Time flies, and it's hard to believe we're wrapping up another calendar year. While 2020 hasn't been the year any of us expected or wanted, we're in the midst of the busy holiday season. Here are a few things you can do to prepare for the end of the year and set yourself up for a fresh start in 2021:
1. Review your credit reports. The end of the year is a good time to check your credit reports if you haven’t reviewed them lately. You can access a free report from each major credit bureau (Experian, Equifax, and TransUnion) weekly through April 2021 at www.annualcreditreport.com. If you find errors, such as accounts you don’t recognize, this could indicate you’ve been a victim of identity fraud. Check the credit bureau’s website for its process to dispute an error.
2. Freeze and monitor your credit. The holidays are an excellent time to take extra precautions to protect yourself from identity fraud. Adding a credit freeze, which is free, to each of your credit reports allows you to restrict lenders from viewing them in response to identity thieves trying to open new accounts in your name. You can temporarily lift the freeze at any time at no cost. Go to Experian, Equifax, and TransUnion websites to learn more about freezing your credit.
3. Review your withholding. Take steps now to prevent having to pay more in taxes in April. Depending on the number of pay periods between now and the end of the year, use the IRS Tax Withholding Estimator Tool to determine whether you need to file a new Form W-4 with your employer. Review your most recent pay stub and a copy of your 2019 tax return to help you estimate your 2020 income. If needed, on line 6 of Form W-4, increase the amount of taxes withheld from your paycheck between now and December 31.
4. Spend your FSA. Check your company policy to see if it allows you to carry over up to $500 you haven’t used in your Flexible Spending Account. If the policy doesn’t allow you to carry over, then make sure you spend the dollars in your account because they expire by the end of the month. Purchasing an At-Home COVID-19 test or getting a dental cleaning, or visiting the Optometrist for an eye checkup before the end of the year are just a few last-minute ideas to use your FSA. Go to FSAstore.com for a list of last-minute ideas to use your FSA dollars.
5. Max out your retirement contributions. Now is the time to buildup contributions before the year ends. Just change your contribution amount before you receive your last paychecks of the year. In 2020, you can put up to $19,500 in a 401(k), 403(b), 457, as well as other employer-sponsored plans. If you are 50 or older, the catch-up contribution is an additional $6,500, so you can save a total of $26,000! If you do not have a retirement plan at work, you can deduct up to $6,000 in contributions to an IRA, or $7,000 if you’re 50 or older. Also, if you’re self-employed, freelance, or have a side gig, you can open a Solo 401(k). This account should be opened by December 31. In 2020, you can contribute up to $57,000 ($63,500 if you’re 50 or older) to a solo 401(k) plan; however, your contributions can’t exceed your self-employment income for the year. You have until April 15, 2021, to contribute to a Solo 401(k) and deduct your 2020 contributions.
6. Discuss your finances and estate with your family. It's a good time to talk to your family about your finances, property, and other assets during these unprecedented times. Talking to them can alleviate disagreements amongst family members should something happen to you. Your family should know where you keep your documents, including your will, healthcare directives, and powers of attorney for finances and healthcare. It's also essential to check beneficiary designations on your life insurance policies and retirement accounts like 401(K)s and IRAs. And make sure your Will and Trust are updated.
7. Verify your Social Security. If you experienced a life event that resulted in a name change due to marriage, divorce, or for any other reason, it’s important that your personal information is correctly updated with the Social Security Administration. Make sure your employer has made the necessary changes so you receive proper credit on your earnings record, which will determine your future Social Security benefits.
8. Get your taxes ready. As the year comes to a close, make the upcoming tax season easier on yourself by organizing your receipts, bills, and other files. Also, it’s a great time to look over your expenses from the past 12 months to determine how much you’ve spent as this will help you plan and budget for the new year.
9. Think about your New Year Goals. We often wait until the new year to make resolutions; however, if you start thinking about your lifestyle, mental and physical well-being, career, as well as financial resolutions now, you'll begin the new year determined to achieve your goals.
Our community's safety and health should be the primary focus as we begin the new year. With several vaccines soon to be available, it is so vital that we all continue to stay vigilant.
Happy Holidays and God Bless,
Livia
aka Livia Kelly (Author)
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Livia Kelly is the Author of Unmarried and Debt-Free. Livia's book has made Amazon's #1 Best Seller list in Personal Budgeting and Two-Hour Self-Help Short Reads. Her goal is to simplify finance by providing sound and useful guidance about achieving financial success on your own. More information can be found at https://www.liviakellyauthor.com. Follow Livia on Facebook and Instagram @liviakellyauthor.
Photo Credits: Kelly Sikkema / Nicole Tyler