Buzz
Though this annus horribilis may feel like it’s dragging on, don’t let 2020 pass by without tending to some important financial tasks. There are deadlines you might be unaware of, so here’s a guide to help you stay on track.
Max out your 401(k) contributions
If you haven’t hit the contribution limit for your 401(k), 403(b), or 457(b) accounts (up to $19,500 for 2020), you still have time to contribute before December 31. Be sure to take full advantage of any employer matching contributions. Saving in retirement accounts is always a smart move, as the more you put away, the more you benefit from compound interest. Plus, these contributions are tax-deferred, which lowers your taxable income for the year.
Finalize tax-loss harvesting
By utilizing tax-loss harvesting, you can offset investment losses by selling assets that have decreased in value. These losses help reduce your taxable income by counterbalancing the capital gains you’ve made throughout the year. Don’t forget, the deadline to realize these losses is December 31.
Think about a Roth conversion
If the challenges of 2020 have placed you in a lower income tax bracket, and you have sizable tax-deferred retirement savings, a Roth conversion might be a smart move. With traditional retirement accounts like 401(k)s, you pay taxes later when you withdraw funds, but with a Roth IRA, you pay taxes upfront and enjoy tax-free growth over time—potentially saving you money in the long run (it’s advisable to consult a tax advisor). To learn more about the benefits of Roth IRAs, check out this Mytour post. Keep in mind that the deadline for Roth conversions is December 31.
Utilize your credit card rewards and benefits
As the year draws to a close, some of your credit card benefits may expire, so it's important to take full advantage of any credit statement offers or bonus spending thresholds, especially if you plan on making additional purchases. For example, if you have an expiring $250 general travel credit, you might want to use it now to pay for a flight you're planning to take in 2021. It's also a good time to review your cash-back card bonus categories and make sure they're aligned with your current spending patterns.
Use up your remaining FSA balance
Flexible Spending Accounts (FSAs) offered by your employer can help reduce medical expenses, but only if you actually use them. While some FSAs allow unused funds to roll over into the next year, many are 'use-it-or-lose-it' plans, meaning any remaining balance will be lost. Be sure to spend down your FSA account before December 31 to avoid losing your funds.
Increase your 529 contributions
A 529 college savings plan allows your savings to grow without being taxed, and withdrawals are tax-free when used for qualifying educational expenses. Additionally, some states offer tax deductions for contributions (although this benefit is not available federally). The contribution limit for 2020 is $15,000, with a deadline of December 31.
Access your complimentary credit report
Although there is no specific year-end cutoff for receiving your free credit report, it’s a good idea to make it part of your annual review if you haven't done so recently. You're entitled to one free copy of your credit report from each of the three major credit reporting agencies every 12 months. You can request it online at annualcreditreport.com.
