Global View Investment Blog

Financial Checklist for the New Year

The new year is an excellent opportunity to run through your financial checklist. It's prudent to take a fresh look at important financial decisions at least once per year.

As April 15 approaches, you want to make your final 2021 retirement account moves - before it's too late. Here is a small checklist of the most critical issues you should be addressing right now.


Rebalance Portfolio If Necessary

One of the most effective ways to manage your investment portfolio is to allocate assets over a wide variety of diversified funds and securities. A properly allocated portfolio reduces overall investment risk, as some assets hedge the returns of others. The exact allocations stem from various factors, including your sensitivity to risk, age, retirement goals, income, lifestyle, debt, and health. 

For example (purely for illustrative purposes), an investor might allocate 50% to stocks, 30% to fixed income securities, and the remainder to various alternative investments (i.e., real estate, precious metals, commodities, foreign currencies, etc.). Now suppose this investor's stocks did well in the previous year so that they now make up 56% of the overall portfolio. Rebalancing involves cashing in stock winnings and redeploying the money to other asset classes, thus re-establishing the original allocation percentages. 

The impact of rebalancing is to lock in gains while purchasing other assets at relatively low prices. It maintains your allocations according to the same criteria used to initially establish them, albeit updated for the passage of another year. 


Update Plans Based on Life Changes

Many things, good and bad, can happen over a year. The size of your household may have changed. Perhaps your marital status is different, or you've welcomed a new child to the fold. Maybe you accomplished an important goal with far-reaching implications. 

Your new year checklist should include any changes to handling your wealth. It might be as simple as revising your budget, or it might require more extensive changes. For example, you might need to review your beneficiary instructions for your retirement accounts and/or life insurance policies. In addition, you may need to update your will, living trust, or power of attorney documents. Job changes may require you to relocate and handle all the accompanying financial fallout. Now is the time to update your entire financial plan. If you don't have one yet, it's a good time to put one together. Your financial advisor can help ensure that nothing falls through the cracks in either case.


Consider a Roth Conversion

For 2021, the maximum IRA contribution is $6,000 ($7,000 if you're 50 or older), and you must complete it by the following year's tax-filing deadline, usually April 15.

Roth accounts differ from their traditional cousins in a few crucial ways. Contributions to a Roth IRA and Roth 401(k) are not deductible, but they grow and can be distributed tax-free if you follow the rules. Roth IRAs do not have the required minimum distributions for the owner's lifetime. Notably, the amount you can contribute to a Roth IRA is income-limited. For 2021, contributions for single filers with modified adjusted gross income between $125,000 and $140,000 ($198,000 and $208,000 for married couples filing jointly) are reduced or eliminated.

Traditional IRAs do not place income limits on contributions. Still, high-income taxpayers and spouses with a qualified employee plan like a 401(k) might not be able to deduct their total contributions to a traditional IRA. However, you can make nondeductible IRA contributions.

The "backdoor" contribution scheme involves depositing the maximum amount, deductible and nondeductible, to your traditional IRA and then transferring the money to your Roth IRA without any income restrictions. You must include any deductible rollovers in your taxable income for the year. 

At the time of writing, we do not have the outcome from Congress' efforts to repeal the so-called "backdoor" strategy. The law would prohibit you from rolling over nondeductible IRA contributions to your Roth IRA, thereby evading the regular income caps on Roth contributions. So if you are considering a Roth IRA conversion, this might be your last opportunity. Similar tax changes would prohibit "mega backdoor" conversions from a traditional to Roth 401(k).


Tax Strategies For The New Year

In 2022, the standard deduction for married couples rises to $25,900, and the standard deduction is now $12,950 for single tax filers. Also, the maximum contribution to a flexible spending account (FSA) for healthcare has expanded to $2,850. Tax brackets crept up by about 3% from a year ago. These changes may impact whether you take the standard deduction or itemize at the margins. 

While the opportunity for tax-loss harvesting (selling some losers to offset a capital gains tax liability) in 2021 has elapsed, it's never too early to start thinking about 2022. Tax-loss selling need not be confined to end-of-year activity – it's a prudent strategy throughout the year. 

By realizing a hitherto unrealized loss, you free up money to replace the old asset with a similar one, thereby maintaining your overall asset allocation. It also helps you preserve the risk/reward characteristics of your portfolio. 

If you are a big earner, you may want to watch your income if you are hovering near the top of the capital gains tax bracket. For example, in 2022, a single filer will have to pay the 20% capital gains rate when taxable income exceeds $459,750, but only 15% of your income is in the $41,675 to $459,750 range. Therefore, your strategy might include ways to defer income such that you remain in a lower bracket.

Naturally, this is only relevant to your non-sheltered investments, but proper planning can help you save taxes on your non-retirement portfolio.


Review Your Plan with a Financial Advisor

The essential item on your checklist is to work with your financial advisor to review and optimize your plan. Don't hesitate to contact me to consult on the steps essential to protect and grow your wealth in 2022.

Global View is a fee-only, fiduciary, full-service, financial advisory firm headquartered in Greenville, SC that serves clients nationwide. Our mission is to provide truly independent, conflict-free advice and complete wealth management services, so you can protect and maximize the wealth you’ve built. Contact us to see how we can help.


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Adam Wiles

Written by Adam Wiles

Adam is a Partner at Global View. Adam’s primary focus is on investment strategy, retirement planning, risk management, and new client identification. He has extensive experience and training in identifying client’s needs and explaining the solutions that meet those needs. He worked with Merrill Lynch for 2 years prior to joining Global View. Prior to Merrill Lynch, Adam worked 10 years, in several trading capacities, within the Commodity Lumber business.

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