Skip to main content

With the holiday season and end of year almost upon us, many are finding their “to-do” list is quickly growing.  Here are 8 items we want to ensure are on your end-of-year checklist:

  1. Maximize your retirement contributions.

    If you are eligible to participate in a 401(k), 403(b), or 457 plan, at a minimum you should ensure you are contributing enough to take full advantage of any employer matching contributions. If you can, you may also want to make additional contributions to ensure you defer the maximum amount, which is $19,500 ($26,000 for anyone 50 or older). Remember: deferrals to 401(k), 403(b), and 457 plans must be made before December 31 of each year.

    If you haven’t already and are eligible, you may also want to consider contributing to your IRA. Traditional and Roth IRA contribution limits for 2021 are $6,000 ($7,000 for anyone 50 or older). Income thresholds can reduce your IRA contribution and deduction limits if you are covered by a retirement plan at work. In addition, Roth IRA contributions may be reduced or eliminated if your modified adjusted gross income reaches a certain threshold. If you are self-employed, you may be eligible to make a SEP IRA contribution. The deadline for making your 2021 IRA, Roth IRA, or SEP contribution is April 15, 2022. Please reach out for further guidance on your individual circumstances.

  2. Ensure you’ve taken your RMD.

    Required minimum distributions (RMDs) were not required in 2020 thanks to the CARES Act, but are back for 2021.  For anyone age 72 (recently changed from 70 1/2) and over, the IRS mandates that you take an annual withdrawal (your RMD) from most qualified retirement accounts, including IRAs and 401(k)s that include pre-tax contributions.  There are many intricacies surrounding RMDs, and it is best to work with your financial and/or tax advisor to ensure you are not penalized for not taking the full amount and/or not taking your RMD on time.  The deadline for taking RMDs is December 31 of each year, with the exception of your first RMD which may be delayed until April 1 of the year after you turn 72.

  3. Consider using some or all of your RMD to make a charitable contribution.

    If you are at least age 72 and have an IRA, you can transfer up to $100,000 annually per taxpayer directly from your IRA to a charity by making a qualified charitable distribution (QCD).  As long as certain rules are met, QCDs can be counted toward satisfying your RMD requirement for the year.  Because QCDs are excluded from taxable income, they are a way to keep your taxable income lower, which may even help you maximize your Social Security benefits.  To count toward your annual RMD requirement, a QCD must come out of your IRA by the December 31 deadline.  Accordingly, for those clients wishing to use some or all of their RMD for charitable giving, we kindly ask that you contact us by December 1.   Click here to learn more about the rules and benefits of QCDs.

  4. Determine if you should implement any other charitable giving strategies.

    While the primary purpose of giving is to provide support to charities and those in need, there are certain strategies you can deploy that may help you maximize the tax benefits associated with your giving.  Last year, we put out a brief primer on various charitable giving strategies.  Click here to review that article.

  5. Review beneficiaries.

    We recommend that you review the beneficiary designations for each of your accounts (life insurance policies, retirement accounts, etc.) on a regular basis to ensure the designations listed match your wishes.  This is especially important for those who have had changes within their family (births, deaths, marriages, adoptions, etc.).  Keep in mind that beneficiary designations may overrule any plans you have formalized via your will, which only emphasizes the importance of ensuring your beneficiary designations are accurate and up to date.

  1. Consider gifting.

    Gifting can be an effective component of your estate planning strategy, as it allows you to reduce the value of your overall estate (and your potential estate tax) while giving you the chance to share your wealth with your loved ones during your lifetime.   For 2021, each taxpayer is permitted to give up to $15,000 (in cash or assets) per person to as many recipients as the taxpayer chooses.  If you go over that $15,000 per person threshold, you will need to file a gift tax return with the IRS to disclose the gift.  This does not mean that you will automatically owe gift tax on any amount over the $15,000.  By filing a gift tax return, the IRS will be able to track how much you have accumulated toward your lifetime exclusion (i.e., the amount you can gift without paying gift tax), which is $11.7 million per taxpayer in 2021.  Once met, gift tax will then be owed on gifts above that lifetime exclusion.  Keep in mind it is the individual giving the gift that owes the gift tax, not the recipient.


    If you have children or grandchildren, you may want to consider putting after-tax money aside in a 529 plan for that child.  A 529 plan is a tax-advantaged way to save for education expenses, including post-secondary education costs like tuition, fees, books, and certain room and board expenses, as well as other education costs like private school tuition.  Money held in a 529 account grows tax free and, assuming withdrawals are taken under the qualifying guidelines, the withdrawals are also tax-free.  Under a special five-year gift rule, you may be eligible to make a special gift tax election and make larger 529 contributions (up to $75,000 for individuals and $150,000 for married couples) for each beneficiary in a single year without federal gift tax consequences.  See page 29 of our 2020/2021 Perspectives booklet for further information.

  1. Determine if a Roth conversion makes sense.

    Roth conversions involve converting traditional IRA assets to Roth IRA assets.  When a Roth conversion is made, the amount converted is treated as income in the year in which the conversion occurs.  However, once the assets are converted, your future taxable income would be reduced, as eligible distributions from your Roth IRA are not taxed.  Before making a Roth conversion, we recommend you work with your financial and/or tax advisor to consider the pros and cons.  For example, if you make a large Roth conversion, your taxable income will increase which can result in a hefty tax bill and may even affect your Medicare premiums.  That said, if you are in a lower-income year or have significant losses or deductions during the tax year, it might be an appropriate time to make a conversion and recognize that additional income.  Check out this article from Fidelity Investments to learn more of the things you should keep in mind when thinking about a conversion.

  1. Review your tax-loss harvesting strategy.

    Investment losses can help reduce your taxes by offsetting gains or income.  Tax-loss harvesting entails selling positions with losses, then either replacing them with similar investments or re-positioning the proceeds into other underweight sectors in your portfolio.  The realized losses can then be used to offset any capital gains you may have incurred during the year.  If your capital losses are more than your gains, you may be able to use up to $3,000 per year to offset ordinary income. Any unused losses may be carried over to future years.  The result is paying less tax while keeping your assets invested.  Just remember that in accordance with the wash-sale rule, your tax write-off will be disallowed if you buy the same (or substantially similar) security within 30 days before or after the date you sold the loss-generating investment.

Everyone’s financial situation is unique and we recommend that you consult your financial advisor and/or tax accountant before implementing any of the above-noted financial planning strategies.

As always, thank you for reading and please contact us if you have any questions.

Means Wealth Management is a registered investment adviser. The information in this material is for educational purposes only, is not intended to predict or guarantee future market performance and is not intended to act as individualized tax, legal, financial or investment advice.  Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. Please consult a qualified attorney or tax professional for individualized legal or tax advice. Please contact a financial advisor for specific information regarding your individualized financial and investment planning needs.