Want to close out the year on a financial high note? Then use the last couple months of the year to get your finances in order. A little year-end financial housekeeping lets you potentially lower your current tax bill and prepare your investments and budget for a successful new year.
Whether you’re a current AT&T employee or happy AT&T retiree, here’s a list of items for your year-end financial to-do list.
Still Working
Try to maximize your AT&T 401(k) contributions
At the very least, you should make the full Basic contribution to maximize AT&T’s employer match. After one year with the company, AT&T matches 80% of your Basic contribution. (For managers, your Basic contribution is the first 6% of your salary. For most non-managers, it’s a dollar amount based on your banded pay.)
But, see if you can save more by December 31. Each contribution to your account reduces your taxable earned income. The maximum you can contribute to a 401(k) is $19,500 (2020). If you’re age 50 or older, you can contribute an additional $6,500, for a total of $26,000. Most non-manager AT&T workers, however, are limited to a total contribution of no more than 30% of their pay.
Review your investments and progress toward your savings goals
Your 401(k) and other investment accounts should be set up to help you achieve a specific savings goal, chiefly retirement. Throughout the year, market changes likely impacted the value of those investments, which means you may need to make some adjustments. In other words, you may not have the right mix of stocks, bonds, cash, etc., that you’re comfortable with to meet your goals.
You may have too much or too little risk, depending on your objective. The start of a new year is a wonderful time to rebalance – selling what has gone up and buying what has gone down – if necessary. If you rebalance, you want to be mindful of taxes. To avoid unnecessary taxes and to make sure the mix of investments are properly aligned with your goals and risk tolerance, review your investment accounts with the help of a qualified adviser.
Check your AT&T pension eligibility
You’re eligible for a vested pension benefit after five years of service. But your benefit will be negatively affected if you do not meet both certain minimum age AND service breakpoints for your employment position. (This is commonly known as the modified rule of 75 since the combinations add up to 75 in most cases.)
Get a pension estimate
If you expect to retire within the next 10 years, running some pension estimates today can help you plan for tomorrow. You can see where you are now and what you may need to do — save more, work longer, etc.
Using the AT&T pension calculator tool located on Fidelity’s website, www.netbenefits.com, allows you to project different pension estimates at various dates in the future. It’s important to recognize why working beyond various dates in the future can be advantageous for you.
For a more comprehensive and more accurate picture of your retirement prospects, you need a plan. You can start building an investment plan right now with our investment planning tool.
Review and update your budget
Did you spend less than you earned this year? Or, are there problem areas that could prevent you from reaching your goals? What expenses can you reduce to help you save more? An annual checkup of your budget is a good way to keep you on track and help improve your spending and saving habits.
Check your tax withholdings
Checking your withholding can help protect against having too little tax withheld and facing 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.
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 insurance coverage and rates
Insurance rates change like the wind. Therefore, each year you should review your insurance policies to make sure you are getting the best rate and have the right amount of coverage.
Update your beneficiaries
As your life progresses, you may want or need to change your beneficiaries. For example, you may get divorced or one of your children may get married and change his or her last name. Even if your wishes change, your assets will be rewarded to the written designation upon your death, no matter how old the information. Naming the wrong people or failing to update your documents can create a mess for your heirs, such as the hassle and expense of probate court.
Consider charitable giving
By donating cash or other assets, you can write off your donation and lower your tax burden, if you itemize your taxes. This is especially helpful in a year you are experiencing large capital gains. Donations for the current tax year must be made by December 31.
With a cash donation you receive a tax deduction for the total amount, up to 60% of your adjusted gross income. Meanwhile, a gift of appreciated securities or property held for a year or more allows you to deduct the fair market value on your income tax return while avoiding recognition of capital gains.
Always make sure the non-profit organization is a 501(c)(3) public charity or private foundation. Also, get a receipt. When it comes to giving charitable gifts in excess of $250, a paper trail is required.
Retired
Make sure you’ve taken your RMDs
The end of the year is not only the holiday season, it’s also RMD season. It’s the time of year to make sure you’ve taken your full Required Minimum Distributions (RMDs) by December 31. Once you turn age 70 ½, the federal government mandates you to withdraw a certain amount annually from any retirement account in which you have made tax-deferred contributions or had tax-deferred earnings.
You can, however, delay your first distribution until April 1 of the year following the year in which you turn 70 ½. All subsequent distributions must be withdrawn each year by December 31. That means delaying your first RMD until April 1 will result in taking two distributions in a single year, which may affect your taxable income.
In the event you fail to withdraw your RMD on time or withdraw less than the full RMD amount, a 50% excise tax is applied to the amount that has not been withdrawn.
Review your investment and withdrawal strategies
Your investment objective is to preserve wealth with some growth to create a sustainable income throughout retirement. Market conditions, especially during a downturn, may disrupt your mix of investments. Therefore, you should take a look at your portfolio and adjust accordingly to keep it in line with your objective.
And, if you haven’t already, consider consolidating your AT&T 401(k) and other retirement accounts into a single account. This allows you to manage all your assets under a cohesive investment strategy that is appropriate for your specific financial needs.
Market changes and major life events may make you want to revisit your withdrawal strategy as well. It’s helpful to review your withdrawal rate to determine if it’s prudent to withdraw more or less money next year. A flexible withdrawal rate helps you better to adapt as personal and market situations change.
Update beneficiaries
As your life progresses, you may want or need to change your beneficiaries. For example, you may get divorced or one of your children may get married and change his or her last name. Even if your wishes change, your assets will be rewarded to the written designation upon your death, no matter how old the information. Naming the wrong people or failing to update your documents can create a mess for your heirs, such as the hassle and expense of probate court.
Consider charitable giving
By donating cash or other assets, you can write off your donation and lower your tax burden, if you itemize your taxes. This is especially helpful in a year you are experiencing large capital gains. Donations for the current tax year must be made by December 31.
With a cash donation, you receive a tax deduction for the total amount, up to 60% of your adjusted gross income. Meanwhile, a gift of appreciated securities or property held for a year or more allows you to deduct the fair market value on your income tax return while avoiding recognition of capital gains.
Always make sure the non-profit organization is a 501(c)(3) public charity or private foundation. Also, get a receipt. When it comes to giving charitable gifts in excess of $250, a paper trail is required.
Also, consider a qualified charitable distribution, which 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 required minimum distribution. 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.
Check your tax withholdings
Checking your withholding can help protect against having too little tax withheld and facing 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.
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 insurance coverage and rates
Insurance rates change like the wind. Therefore, each year you should review your insurance policies to make sure you are getting the best rate and have the right amount of coverage.
You can learn more by downloading our “go-to guide” on AT&T retirement topics: The AT&T Employee’s Guide to Retirement. (CLICK THE BUTTON BELOW.) This interactive guide covers all AT&T benefits, with the goal of helping you make more informed retirement planning decisions.
