2020 is drawing to a close, and many of us are thinking ahead to 2021. The end of the year is a great time to check in on your finances and set yourself up for success in the new year. To help get you started, we’ve put together a checklist of important financial tasks you should consider before the clock strikes midnight on New Year’s Eve. 

The basics

Review your spending and set up automated savings: Automate your savings to your Investment Account so you don’t have to think about it. You can use our free service Autopilot to automate smart transfers so you always have the right amount of cash on hand.

Pay down your credit card debt: Credit cards currently charge an average of 16% on your outstanding balances, so paying off your debt would be like getting a risk-free 16% return. 

Top off your emergency fund: Setting up a good emergency fund can give you peace of mind. Find out how to build the emergency fund that’s right for you.

Pay down your student debt: You should consider paying down or refinancing your student debt if it charges an interest rate of 6% or more.

Your job

Contribute to your 401(k) account: Contribute as much to your 401(k) account as your employer is willing to match.

Roll over your old 401(k): If you recently changed jobs or are thinking about changing jobs, you should consider the possible benefits of rolling over your 401(k) into an IRA.

Spend down your FSA: If you have an FSA, you may want to spend the bulk of it on qualifying expenses in case you aren’t able to carry it over to next year.

Don’t exercise your stock options if you can wait: Waiting until the new year means you’ll defer the tax you owe from exercising your options until the 2021 tax year.

Your family

Review your insurance policies: Now is a good time to consider whether any major life events might change your insurance needs. You can also sit down with your parents or other relatives to review their coverage.

Consider a 529 college savings plan account for your kids: When it comes to planning for your child’s college education costs, few things have the potential to prove as financially rewarding as enrolling early in a 529 and growing your savings tax-free.

Superfund your 529 college savings plan: Superfunding a 529 offers significant benefits both in terms of objective savings results, as well as from a behavioral finance perspective.

Your taxes

Harvest your losses to lower your tax bill: Tax-loss harvesting is a strategy that allows you to reduce your tax bill while you maintain the risk and return characteristics of your investment portfolio. If you use Wealthfront’s Tax-Loss Harvesting service, you’re likely to receive tax savings that more than cover your annual advisory fee (as more than 96% of our taxable Investment Account clients have, according to our research). 

Give a tax-deductible charitable contribution: Now is a good time to donate to a cause you believe in and simultaneously benefit from it on your 2020 taxes. This year, because of the CARES Act, you can deduct $300 of charitable contributions from your taxes even if you don’t itemize.

Claim your residential solar energy property credit: The credit for solar electric property and solar water heating property is available for property placed in service through December 31, 2021, based on an applicable percentage here.

Our thanks

As 2020 comes to an end, we want to sincerely thank all of our clients who trust us every day with their hard-earned money. We are proud to offer you high-interest checking and personalized, automated investment portfolios,  and we’re not stopping there. We envision a future where we’ll be able to optimize all of your money across spending, savings, and investments, and we call this vision Self-Driving Money™. With Self-Driving Money™, once you’ve direct deposited your paycheck and paid your bills with your Cash Account, you’ll be able to have our software route the remaining money to the most appropriate accounts for your lifestyle and goals. We’re building a financial system that favors people, not institutions, and we can’t wait to show you what’s next. We promise to continue to deliver value to you in 2021 and beyond. In the meantime, happy holidays!

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About the author(s)

The Wealthfront Team believes everyone deserves access to sophisticated financial advice. The team includes Certified Financial Planners (CFPs), Chartered Financial Analysts (CFAs), a Certified Public Accountant (CPA), and individuals with Series 7 and Series 66 registrations from FINRA. Collectively, the Wealthfront Team has decades of experience helping people build secure and rewarding financial lives. View all posts by The Wealthfront Team

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