Management of the 2020 year-end investment portfolio | The smartest investor


As the end of the year approaches, now is a great time to do some self-checking and review your investment portfolio while there is still time to make adjustments, if necessary.

A simple way to assess your investments is to look at your equity, which is made up of your total assets (investments, property value, etc.) minus your total liabilities (debts). This is a useful overview of your current financial situation and can help you identify where you can improve your financial situation.. It is essential that you have favorable strategies to plan your investments, your retirement and the tax impact in order to avoid any surprises, penalties or tax liability.

The first step is to examine your cash flow. Where are there opportunities to reduce debt, increase savings for investing, or both? As painful as the pandemic has been, it has had a silver lining. Many people took the opportunity to cut back on unnecessary expenses to build up reserves or make ends meet. Take the opportunity to assess your own financial situation to see if there are any adjustments you can make to improve your financial situation.

Here are some end-of-year 2020 actions you can take when reviewing your investment plan:

Emergency fund. Do you know how much you have to live on each month? Take the time to review your cash flow this year and set a goal of saving three to six months on basic living expenses. This makes you feel more confident to take action on larger savings goals to increase your net worth.

If you turned 50 this year, you can make a catch-up contribution and save an additional $ 6,500. This is a 25% increase in what you are allowed to save and it has even more impact if you are in a higher tax bracket. If you were to save an additional $ 6,500 per year, assuming a 7% return, you would accumulate over $ 100,000 over the next 10 years. This is without taking into account the typical increases in the authorized catch-up contribution.

Meet your accountant. Make sure you withhold enough taxes for 2020. You may have stopped your 401 (k) contributions for fear of losing your job. If you didn’t lose your job, you could be in a higher tax bracket because you received a larger portion of your pay as taxable income. Or maybe you got unemployment benefit and didn’t take it into account.

The Coronavirus Aid, Relief and Economic Security Act, known as the CARES Act, provided for an additional $ 600 per week in federal unemployment benefits until July. The CARES Act was the US government’s $ 2.2 trillion program to help businesses, workers, and a healthcare system crippled by the coronavirus.

Convert a portion of your Traditional Individual Retirement Account (IRA) to a Roth. If your income has been drastically reduced this year, explore the possibility of converting part of your IRA to a Roth IRA. This has more impact if you are in a lower tax bracket than you expected in the coming years, especially once you start collecting the Minimum Required Distribution (RMD) and are forced to make income perhaps unnecessarily. A conversion reduces your future IRA balance. All Roth growths and distributions are tax free.

If you are lucky enough to have taken advantage of it, you may want to consider a Roth conversion. The key here is to avoid a conversion amount that pushes you into the next higher bracket and a monthly income-related adjustment amount, which adds additional fees to your health insurance premiums if your income exceeds a certain level. ($ 87,000 for an individual filer and $ 174,000 for a joint filer in 2020).

529 Plan. If you’ve delayed your tax-advantaged 529 Plan savings because of uncertain income, you may now be able to save for your children’s education. Many states offer a state tax benefit, and the growth and qualifying distributions of 529 plans are tax exempt. A change to 529 qualified distributions from the plan allows up to $ 10,000 per year to cover private school fees for Kindergarten to Grade 12 and $ 10,000 per beneficiary to cover student loans. Appropriate use of 529 plans can save on taxes, take advantage of compound growth if started early enough, and reduce the amount a student may need to take out in loans.

Refinancing. Mortgage interest rates are at historically low levels. Many people tried to refinance in the late spring, but lenders were overwhelmed with processing. Rates are still low, and you may be able to reduce your debt and free up monthly cash flow.

Whether by choice or necessity, many of us have realized the importance of financial stability in 2020. As we end the year and look towards 2021, take the opportunity to maintain the good financial habits you have. developed.


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