5 Money Moves for Investors to Make Before Year-End

Posted on: December 16, 2020   |   Category: In The News
2020 Goal Plan

Let’s face it, this year has been tough both financially and mentally. To end the year on a high note, investors should perform a little portfolio management. Here are five of the best money moves to make before the end of 2020.   

  1. Maximize Your Retirement Contributions

Why is maximizing your retirement contributions important?  

  • Tax-Advantages – 401(k) and Traditional IRA contributions are made with before-tax income, which means you pay less federal and state taxes today and more of your income gets to grow (in return for paying taxes during retirement). Roth IRA contributions are after-tax, which means taxes are paid now but the amount earned on investments are taken out tax-free in retirement. Regardless of which type of retirement account you choose, maxing out your funds provides a tax-advantage. 
  • Growth of your Retirement Funds – The more funds deposited into a retirement account, the more your account can grow in terms of dividends and compound interest over time.  
Type of Retirement AccountContribution Limit 2020Contribution Limit 2020: Age 50 and Over
IRA (Traditional and Roth) $6,000$7,000 (additional $1,000)
Traditional 401(k) and 403(b)$19,500$26,000 (additional $6,500)
Solo 401(k) $57,000$63,500 (additional $6,500)

2. Review and Take Your RMDs

Once you reach 70 ½ years old, you must withdraw a required minimum distribution (RMD) from your retirement account each year. Usually, if RMDs are not withdrawn by year-end you would be subject to a 50% excise tax on the amount that is not distributed. To calculate your RMD amount, refer to the IRS worksheet

However, due to unforeseen financial hardships this year, the CARES Act passed a provision allowing retirees to forgo taking RMDs from their qualified plans for 2020. The rule change enables retirees to recoup some of the market loss.  

Speak to a financial advisor to determine whether taking out or forgoing a RMD meets your financial needs this year. 

3. Open a Self Directed Roth IRA

If a retiree chooses to skip taking RMDs because the money is not needed right now, those funds can be put into a Roth IRA. This way, tax will be paid now but the funds will continue to be invested and the gains will grow tax-free. 

A Roth IRA can also serve as an emergency savings account. You can access your Roth IRA contributions at any time, for any reason, and take them out tax-free.  

4. Rebalance Your Portfolio and Diversify Your Investments

The stock market’s volatility may cause your asset mix to misalign from your long-term investment strategy. To get back on track to meet your financial goals, consider rebalancing your portfolio every year. Rebalancing entails buying and selling part of your investments to get your original investment mix back. If you don’t rebalance, you may end up taking more risk than intended. 

When rebalancing your portfolio, think about how your portfolio can benefit from investing in alternative assets such as real estate, private placements, promissory notes, etc. These investments may provide a steadier income than the volatile stock market. In addition, consider different trends that may occur in the following year. For example, Joe Biden’s win may prompt an increase in demand for real estate and alternative energy sources.  

Be sure to rebalance your investments, but don’t shift too far from your original long-term plan. Schedule a consultation with a Self Directed IRA specialist to keep you on track to a rich retirement.  

5. Look Over Your Budget

Finally, as the year comes to a close, look over the past year’s budget. Create a spreadsheet comparing your monthly expenses to your income. This will help you identify areas of flexibility and opportunities where you can increase your retirement savings. The earlier and more you contribute, the more money will be able to grow and the easier your journey towards retirement becomes.