The start of a new year is when many of us ask ourselves what lies ahead personally, professionally and financially. We happily hang a colorful 2020 calendar, jot down birthdays, upcoming vacations, and other future events.
My guess is, however, you don’t mark down personal finance events and deadlines there.
For your financial health and prosperity in the year ahead, there are a few critical dates to put on your calendar and steps to take for them:
Create a 2020 spending budget. Start by writing down your recurring fixed expenses, such as your mortgage or rent payment, health insurance premiums, utilities and so forth. Your 2019 outlays can provide a guide. You might even spot some spending from last year that you can trim back this year.
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Next, consider the “this year-only” expenses that lie ahead, noting their costs and when you’ll need the money for them.
For example, you might have tuition payments if you’re studying for a certificate or degree. Travel plans can factor in here, as well. My husband and I have a 10-day trip to Normandy, France on our calendar in May. While the airfare has already been paid, we’ll have expenses for accommodations, meals and just plain fun, so I’m incorporating them into my budgeting plan for the year. We will also have our niece and nephew’s weddings in 2020 (hurray!) and need to plan for the accompanying hotel bills and gifts in our yearly budget, too.
Also, pencil in an estimate of 2020 discretionary expenses you can expect, but don’t know exact amounts — such as groceries and restaurants and entertainment. And, of course, there will be the unavoidable outlays such as unexpected medical bills or veterinary expenses for a family pet, auto or home repairs. So, do your best to take a stab at what these types of expenditures might amount to and add them to your budget as a cushion.
And this is a good time to eyeball your emergency fund to ensure you have set aside money to cover unforeseen life events.
Review your credit report. The three big credit bureaus — Experian, TransUnion and Equifax — provide everyone with one free credit report annually; it’s the law. Request one at AnnualCreditReport.com. When you get it, look for possible errors. Even if your name is misspelled or your Social Security number is incorrect, that can hurt your ability to get a credit card or loan.
If you find a mistake, contact the credit bureau or bureaus where you discovered the error and explain the error in writing. Next, write the company that provided the information to the credit bureau. A credit bureau normally has 30 days after receiving a dispute to investigate and verify information with the company that furnished it. Then, it must report back to you within five days of finishing the inquiry.
Pay any quarterly estimated taxes you owe. This is especially important if you’re self-employed. Without an employer automatically withholding taxes from each paycheck, it’s easy to miss estimated quarterly payments and then owe a penalty.
You may also face a penalty if you didn’t pay enough estimated tax for the year. That penalty is avoidable as long as you pay at least 90% of the tax for the current year or 100% of the tax you owed the previous year, whichever is smaller.
The fourth (and final) estimated quarterly tax payment for 2019 is due Wednesday, Jan. 15, 2020. For federal returns, you can find the address for filing your payments and due dates as part of Form 1040-ES.
Make a Valentine’s Day “money date” with your spouse or partner, if you have one. Unromantic? Perhaps, but hear me out. I recommend you use Valentine’s Day as a chance to renew your financial commitment to your partner.
In fact, I advise setting regular money conversation dates where you can talk about your finances as a team: your dreams, goals and fears. But Friday, Feb. 14, 2020 is a good day to start.
Even if you don’t buy into the Hallmark card and pricey dinner hoopla of the day, remind each other that love and respect comes down to honesty and financial openness.
Pay your taxes. Personal federal income tax returns and corporate tax returns are due (before midnight) on Wed. April 15, 2020. That’s also when a first estimated tax payment for 2020 is due, as well as most state tax returns. The subsequent estimated tax dates for 2020 are: Mon., June 15, Tue. Sept. 15 and Fri. January 15, 2021.
Fund your retirement. If you haven’t already put money into your 2019 retirement account, you have until April 15.
You can contribute up to $19,000 to a 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan. And you can contribute up to $6,000 to an Individual Retirement Account (IRA). If you’re aged 50 or older and qualify, you can contribute an additional $6,000 to an employer-sponsored plan and $1,000 to an IRA.
If you’re self-employed, you can contribute up to $56,000 ($62,000 if you’re 50 or older) to a solo 401(k) plan by April 15, or the deadline date for your extension. Your contributions can’t exceed your self-employment income for the year. Another option for self-employed people is a SEP IRA. These contributions are limited to 20% of self-employment income, up to $56,000. For a SEP-IRA, you must deposit contributions for a year by April 15, or the date of your extension.
This is also a good time to start thinking about how to boost your retirement contributions in 2020. The maximum individuals can contribute to 401(k)s for 2020 is $19,500; $26,000 for those 50 or older. If you’re self-employed, in 2020, you can contribute up to $57,000 ($63,500 if you’re 50 or older) to a solo 401(k) plan and $57,000 for a SEP IRA.
Do a mid-year financial checkup. Set-up an appointment with your financial planner if you work with one or take a look yourself to review your asset allocation to see how your investments are currently balanced — what percentage are in stocks, bonds and cash — and if they’re in line with your goals and risk profile. Double-check, too, that your investments are spread across a wide range of asset classes, from large companies and dividend-paying stocks to emerging growth firms to global stocks and bond fund indexes.
A standard calculation many financial planners use for determining what percentage of your portfolio should be in stocks is to subtract your age from 110. So, a 60-year-old would have 50% in stocks and the rest in bonds and cash. If market swings make your stomach turn, you may want to go with a more conservative investing approach, as I wrote in my Next Avenue column, “How to Weather the Rocky Stock and Bond Markets.”
And “if you expect to retire soon, it’s time to revisit the overall asset allocation for stocks in your portfolio,” says Lisa A.K. Kirchenbauer, a Certified Financial Planner and founder of Omega Wealth Management in Arlington, Va. “Consider repositioning some of your gains to more conservative investments, like bond funds and Exchange Traded Funds (ETFs) or money market funds.”
Check your beneficiaries. While you are giving yourself a midyear checkup, check on who will receive your benefits after your death. That means looking at all your retirement plans and life insurance policies to make sure the beneficiaries are updated and correct.
Take advantage of charitable giving. You can give away up to $15,000 to as many people as you want without filing a federal gift tax return. And you may be able to claim charitable contributions for 2019 if you’ll have write-offs exceeding the standard deduction ($12,400 for singles; $24,800 for married couples filing jointly).
Consider ramping up unreimbursed medical expenses. In 2020, you can deduct unreimbursed medical expenses that exceed 7.5% of your adjusted gross income. There’s still time to schedule appointments and procedures that will increase the amount of your deductible expenses.
Max out your Health Savings Account (HSA) if you have one. Health savings accounts let you put money aside for qualifying health expenses, tax-free, if you have a high deductible health plan. Distributions for qualified health expenses are tax-free, too.
For 2020, the maximum HSA contribution for individuals is $3,550 and it’s $7,100 for family coverage; people 55 and older can contribute an additional $1,000.
Review your tax-free health care Flexible Spending Account (FSA) if you have one. Unlike an HSA, most FSAs are “use it or lose it.” In other words, you could give up using anything left in your FSA account at year-end. So tap the funds to pay for out-of-pocket medical expenses, including deductibles and co-payments, unreimbursed dental and vision expenses, eyeglasses or even hearing aids.
Minimize taxes on 2020 stock gains. If you cashed in investments that made money during the year, you’ll pay taxes on those gains. To lessen the tax impact, you might sell investments that took a dive in value and you’re ready to let go.
Doublecheck your withholding. This could be a good time to tweak the amount of income tax withheld from your paycheck. Do this by filling out the new Form W-4.
Traditionally, you’ve calculated the amount of taxes withheld by claiming allowances based on personal exemptions for yourself and your dependents. But the new form instructs you to use the IRS’ online tax withholding estimator tool or fill out the form’s worksheet to determine how much to withhold from your sources of income. You’ll enter the amount on a separate “extra withholding” line.
If you’re self-employed, consider setting up a solo 401 (k) plan. To make contributions for 2020, you must establish the plan by Dec. 31.