The end of the year is a great time to take care of financial matters and make sure your portfolio is in tip-top shape. These moves will help you get the new year started on the right foot.
Rebalance Your Portfolio
Back in February and March, a lot of investors learned the hard way that they'd entered 2020 with far riskier asset allocations in their overall investment portfolios than they had intended. After a decade-long bull market, it's easy for your investments to get out of balance — especially if the stocks you own have managed to crush the broad market indexes.
By the time these investors realized what they'd done, it was too late, and the best thing to do was to stay the course and wait for other opportunities. Thankfully, markets have rebounded very quickly, and many stocks have not only bounced back but climbed far above their levels from earlier in the year.
Maximize Your Retirement Savings
Unless you're already in retirement, it's always a good idea to make sure you've made the most of your opportunities to bulk up your savings toward your golden years. If you're covered by a 401(k) plan or other employer-sponsored retirement plan at work, then Dec. 31 is the deadline for getting whatever money you want to contribute into your retirement account.
If you use IRAs, though, you have some extra time. You can still make IRA contributions for 2020 through April 15, 2021. Even so, the sooner you get your cash in, the longer your retirement money will have to grow.
Look at Tax-Loss Harvesting Opportunities
One of the ways in which 2020 has been a particularly crazy year for investors is that there's been a major divide in the stock market. Even as some big-name companies in areas like technology and electric vehicles have soared, many tried-and-true blue chip stocks haven't fared nearly as well. Some have even taken significant losses in the wake of the COVID-19 pandemic.
Tax-loss harvesting means selling off losing stocks in order to claim an income tax benefit. You can use the capital losses you get from selling off a stock that's fallen in value to offset capital gains from your winners. If you have extra losses left over, you can use up to $3,000 each year against other types of income, including interest, dividends, or even your wage and salary income. Nobody likes losing money, but at least the IRS gives you a bit of a break as a consolation prize.
Consider Charitable Gifts
If you're fortunate enough to be in a position in which you've had a lot of success in 2020, consider sharing a small part of your wealth with those who are less fortunate. Charitable gifts made on or before Dec. 31 could help you qualify for a charitable tax deduction on your income taxes.
2020 actually has a special provision to encourage giving. Ordinarily, if you take the standard deduction rather than itemizing your deductions, then you don't get any additional tax break for making gifts to charity. However, this year only, lawmakers will allow taxpayers to claim a charitable deduction for up to $300 in gifts even if you don't itemize. At least currently, though, that special law goes away once 2021 begins, so take advantage of it while it lasts.
Have a safe Holiday Season and a prosperous and successful 2021!
Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.
The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.