As you check off your to-do list for the end of the year, don’t forget to look at your retirement savings.
Whether it is an individual retirement account, an employer-sponsored plan like a 401(k), or a brokerage account, assessing your portfolio is crucial. There’s no better time to meet with your financial planner or CPA, than the end of the year.
Rebalancing your portfolio
While the stock market has been volatile, it is up — which means your portfolio could be out of balance. Instead of a 60% stocks/40% bonds split, you could be more heavily weighted in equities than you want.
Next year’s 401(k) contributions
Also, if you are age 50 or older, consider trying to add in the catch-up contribution. The contribution limit for 2021 is $19,500, but people age 50 and up are allowed an extra $6,500.
The right exposure
You may find that you have a lot of stocks in a certain sector, especially if there were a lot of gains during 2020. You may consider reducing some of that exposure, and then increase your exposure in another area.
If you made money on the sale of some investments this year, you can offset those gains by selling other assets at a loss during the same year. This is called tax-loss harvesting, and it should reduce the amount of capital gains taxes you’ll have to pay.
If you have shares that have gone up in value, you can give them to a charity and not pay the capital gains tax. You also get the charitable deduction on your income tax if you itemize. If you take the standard deduction, you still get a $300 charitable deduction write-off this year.
Those 70½ and older can make a qualified charitable distribution from their IRA without itemizing their taxes. It is a way to donate money directly from your account without paying taxes on the withdrawal.
Remember, although life can get hectic around the holidays, it is an excellent time to also pause and reflect on your financial strategies.
You can read the original CNBC article here