Review Your Finances Now to Keep on Track in 2021
A year-end review helps you cut taxes, build retirement savings, rebalance your portfolio and earn more interest.


It’s time to do a year-end financial review and set your path for 2021. You’ll make sure your savings and investments are aligned with your goals, reduce income taxes, and ensure you’ve dotted your i’s and crossed your t’s.
Review IRA, 401(k) and other retirement-plan contributions
If you haven’t fully funded your retirement plan(s) this year, consider what you can afford to salt away. Contributions to 401(k) plans reduce your taxable wages. They are due by Dec. 31, and many employers will let you make an additional one-time contribution up to the IRS limit.
You may be able to save on 2020 taxes by making deductible contributions to an IRA by April 15, 2021. If your income is too high to get a deduction because you or your spouse are also covered by a retirement plan at work, consider socking away money in a Roth IRA, which has more liberal income limits.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Finally, remember that people 72 or older won’t need to take required minimum distributions (RMDs) this year. Congress waived them for all types of retirement plans in 2020.
Review your asset allocation and rebalance if needed
Confounding expectations, the stock market has boomed this year. As a result, you may find that your asset allocation has gotten out of whack.
Suppose a few years ago you set your allocation as 50% equities (stocks and stock funds) and 50% in fixed-income (bonds, CDs, fixed annuities, money markets and similar instruments). Thanks to strong market performance, you’re now 65% in equities and 35% in fixed income.
You’ve done well! Now it’s time to start reallocating to get back to 50-50. Reallocating money in retirement plans as well as annuities and life insurance policies takes less planning because gains here are not taxed until withdrawn. Some people have enough money in their retirement plans so that they can accomplish their overall rebalancing using only them. Remember, it’s your overall asset allocation that counts, not the allocation in any one account.
If you do need to rebalance your taxable investments, be aware of tax strategy. For instance, if you have unrealized losses, you can sell off losing investments to offset gains from selling your winners. If you’re rebalancing a lot of taxable money, you may want to consult a CFP or CPA for help.
Do some rate shopping
When rebalancing or reinvesting money coming due from maturing CDs or bonds, consider all your options. You may be able to get a much better rate than you expect. To boost the economy the Federal Reserve has slashed short-term interest rates close to zero. Today, most savings instruments — such as money market accounts, CDs and bonds — pay very low rates, even if you’re willing to tie up your money for a few or several years. If you’ve got CDs or bonds that are about to mature, it pays to consider other options.
If you can afford to tie up your money till age 59½ or are already that old, there’s another choice that typically pays a higher rate: a fixed-rate annuity. Your age is important, because If you withdraw money from your annuity before age 59½, you’ll owe the IRS a 10% penalty on the interest earnings you’ve withdrawn.
Also known as a multi-year guarantee annuity or a CD-type annuity, a fixed-rate annuity behaves a lot like a bank certificate of deposit, with some notable differences. Like a CD, it pays a guaranteed interest rate for a set period, usually three to 10 years. Unlike a CD, the interest credited to the annuity is tax-deferred until you withdraw it.
While CDs today pay less than 1%, a three-year fixed annuity pays up to 2.40% and a five-year contract up to 3.00% annually. Annuities are not FDIC-insured but are covered by state guaranty associations, up to certain limits, that vary by state.
A fixed indexed annuity is another choice if you don’t mind a fluctuating interest rate. It credits interest based on the growth of a market index, such as the S&P 500. In up years, you’ll profit. In down years, you’ll lose nothing but won’t earn anything. Indexed annuities are suited for people who want to save for the long term while limiting risk without precluding growth.
Make sure your beneficiaries are up to date
The beneficiaries listed on annuities, life insurance policies, and retirement plans will receive the proceeds on your death. Check that they’re up to date. Life changes such as marriage, divorce, the birth of children or grandchildren, and the death of a loved one may require updating your beneficiaries.
If you’re married, your spouse is normally your primary beneficiary and your child or children are contingent. If you’ve been divorced and remarried, make sure your ex-spouse isn’t still the beneficiary.

Retirement-income expert Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed and immediate-income annuities. Interest rates from dozens of insurers are constantly updated on its website. He launched the AnnuityAdvantage website in 1999 to help people looking for their best options in principal-protected annuities. More information is available from the Medford, Oregon, based company at https://www.annuityadvantage.com or (800) 239-0356.
-
Stock Market Today: Stocks Close Lower on Cyber Monday
The main indexes were choppy to start the week, though several e-commerce stocks jumped on encouraging online holiday shopping numbers.
By Karee Venema Published
-
Why Tesla Sued the Swedish Transportation Agency and Postal Service
Tesla has sued the Swedish Transport Agency and postal service after a strike halted the delivery of license plates.
By Joey Solitro Published
-
Three Ways to Protect Your Retirement From Sequence of Returns Risk
Retiring in a down market doesn’t have to ravage your retirement, but safeguarding your savings requires planning well in advance.
By David McGill Published
-
Single-Premium Insurance: A Different Way to Pay for Coverage
Single-premium programs enable you to pay future annual premiums on an existing or new policy by purchasing a single-premium immediate annuity (SPIA).
By Stefan Greenberg, CFP®, CFS, CLTC Published
-
Six Charitable Giving Strategies: Feel Good and Cut Your Taxes
These strategies can help you spread the love even more to charities you trust while also taking advantage of different kinds of tax benefits.
By Marguerita M. Cheng, CFP® & RICP® Published
-
Four Reasons to Rent When You Downsize for Retirement
Renting is great when you want to test-drive a location, or you want more predictable costs. It might be easier for family relationships in the long run, too.
By Evan T. Beach, CFP®, AWMA® Published
-
Give Your Charitable Giving a Boost With These Strategies
Donating to charity is easy. Getting the most from your donation and paying less in taxes can be more complicated.
By Jared Elson, Investment Adviser Published
-
A Plateful of Financial Topics That Might Come up Over Turkey Dinner
From higher prices and mortgage rates to AI planning our retirements: These are some of the conversations you might have as multiple generations gather for the holiday.
By Jerry Golden, Investment Adviser Representative Published
-
Four Holiday Shopping Strategies to Keep You in Check
Overspending during the holidays is so easy, but if you go into the shopping season with a plan and a budget, you’ll be so much happier in 2024.
By Tony Drake, CFP®, Investment Advisor Representative Published
-
Four Tips for Discussing Your Estate Plans at the Holidays
Family gatherings are the perfect time to talk with family members about representing you in your estate plan and to let them know what the expectations would be.
By Allison L. Lee, Esq. Published