2020 Year-End Financial Planning Checklist


As the end of 2020 nears, we prepare to close the book on a unique and challenging year. So far we have lived through a global pandemic, a recession, civil unrest and election tensions, and there are still more than two months to go.

We also have seen significant changes to the retirement and estate planning landscape in the last 10 months through The SECURE and CARES Acts.

Key Provisions of the SECURE ACT:
  • An increase to the age individuals are required to begin minimum distributions (RMDs) from qualified retirement accounts (to 72 from 70½)
  • Elimination of age cap for traditional IRA contributions (previously capped at 70½)
  • Elimination of stretch IRA provisions for non-spouse beneficiaries
Key Provisions of the CARES ACT:
  • Suspension of all Required Minimum Distributions in 2020 (applies to all defined contribution plans including 401(k)s, 403(b)s, SEP IRAs, SIMPLE IRAs, traditional IRAs & inherited IRAs)
  • Waived 10% penalty for taking early distributions from retirement plans (waiver applies to distributions up to $100,000 taken between January 1st and December 31st, 2020)
  • Paycheck Protection Program (federally backed loans for certain payroll expenses)
  • Expanded unemployment insurance

While we cannot predict what will happen in the coming months, we can position ourselves to be as prepared as possible. Enclosed you will find our annual checklist of important actions to consider before the end of the year. While everyone’s situation is different and not every action will apply to you, taking small steps today will lay the foundation for a successful 2021 and years to come.

As you navigate the 2020 Year-End Financial Planning Checklist, please keep in mind the following:

  • The checklist is meant to serve as a reminder of actions you should consider completing. Since personal circumstances vary, it is important to consult with your Altair engagement team, attorneys and personal tax advisers regarding your specific situation.
  • We have provided a glossary beginning on page xx that provides a brief explanation of each task listed. If you have questions that go beyond the information provided, please don’t hesitate to reach out to your Altair engagement team.
The below guidelines provide additional details on the checklist items:
  1. CARES Act RMD Relief: Individuals required to take withdrawals from their retirement accounts can skip Required Minimum Distributions (RMDs) in 2020. In response to the global COVID-19 pandemic, congressional leaders passed the Coronavirus Aid, Relief and Economic Security Act (CARES Act). A provision in the Act ordered the suspension of all RMDs in 2020. The suspension applies to all defined contribution retirement plans, including 401(k)s, 403(b)s, SEP IRAs, traditional IRAs and inherited IRAs. Individuals who wish to take money out may still do so. Annual RMDs are expected to resume in 2021. The balance of your account on December 31st, 2020, will be used to determine your 2021 RMD.
  2. Examine SECURE Act Provisions and Discuss Possible Adjustments:  The Setting Every Community Up for Retirement Enhancement Act of 2019 ushered in significant changes to the treatment of IRAs and certain retirement benefits after death. Key changes to discuss with your Altair team, tax advisers and attorney include the elimination of stretch IRA provisions (for certain beneficiaries), increased age for Required Minimum Distributions (increasing from 70½ to 72 if you were born on or after July 1st, 1949) and the elimination of IRA contribution age limits.
  3. Maximize Employer Retirement Plan Contributions: If you have a 401(k) or other retirement plan at work, remember to make your allowable 2020 contributions before year-end. In 2020, you can elect to defer up to $19,500 of your compensation to a 401(k). Those aged 50-plus can defer an extra $6,500 for a total of $26,000. Additionally, some plans allow you to make after-tax contributions, up to the IRS limit of $57,000.
  4. Rebalance 401(k): Periodically rebalancing your 401(k) ensures your account is in line with your overall asset allocation.
  5. Make Deferred Comp Elections: If applicable, determine before December 31st whether to defer a portion of your 2021 compensation. Benefits of deferring could include possible tax deferral, allowing for compound portfolio growth without an annual tax drag. As with any investment decision, it is important to weigh the benefits of deferring with your liquidity needs, time horizon and lifestyle choices. Additionally, you will be required to make a distribution election.
  6. Utilize FSA Money: If you have a Flexible Spending Account (FSA), you have until December 31st (or March 15th of the new year for some plans) to spend your balance. FSA dollars work on a use-it-or-lose-it provision. Remaining dollars on January 1st of each year will be forfeited. FSA dollars can be used to pay for medical expenses that aren’t covered by a health plan, like co-pays, deductibles, dental and vision care, or dependent day care. You can also use dollars to purchase items like sunscreen and first aid kits. In 2020, individuals can contribute $2,750 to a health care FSA and $5,000 to a dependent care FSA. The end of the year is also a good time to calculate your FSA allotment for next year, based on your current account excess or deficit.
  7. Maximize Year-End Health Benefits:  If you’ve hit your healthcare deductible and out-of-pocket maximum for the year, consider scheduling medical procedures you’ve been putting off. Once your deductible is met, your health insurance provider helps pay for procedures, and many treatments, like elective surgeries, become more affordable. Beginning January 1st, the deductible resets to zero on most health insurance plans.
  8. Complete Annual Exclusion Gifts: In 2020 you can gift $15,000 per person ($30,000 per couple) to any individual. This annual exclusion is a way to transfer assets and reduce your taxable estate. Please keep in mind contributions to 529 plans are considered gifts, as are contributions to an Irrevocable Life Insurance Trust to pay insurance premiums.
  9. Fund 529 Plans: If you plan to contribute to a 529 account this year, be sure to do so by December 31st to take advantage of annual gift exemptions and to qualify for any state tax deductions on your 2020 taxes. If you pay for college directly to the institution, your payment is not considered a gift and there is no limitation on your contributions (please remember contributions to 529 plans are considered gifts). If you plan to pay bills directly and reimburse yourself from a 529 plan, make sure you reimburse yourself in the same calendar year in which the expenses occurred, and account for any reimbursements received due to the pandemic.
  10. Discuss Potential Changes to Estate Tax Laws: In 2020, the lifetime Federal Estate and Gift Tax Exemption was increased to $11,580,000 ($23,160,000 for married couples). The current exemption is set to sunset in 2025 and could revert back to the pre-2018 exemption level of $5,000,000 ($10,000,000 for married couples). A reduced exemption could occur sooner if Democrats sweep the 2020 elections. Now is a good time to discuss with your Altair team, estate attorney and tax advisers the impact this could have on your individual situation and whether any action needs to be taken.
  11. Execute Crummey Notices: Confirm with your estate planning attorney or trustees that beneficiaries are being provided written notice (Crummey Notice) of their withdrawal power each year a gift is made to an Irrevocable Life Insurance Trust or other trust that contains Crummey powers. It is important to store these notices in the event the IRS challenges past gifting. Failure to provide this documentation could compromise the tax status of assets held in the trust.
  12. Review Estate Plan & Fiduciary/Beneficiary Designations: The end of the year is a good time to review your overall estate plan and fiduciary designations to make sure they are still in line with your wishes. Additionally, you should verify/update your beneficiary designations on your retirement accounts and life insurance policies. This is especially important this year in light of the SECURE Act legislation and the elimination of the stretch provision for certain IRA beneficiaries.
  13. Defer or Reduce Income: If you’re on the threshold of a tax bracket, consider deferring income to reduce your tax exposure. If applicable, consider deferring the sale of capital gain property, or receipt of distributions to delay income into 2021. Consider tax loss harvesting in conjunction with Altair.
  14. Adjust Tax Withholding: Review your W-4 and update your withholding if necessary.
  15. Consider Roth IRA Conversion: Anyone, regardless of income, is eligible to convert a traditional IRA to a Roth IRA. The Roth IRA carries significant income tax advantages for both you and your beneficiaries, especially if the conversion is done at reduced asset levels. Please consult your accountant to discuss potential taxes that could be owed on a Roth conversion, and consult Altair to determine whether a Roth conversion makes sense for you.
  16. Make Charitable Donations/Consider Bundling Itemized Deductions: All charitable contributions must be made prior to December 31st to be taken as a deduction on this year’s tax return. Please keep in mind many popular itemized deductions used in years past are now reduced or eliminated. Charitably-inclined individuals who are unable to itemize may benefit from bundling two or more years of donations into a single year (possibly though a Donor Advised Fund). This will increase the likelihood of being able to itemize deductions in alternate years. Taxpayers can deduct cash donations up to 100% of adjusted gross income (AGI) (increased from 60%) when, made directly to a public charity and stock donations up to 30% of AGI. (Cash contributions to a Donor Advised Fund can be deducted up to 60% of AGI). If you do intend to make a donation for 2020, we encourage you to do so by December 1st to ensure your gift is processed in the current tax year.
  17. Consider Making a Qualified Charitable Distribution (QCD) from your IRA: Even though Required Minimum Distributions (RMDs) are suspended in 2020, charitably-inclined individuals over 70½ can still consider a Qualified Charitable Distribution (QCD) from their IRA. A QCD is a non-taxable distribution from your IRA directly to a qualified charity, which typically counts towards your RMD (since there are no RMDs this year there is nothing to count it against). When making a QCD election, the amount you distribute will not be included in your adjusted gross income. The total of all QCDs is limited to $100,000 and you cannot make the distribution from SEP and SIMPLE plans if an employer contribution is made for that year. A QCD cannot be made to a Donor Advised Fund.
  18. Review Group Benefit Elections & Make Updates for the Coming Year: Open enrollment is under way at many employers. Please take time to review your employee benefit elections (group health, dental, life, disability, FSA, HSA) to ensure you have selected the right plan with the right coverage amount and a deductible that you are comfortable paying.
  19. Enroll in New Health Insurance Plan Through Healthcare.gov: The 2021 open enrollment period for marketplace health insurance plans runs from Sunday, November 1st, to Tuesday, December 15th. If you fail to act by the end of that period, you will not be able to get 2021 coverage unless you qualify for a special enrollment period.
  20. Complete Medicare Open Enrollment: If you’re on Medicare, you have until December 7th to decide whether to keep your current coverage or make changes that will take effect January 1st, 2021. Beneficiaries can pick a new Medicare Part D drug plan, a new Medicare Advantage plan, or switch from original Medicare into a Medicare Advantage plan. Please remember Medicare supplement plans are not part of this open enrollment.
  21. Request Annual Credit Report: We recommend that you review a full credit report annually to make sure there are no errors. You are allowed one free copy of your credit report each year. To request, go to annualcreditreport.com or call 877-322-8228. If you have not done so already, consider signing up for a credit monitoring service.
  22. Consider Updating Passwords & Security Questions: We recommend you regularly update your passwords and security questions to prevent fraud and cybersecurity attacks. Additionally, to assist family members if you become incapacitated or pass away, create a list of usernames and passwords for all of your digital assets and store this in a secure place.

The material shown is for informational purposes only and should not be construed as accounting, legal, or tax advice.  Altair Advisers LLC is a registered investment adviser with the Securities and Exchange Commission; registration does not imply a certain level of skill or training.  While efforts are made to ensure information contained herein is accurate, Altair Advisers cannot guarantee the accuracy of all such information presented.