November 30, 2020

Edited 12/30/20

End-of-Year Retirement Checklist to Help Boost Your Retirement Savings

Here are 5 things you can do before 2021 to boost your retirement savings.

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Already got your champagne on ice, waiting to toast a final goodbye to 2020? We don’t blame you. But before your New Year’s Eve celebrations begin, it’s smart to make sure that you’re heading into 2021 with all your retirement ducks in a row. 

The final weeks of the year are a great time to reevaluate your will and investments, take a look at what your year in taxes will look like, and plan ahead to ensure the next year will be your best yet for working toward your retirement goals and savings. Not sure where to start? Don’t worry—we’ve put together a guide that highlights the easy steps you can take before you ring in the new year.

1. Make decisions now; avoid questions later.

Close out the year by seeing if there are any changes you want to make to your estate. Maybe you welcomed a new grandkid or discovered a charitable cause that’s close to your heart this year, and you want to make sure they’re included in your will. Or perhaps you’ve moved to a new state or sold a home, and you need to update your trust accordingly.

In a year so heavy with illness, you might also understandably have healthcare on the mind. With so much uncertainty surrounding a pandemic, it’s a great time to look at the healthcare proxies and end-of-life decisions you’ve chosen, and decide if they’re still the right ones for you. If you’ve received a medical diagnosis this year (whether related to COVID-19 or not), you might also update your wishes based on any new health information you have.

Overwhelmed at the prospect of making those changes or creating new documents, especially if an in-person meeting with your attorney or estate planner isn’t possible in your area right now? Check out online resources like Trust & Will. The team walks you through creating personalized, state-specific estate planning at affordable prices. Once the documents are complete, you’ll have total, 24/7 access to them so you can make updates without having to visit a lawyer. It’s a move that puts decision-making exactly where it should be—right in your hands.

2. Remember that April 15 is right around the corner.

With tax day not coming around until springtime, it can be easy to forget that tax preparation should start at the end of December. But that’s exactly when you must finalize any financial decisions that will impact your 2020 taxes. If you’re planning on making a tax deductible donation to a 501(c)(3), now’s the time to do so. Using a giving calculator is a helpful way to find out how much you can donate at your current federal tax bracket to both help a cause that means a lot to you and potentially save on your 2020 taxes.

You’ll also want to find out if there are any tax penalties you need to avoid. For instance, maybe you haven’t started dipping into your IRA yet. That’s okay, before the age of 72. But if you’ve hit that number, make sure you take an RMD to avoid a 50% penalty on the amount that should have been withdrawn. (FYI: Since the age rules on RMDs changed recently thanks to the SECURE Act, you might be on the cusp of the old and new rules. If you turned 70 ½ in 2020, you’ll have to take an RMD by April 1 of the year after you turn 72, and then another one by December 31 of that year.) If you need to take an RMD but don’t need access to the money right now, you could consider giving it directly to charity. That way, you’ve taken the RMD to avoid the penalty, but won’t be taxed on the income that money would have given you. 

And don’t forget about scoring some deductions! If you’ve already hit retirement age, you might be surprised to learn there are deductions you could be missing out on. For instance, if you’re one of the many U.S. seniors paying out of pocket for high medical or dental expenses, you might qualify to deduct the costs that rise above 7.5% of your adjusted gross income. Or, maybe you’ve retired from your full-time career but have taken on freelance side work such as consulting or starting a small business. You might find that you’ve bankrolled some expenses for those gigs, and can deduct those costs come tax time. 

Tax software like TurboTax, TaxSlayer, and H&R Block are all excellent ways to make sure you’re snagging every deduction you can. The tools take you through every step of the tax preparation process, asking simple questions about your expenses and figuring out the ways they can save you money or increase your refund.

3. Make sure your investments are bringing the returns you want.

Get in the habit of checking in with your investments or portfolio at least once a year. Depending on where you are in your retirement journey, you may want to think about reallocating your assets. 

If you’re newly retired and adjusting to life without a regular paycheck, for example, maybe you want to minimize some of the riskier investments in your portfolio to prioritize preservation. You may also try to include more assets that lead to generating income, such as fixed-income securities or annuities that offer the option for a guaranteed stream of income throughout your retirement.

4. Don’t forget to put extra toward your 401(k).

Your 50th birthday means two things: an excuse to throw yourself a great party, and the chance to start adding even more each year toward your 401(k). The contribution limits can change each year, but for both 2020 and 2021, employees can contribute up to $19,500 per year toward theirs. Then, once you hit 50, you’re allowed a “catch-up” contribution of an additional $6,500 toward the fund, a bonus designed to help you make up for any past years where you weren’t able to max it out, and help you save even more for your golden years. If you’ve got additional savings that you want to grow tax-free, it’s wise to max out your 401(k) with the catch-up of $6,500 by the end of December, and plan for setting aside that extra $6,500 in 2021, too.

IRAs

Don’t forget about your Traditional IRAS and Roth IRAs. The combined limit of your Traditional IRA and Roth IRA for 2020 (and 2021) limit is $6,000. However, Roth IRAs have specific income restrictions on how much you can contribute to your Roth IRA. And if you’re 50 or over, you can contribute an additional $1,000 totalling to $7,000 for the year.

Roth Conversions

Not only is this the time to think about adding more to your contributions but if you’re over 59.5 years old, you should decide if converting your Roth makes sense. A Roth Conversion allows you to rollover your tax-deferred accounts into a Roth account to let it grow tax-free.

5. Decide what you want to see in 2021.

Reflecting on the past year is a chance to get excited about the changes you can make happen in the months ahead. Consider the information you learned while reevaluating your current tax situation, assets, portfolio, and more, and weigh it against your goals for the future. Did it make you realize you’re forking over a higher percentage of your earnings to the IRS than you thought? Make you wish you could find more cash to add extra to your 401(k)? Wonder whether you really have the funds to go on your dream vacation or buy the boat you’ve had your eye on for years? 

Calculating your retirement score in the Silvur app can help you answer all those types of questions. Within seconds of plugging your current information into the app, you’ll be able to see how long your current funds will carry you into retirement. You’ll also get a clear picture of where you can make changes to better align with your retirement goals. Maybe it will help pinpoint how much a move to a new state could save you in income taxes, or determine how much you can spend on that boat without making a dent in your score. 

Sitting down to take these steps and planning for the year ahead is the best way to leave the stress of the past year behind, look forward to a fresh start, and make your New Year’s Eve champagne taste even sweeter.