Year-End Financial Planning Considerations for 2020

Dec 21, 2020
Year end financial planning blog

In any year, December is an opportune time to review your overall financial position and make  important adjustments in light of current market conditions and laws, as well as changes in your life, income, financial needs and goals. But the events of 2020 have perhaps taken this to a new level, as they underscore how quickly economic situations can change, and the importance of financial planning that can withstand major calamities and economic volatility. Given this evolving financial landscape, don’t miss the opportunity to address the following critical issues, and potential opportunities, before December draws to a close:

Review your retirement accounts as well as your taxable-investments

When it comes to your investments, there are a number of actions to consider taking before year-end in order to maximize tax savings, boost growth in your portfolio and strengthen your future financial well-being. Depending on your personal situation, investigate whether the following might make sense for you by discussing them with your financial and/or tax advisors:

  • Increase contributions to tax-advantaged funds: If you have already established emergency savings for three to six months of expenses, and have paid down all of your non-mortgage debt, it can be well worthwhile to max out your contributions to your retirement accounts in order to reduce your taxable income for the year. But as The Motley Fool cautions, if you have an employer-sponsored retirement plans, be aware that it may take one or two pay periods for your payroll department to process the change (you’ll likely have more flexibility with an IRA).
  • Convert a traditional IRA to a ROTH: A major advantage of a ROTH is that it is a double-tax advantaged retirement savings account — enabling you to receive tax-free income during your retirement as well as tax-free earnings growth. A ROTH IRA enables you to be taxed at a lower rate today than you would expect to pay in the future, when the value of your assets has grown. For a better understanding of how a ROTH IRA works, visit The Balance.
  • Inquire about rebalancing your portfolio: Investment experts often emphasize that asset allocation should be a more significant factor in guiding investment decisions than stock or mutual fund selection. Forbes provides a simple definition for asset allocation — it’s the process of dividing your investment portfolio among stocks, bonds and cash. Bear in mind that market unpredictability can possibly cause investment allocations to become unbalanced. Given recent market performance, now can be a good time to talk to your financial advisor to determine if your asset allocation should be adjusted based on your tolerance for risk and your time horizon.

Take advantage of new reasons to be generous in your charitable giving

Under new incentives for charitable giving created with the Coronavirus Aid, Relief and Economic Security (CARES) Act, those who make cash donations to qualified organizations in 2020 can reduce their taxable income regardless of whether they itemize their deductions or take the standard deduction. Under normal circumstances, those who itemize can deduct charitable contributions up to a maximum of 60 percent of their adjustable gross income (AGI). However, in 2020, the CARES Act temporarily removes this cap, and enables itemizers to deduct up to 100 percent of their AGI. For instance, those with an AGI of $120,000 could potentially deduct up to of $120,000 in charitable donations (i.e., the entire amount). Even if you don’t itemize your deductions, you should still save your charitable receipts. Because for the tax year 2020, those who take the standard deduction can deduct up to $300 for cash donations to eligible charities. Find a helpful explanation of the new law in “How the Cares Act can affect your 2020 deductions” from World Vision.

Protect your assets by evaluating your insurance needs

 Although it may not be possible to plan for every contingency, an essential component of a solid financial plan includes wealth protection. Periodically, you should review your insurance coverage in all areas, and this is especially important in times of transition. Depending on your circumstances, your coverage should possibly include life, auto, homeowners (or renters), health, disability and umbrella policies, along with additional benefits like dental plans, flexible spending accounts (FSAs) and supplemental plans. As the personal finance site Women who Money explains, “Too little coverage leaves you open to financial devastation, but as life circumstances change, you may not need as much as you previously did.” In addition, if you have money left in an employer-sponsored FSA, be sure to use the remaining balance before December 31, or when any grace period your plan offers expires.

Ensure that your estate planning wishes are documented

Finally, be sure not to overlook your estate-planning choices including documents such as your will,  living trust and advance health care directive (power of attorney and living will). Be certain to document your current wishes with regard to your assets and the executor or trustee of your estate or trust, as well as guardianship of any minor children. It’s also critical to keep any beneficiary designations updated, since designations for life insurance policies, annuities and retirement accounts will override your will or trust (note that you should avoid naming your minor child as a beneficiary). In addition, it’s advisable to have a current plan for your wishes should you suffer cognitive decline or become incapacitated, as this can provide peace of mind, greatly reduce the burden on your family in this situation, and even prevent friction among your loved ones that that could strain important relationships.

If you have personal property valued at more than $150,000 in California, there are a number of good reasons you should consider establishing a revocable living trust. While many tend to think of a trust as a sophisticated financial instrument used primarily by the wealthy, the reality is that this estate planning agreement has important benefits for people of varied economic means. It is an excellent tool for safeguarding your assets and property for your heirs, and for protecting your finances should you become incapacitated. Furthermore, a revocable living trust allows your heirs to avoid the  court-supervised process of probate, which is often very costly and delays distribution of assets until the estate is settled. Another major disadvantage of probate is that it is a public process in which just about anyone can access details of your finances and how you want your property distributed. With a living trust, information about your finances and your heirs remains private, since nobody is able to view the trust unless the grantor of the trust or the trustee allows it.

Concerned about getting your financial affairs in order and preparing for the future security of your family? Although a comprehensive estate planning package can get pricey, members of The Police Credit Union throughout California are eligible for a significant discount for these services. Our partnership with Affinity Trusts provides full-service legacy planning, and can help you manage your health and financial decisions in the event you become incapacitated. Affinity Trusts can assist you with:

  • Creating a plan to address your priorities, values and family needs
  • Trusts and inheritances
  • Advance health care directives
  • Self-help planning options
  • Personal message guides
  • Notarized estate planning documents
  • Letters of instruction for financial institutions

Find details at

This material is for general informational purposes only, does not purport to be complete or cover every situation, and should not be construed as legal, tax, accounting, or investment advice. It is not, and should not be regarded as, investment advice or as a recommendation regarding a course of action. Members should seek advice from their tax, legal, and accounting professionals in addition to consulting with a financial professional.

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