone down – to make sure it aligns with your risk tolerance and financial goals.

Move your old 401(k)

If you switched jobs this past year, don’t forget about your previous employer’s retirement account. You may be able to transfer your previous employer’s account to your new employer’s plan. If not, another option is an IRA rollover, which is the transfer of funds from your retirement account into a Traditional IRA or Roth IRA. This can help you avoid leaving your hard-earned money behind, and instead put it to work for your financial goals.

And, if you’re thinking about retiring next year, make sure you’re keeping track of any old retirement accounts. For most people who are retiring, it can be advantageous to consolidate their retirement accounts into a single IRA.


Review your coverage and rates

Life changes. Insurance rates change. Therefore, each year you should review your insurance policies to make sure you are getting the right amount of coverage at the best rate possible. Fortunately, it’s easy to compare rates and coverage online.

Generally, if you experienced a big life event – had a child, got married, etc. – you’ll need to review your insurance levels. Also, you will likely want to update the beneficiaries on your existing policies.

Additionally, with so many homes increasing in value throughout 2021, you may need more protection.


Take your RMDs, if you haven’t

Required Minimum Distributions (RMDs) are the amounts the federal government mandates you to withdraw annually from your employer-sponsored retirement accounts and individual IRAs after turning 72 years of age.

You must take your first RMD in the year in which you turn 72 years of age. You can, however, delay your first distribution until April 1 of the year following the year in which you turn 72. All subsequent distributions must be withdrawn each year by December 31 to avoid penalties.

Consider a Qualified Charitable Distribution (QCD):

A qualified charitable distribution allows IRA owners who are 70 ½ or older to transfer up to $100,000 a year directly from their IRA to charity. That transfer is excluded from the IRA owner’s income and, if done correctly, counts toward the owner’s RMDs. The key is that the distribution is directly transferred to the charity. That means, if the IRA custodian makes a check payable to the IRA owner who then endorses the check to a charity, it is not qualified.

Update your estate plan

Life events, such as a marriage, divorce or new grandchild, and new tax laws can upend your plan. So, review your estate documents – will, living trust, living will and powers of attorney – to ensure your loved ones are protected and your wishes would be fulfilled should anything happen to you in 2022. This includes updating your beneficiaries. If you don’t have an estate plan, this is a good time to start putting the right documents into place. An estate plan can benefit everyone, regardless of level of wealth.

Of course, the end of the year is busy with the holidays, family and travel. Still, don’t forget to check off some of these important financial steps from your list, because time is short. Contact a financial adviser to help you with any of the steps above so that you’ll be ahead of the game in 2022.