2021 Year-End Investment Checklist

The end of the year is a financial opportunity—an opportunity to take advantage of remaining tax breaks and keep Uncle Sam’s hand from going deeper into your pocket than it has to, and an opportunity to clean up your portfolio and make sure your financial house is in order. Here is a year-end financial checklist.


Tax Loss Harvesting

What losses are in your portfolio? It may be to your advantage to take them and offset capital gains you realized earlier in the year. When you’ve reviewed an investment that’s worth less than you paid for it ask yourself if you’d buy the same investment today. If not, sell it. Don’t hang on to it hoping it will, someday, be back to where you bought it.

But if you have losses in investments you really like, but could use the loss, keep in mind the Wash Sale Rule from IRS Code section 1092. It allows you to sell at a loss, deduct the loss, and buy back the same investment or one similar in 31 days or more without a tax penalty. Buy it back in LESS than 31 days and the deduction is not allowed.


Investment Strategy

Has anything changed in your life or attitude since last year? Are you more conservative or more aggressive than you were the last time you reviewed your strategy? If so, consider the changes that should be made to your portfolio.


Reallocate and Rebalance

If your portfolio has experienced tremendous growth, it may be out of balance with your investment objectives. If that’s the case you may be exposed to more risk than you want. And if you’re within sight of retirement, it can be a risk that jeopardizes when you retire and what kind of retirement you’ll have. Then review your allocation to stocks, bonds, commodities, and real estate should be and then rebalance. Make sure to include all your accounts—Investment, IRA, Roth, 401(k), 403(b), and 457 accounts.


Roth Conversions

Consider whether this is the time to convert some of your pretax investments into a Roth IRA. The Roth allows you to take money out without taxes or penalties once you pass the age of 59 ½, but for that benefit later you have to pay taxes on it now.

Check with your tax professional to see if a Roth conversion makes financial sense for you.


Manage Your Tax Bill

Your window on IRA contributions is a little longer. You actually have until April 15 of the following year to make your contribution for the current year. Whether you do it by year-end or when you file your taxes, don’t forget this deduction.


Required Minimum Distributions

If you’re 72 or older, don’t forget to take your Required Minimum Distribution. You want to stay in the good graces of the IRS. If you don’t take the RMD you’ll have to pay a 50% penalty on what you should have withdrawn, still take the RMD amount, and pay income taxes on the withdrawal. Avoid the headache.

If you have an inherited IRA the same thing applies. Remember, the inherited RMD must be withdrawn no matter the account holder’s age.

All RMDs have to be taken within the calendar year.


Charitable Contributions

It’s not too late to make charitable contributions. And you can front-load your giving. For example, you may want to contribute the amount you plan to give over the next 5 years or 10 years.

If you take advantage of such a donation, you can make the donation to a Donor Advised Fund which gives you the flexibility of deciding later what charity(s) you want the money to go to.

Instead of gifting directly to charities, you establish an account at a sponsor organization. You make an irrevocable contribution to that account and receive a tax deduction that year. Then when you’re ready to grant money to a charity you tell the sponsor who to give it to and how much. The sponsor organization does all the due diligence and all the record-keeping.


Check Your Beneficiaries

And, while you’re reviewing everything, check your beneficiaries. Maybe you’ve had a life change—death, divorce, remarriage, birth of a grandchild, you’ve changed your mind about what organizations you want to give posthumous bequests to, or there’s someone you just don’t like anymore. Whatever the case, review your beneficiaries and make sure they’re exactly who you want right now. Doing a beneficiary audit can save taxes, avoid legal difficulties, and make sure your money goes exactly where you want it to.


There are lots of places you may have named beneficiaries:

  • Life insurance policies – Don’t forget policies through your employer
  • Annuities
  • Traditional IRA
  • Roth IRA
  • Inherited IRAs
  • 401(k) account at your current employer
  • 401(k) accounts at previous employers
  • 403(b)
  • Deferred Compensation Employer Plans
  • 457 Government Plans
  • Health Savings Accounts
  • 529 Education Savings Plans
  • Transfer on Death (TOD) accounts. These can be at banks, investment firms, savings, and loans, or any financial institution.
  • Pensions
  • Wills
  • Trusts
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