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Your 2021 Financial To-Do List

As the new year dawns, here's your plan to get financially fit, one job at a time.

You don't need to hear it from me because you lived through it yourself: The year 2020 was a doozy. I can't count how many holiday cards we received that said some variation of "2020: Weirdest Year Ever." I couldn't disagree.

Of course, it will probably be awhile before we're back to a state of even semi-normalcy. But if you're like me, as the new year dawns, the idea of a reset is appealing.

Helping you look forward and plan for a productive year ahead is the goal of my annual financial to-do calendar and to-do list, which plots out a number of jobs you can undertake to improve your financial life on a month-by-month basis. The myriad tasks associated with maintaining an organized financial life seem daunting in list form, but they're more manageable when spread throughout the year.

While some of the financial jobs on the calendar are time-sensitive and therefore I've placed them in a specific month, such as the tax to-do's early this year, many of the others aren't. You should feel free to tackle those in any order you see fit, or to ignore those that don't apply to you or that you've already achieved.

January See how you're doing: Are you on track to hit your financial goals? If you're still in accumulation mode, review how much of your salary you managed to save and invest last year; 15% is a reasonable minimum target, but reach for a higher percentage if you're a higher-income person/household. If you're retired, review last year's spending rate to make sure it passes the sniff test of sustainability. T. Rowe Price's Retirement Income Calculator is a solid option for assessing whether your current strategy is on track--whether you're still saving or already retired. For the lucky among us who maintained our incomes in 2020, the forced reduction in spending that came along with the pandemic led to an improved financial picture. Even if things get back to semi-normal in 2021, see if you can't keep up that positive momentum.

Find your best return on investment: The most successful investors consider their total opportunity sets--including not just investments but also debt paydown. Are you deploying your money into those opportunities that promise the highest return on your investment? If you have high-interest-rate credit card debt, the answer is easy; you'd be hard-pressed to outearn that interest rate by investing in the market. On the other hand, you might reasonably expect to outearn your interest rate on other types of debt--such as mortgages--by investing in the market, especially if you have a long time horizon and take advantage of tax-sheltered vehicles. The right answers to these capital-allocation questions are individual-specific and depend on a number of factors: the interest rates on your debts versus your expected return on investments, your life stage, need for certainty (debt paydown carries a guaranteed ROI), and any tax breaks you're earning to borrow or invest. For younger investors with lower-rate mortgages and tax-sheltered investment options such as 401(k)s, investing will tend to deliver a higher ROI, albeit with less certainty, than prepaying mortgage debt. For older investors whose portfolios are more conservative, mortgage paydown is more attractive.

Revisit retirement-plan contributions: 401(k) and IRA contribution limits are staying the same in 2021 as they were last year. For 401(k)s, that is $19,500 for investors younger than 50 and $26,000 for those 50 and older. For IRAs, those limits are $6,000 for people under 50 and $7,000 for those 50-plus. If you're not making the maximum allowable contributions to those accounts, see if you can't find room in your budget to elevate how much you're putting in. If you have a high income and earn a bonus, just be sure not to run into the high-class problem of contributing too much too early to earn full matching contributions. While you're at it, consider putting your other investment contributions--to your IRA, for example--on autopilot via automatic withdrawals from your checking or savings accounts. That is apt to help your long-term investment results versus waiting until April to make an IRA contribution, and spreading out your investments helps ensure you don't skip that contribution altogether. Contributing $500 per month will get investors under 50 to the $6,000-per-year IRA maximum, whereas IRA investors over 50 will need to contribute $583 a month to make it to their $7,000 maximum allowable amount.

Important dates: Jan. 15 is your deadline for paying your estimated taxes for the fourth quarter of 2020 if you are self-employed or retired and don't have taxes withheld from your IRA withdrawals. Watch: See a discussion about meeting January's goals.

February Conduct a review of your investments: If you undertook a portfolio review at the end of 2020, there's no need to go back through it. But if you haven't checked up on your investments for a while, it's a good time to do so. Use Morningstar's Portfolio Manager--and especially the X-ray functionality--to check up on your portfolio's allocations to the major asset classes. (Instant X-Ray is the simplest way to take advantage of this functionality if you don't have a portfolio saved on the site.) Strong returns in 2019 and again last year mean many portfolios are more equity-heavy (and higher-volatility) than their owners might intend.

Check in with your tax professional and gather tax documentation on deductible items: Tax day--April 15--will be here before you know it. That means it's not too early to start gathering your tax-related paperwork (either physical or virtual)--especially 1099s listing any income or gains your holdings have paid out. If you're considering itemizing your deductions, remember that they must exceed the standard deduction to be worthwhile. (For the 2020 tax year, the standard deduction is $12,400 for individuals and $24,800 for married couples filing jointly.) Some taxpayers may benefit from "bunching" their deductions--saving deductible outlays for a single year to gain critical mass to exceed their standard deductions.

Take a good look at 1099s and W-2s: As these documents roll in, take a moment to gather some intelligence from these numbers before stashing them in a file or copying them onto your tax return. Your 1099 and W-2s provide valuable information about your earnings and investing habits. If your salary has increased, have you also increased your savings rate, including your 401(k) contribution? If you receive piddling levels of income from a number of cash accounts, can you wring a higher level of income from an online savings account? (Yields are really low, but something is better than nothing.) If your mutual funds made sizable capital gains distributions, would you be better off holding tax-friendly index funds or exchange-traded funds in your taxable account? Watch: Hear Christine Benz and Susan Dziubinski chat about February ideas.

March Contribute to an IRA for 2020: April 15 is your deadline for filing your 2020 tax return, and it's also your deadline for funding an IRA for 2020. If you haven't yet made your contribution, it's time to get on the stick. For 2020, contribution limits are $6,000 for those younger than 50 and $7,000 for people older than 50; they're staying the same for the 2021 tax year. Bear in mind that the backdoor Roth IRA maneuver is alive and well for investors who earn too much to contribute to a Roth outright (you simply contribute to a traditional IRA, then convert to a Roth shortly thereafter), but beware of conversions if you have a lot of traditional IRA assets.

Fund your health savings account for 2020: You also have until April 15 to make a contribution to a health savings account if you want your contribution to count for the 2020 tax year. For 2020, individuals with self-only coverage through a qualifying high-deductible healthcare plan can contribute $3,550 to an HSA, whereas those with family high-deductible coverage can contribute $7,100. People older than 55 can contribute an additional $1,000 to their HSAs. Those thresholds are going up slightly for 2021, to $3,600 for self-only coverage and $7,200 for family coverage--plus an additional $1,000 for people over age 55. An HSA can make an excellent ancillary savings vehicle for investors who are maxing out their contributions to their traditional 401(k)s. Contributions are pretax (or deductible if you contribute to an HSA on your own) and compound tax-free, and qualified withdrawals are tax-free. Watch: Christine Benz tells Susan Dziubinski the tasks for March.

April Know what to save and what to shred: Tax time has a way of reminding us of the shortcomings of our filing systems for financial paperwork. While the pain of digging around for the documents you need is still fresh, resolve to get organized. If your file drawer is bulging with old statements, prospectuses, and utility bills from 2003, it's time to do some culling. Before you start shredding old financial statements and trade confirmations, make sure that you have documentation regarding your cost basis--or that your financial provider does. (Mutual fund companies and brokerage firms are now required to maintain cost-basis information, but that wasn't the case until this decade.) You can safely shred or pitch some of those documents, but you should keep others, either in hard copy or electronic form. Store very hard-to-replace documents (birth and wedding certificates, for example) in a safety-deposit box or fireproof box.

Go paperless: Your financial providers have probably been badgering you for years about switching over to electronic delivery of your statements. It's time to take them up on it. After all, each piece of financial documentation that passes through the mail puts you at greater risk of financial fraud; you're likely paying extra fees for paper document delivery, too. Before going paperless, make sure that your computer security is up to snuff and that you can readily retrieve all of the data you rely on using the company website.

Create a master directory: Every household needs a basic document outlining financial accounts, along with the provider name, account number, URL, and the names of any individuals they work with. You can create a simple spreadsheet or use a preprinted template. Whatever you do, encrypt your document (or keep it under lock and key) and alert a trusted loved one of its existence.

Important date: April 15 is your tax-filing deadline. It's also your deadline to file an extension if you need more time. Individuals will also need to make their quarterly estimated tax payments by this date. Finally, April 15 is your deadline to make an IRA or HSA contribution for the 2020 tax year (see above). Watch: Here is what you should try to accomplish in April.

May Assess your emergency fund: Unexpected expenses can crop up no matter your life stage, making it essential to hold liquid reserves--apart from your long-term retirement assets--to defray them. For most households, holding three to six months' worth of living expenses in true cash instruments is a good starting point, though investors who earn high salaries or have volatile earnings streams will want to hold more.

Assess liquid assets if retired: Retired people will want to hold even more cash, in case one of their income sources is disrupted for some reason. Knowing that their near-term income needs are covered can also help retirees ride out volatile times with their long-term portfolios. A Bucket strategy for retirement portfolio-planning employs dedicated cash reserves, then takes on more risk with longer-term portions of the portfolio. Watch: Christine Benz and Susan Dziubinski list May's to-dos.

June Create or review your investment policy statement: Running your portfolio without an investment policy statement is a little like trying to build a house without any blueprints. Your IPS needn't be complicated, but it should convey the basics of what you're trying to achieve: your financial goals and expected duration/completion, your asset-allocation policy, your criteria for selecting investments, and the specifics of how--and how often--you'll monitor the whole thing. As with the master directory, you can use a preset template for your IPS or craft your own. If you already have an IPS, it's a good time to review it to make sure that it syncs up with your current situation and reflects your current belief system and investment approach.

Create a retirement policy statement: Retired people should also craft a document that addresses the specifics of their spending strategies: their targeted income needs and how much of them will be covered by pensions and Social Security; their portfolio spending rate and the extent to which it might change over time; and whether they're using an income-centric, total-return, or blended approach. Think of a retirement policy statement as a complement to your IPS.

Important date: Investors who are paying quarterly estimated tax payments will need to have them in by June 15. Watch: Christine Benz and Susan Dziubinski give tips for completing June's tasks.

July Evaluate the viability of your portfolio and your plan: Midyear is a good time to conduct a portfolio checkup, because you have time to course-correct if you've gotten off track. Focus on the fundamentals of your plan and your portfolio, including its asset allocation, whether your savings and spending rates are on track, and salient changes with your holdings.

Conduct a cost audit: In addition to checking up on your portfolio plan, it's also worthwhile to periodically assess the costs you're paying to keep the whole thing running. Because they rarely write a check for financial services, most investors are tremendously insensitive to the dollars and cents they're forking over for fund management, trades, and advice. Spend some time reviewing these costs and translating those percentages into dollars and cents; then see if you can shave them down. Swapping high-cost funds for lower-cost ones is one of the easiest ways to bring your cost load down; investors can buy broad-market index funds for well under 0.1%.

Conduct a tax audit: In addition to checking up on your portfolio's direct costs, also conduct an audit of the drag taxes are exerting on your return. Your 2020 tax return can serve as a valuable guide to the tax efficiency of your portfolio. Are you taking maximum advantage of your tax-sheltered options, including 401(k)s, IRAs, and HSAs? Have you revisited your decision about whether to make Traditional or Roth contributions to your IRA and company retirement plan? Are aftertax 401(k) contributions a reasonable option for you if you're a high-income earner who's maxing out the other usual retirement receptacles? If your taxable holdings kicked off substantial capital gains distributions in years past, see if you can't make some tax-efficient tweaks, such as switching to index funds and ETFs for your equity exposure and adopting municipal bonds for your nearer-term cash needs. Watch: Here is how you can use your free time in July to tackle some financial tasks.

August Craft or revisit your estate plan: Planning for your own disability or mortality isn't pleasant, which is probably why many people would sooner clean out their gutters than work on an estate plan. Others may assume that estate planning is unnecessary for them, given that the estate tax exclusion is nearly $12 million per individual. But a basic estate plan--in which you determine who will inherit your assets, serve as a guardian for your minor children, and make important decisions on your behalf if you cannot make them yourself--is a must for people at all life stages and wealth levels. Do-it-yourself estate-planning kits are increasingly easy to come by and may help you tick some of the boxes if your situation is very straightforward. But many of us have special situations--special-needs loved ones, our own businesses, or complicated family situations, for example--that call for a customized estate plan drafted by an attorney.

Review your beneficiary designations: Many investors aren't aware that beneficiary designations for 401(k)s, IRAs, and other accounts supersede the information they've laid out in their wills. Thus, if you've gone to the trouble of drafting a will or creating trusts, it's essential that your beneficiary designations sync with what's in those documents.

Get a plan for your digital estate: Do you have a plan for your digital footprint--your social media or email accounts, for example? Most people don't. Consider crafting a digital estate plan to complement your regular estate plan. Watch: Take advantage of the slower days of summer by checking off these August to-dos.

September Review your long-term-care plan: Long-term care is another one of those topics that is no fun to think about, and unfortunately, there are no easy answers about whether to buy insurance or self-fund using your own portfolio. To make an informed decision, it's helpful to use data to help you understand the likelihood that you'll need long-term care, the potential duration, and the costs. It's also important to understand the lingo surrounding long-term care.

Important date: Investors who are paying quarterly estimated tax payments will need to have them in by Sept. 15. Watch: Christine Benz challenges us to take care of a difficult financial-planning problem.

October Kick college funding into high gear: Are your children or grandchildren growing by leaps and bounds, yet you haven't given their college plans more than a nervous thought (or two or three)? If so, it's time to take a hard look at how you'll pay for it and whether you'll hold the money in a 529 or some other account. Morningstar's Save for College center provides a wealth of information on 529 plans and college funding in general.

Important date: If you received an extension on your 2020 tax return, you must have the return completed and postmarked by Oct. 15, 2021. Watch: Here is what to keep in mind with year-end around the corner.

November Conduct an insurance review: Most employers offer open enrollment for health insurance at year-end, but it's also a good time to take stock of your other types of insurance: property/casualty, life, disability, and so on.

Watch out for capital gains payouts: Mutual funds typically distribute capital gains in December, and by November, fund companies are usually publishing estimates of their impending distributions. At a minimum, you want to avoid buying a fund just before it makes a distribution. Watch: Christine Benz shows us how to tackle open enrollment and other tasks.

December Be generous: If giving financial gifts to loved ones is on your to-do list, you can be exceptionally generous without making your estate susceptible to the gift tax. For 2021, each individual can gift up to $15,000 per person per year without having to file a gift-tax return, and all but ultrawealthy, ultragenerous people will never pay gift tax during or after their lifetimes. Year-end is also a good time to squeak in charitable contributions that may lower your tax bill. With the higher standard deduction amounts that kicked in in 2018, taxpayers may find it helpful to bunch their itemized deductions into a single year while claiming the standard deduction the next. Investors who are age 70.5 or older can also direct distributions from their IRAs to charity via a qualified charitable distribution, reducing their taxable income for the year and also reducing the amount of their portfolios that are subject to required minimum distributions in the future.

Conduct a year-end portfolio review: While you've no doubt paid some attention to your portfolio throughout the year, year-end is a good time to give it a thorough checkup. If you own investments in your taxable account that have lost value, selling to generate a tax loss is a way to find a silver lining. The 0% long-term capital gains rate is also in effect for 2021, so investors whose income puts them under the thresholds may be able to engage in tax-gain harvesting. And investors at all income levels can improve their portfolios by repositioning within their tax-sheltered accounts, where they'll pay no taxes following changes as long as the money stays inside the account.

Take your required minimum distributions: Note that the beginning date for RMDs has gone up to age 72. If you're of RMD age, you know the drill: Dec. 31 is your deadline for taking RMDs from your tax-deferred accounts, such as IRAs and 401(k)s. Affluent retirees love to hate their RMDs, but I always recommend that retirees trim their distributions from holdings they wanted to prune anyway--positions that have grown too large, for example, or funds and stocks that have outlived their usefulness. If you're in the enviable position of not needing your RMDs to live on, consider steering a portion of the distribution, up to $100,000, to charity via the qualified charitable distribution maneuver.

Important date: Dec. 31 isn't just New Year's Eve; it's also your deadline for a number of financial to-do's, such as 401(k) contributions. Investors who are required to take minimum distributions from traditional IRAs and 401(k)s will need to do so by Dec. 31, too. Watch: Finish your to-do list with these final tips from Christine Benz.

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About the Author

Christine Benz

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Christine Benz is director of personal finance and retirement planning for Morningstar, Inc. In that role, she focuses on retirement and portfolio planning for individual investors. She also co-hosts a podcast for Morningstar, The Long View, which features in-depth interviews with thought leaders in investing and personal finance.

Benz joined Morningstar in 1993. Before assuming her current role she served as a mutual fund analyst and headed up Morningstar’s team of fund researchers in the U.S. She also served as editor of Morningstar Mutual Funds and Morningstar FundInvestor.

She is a frequent public speaker and is widely quoted in the media, including The New York Times, The Wall Street Journal, Barron’s, CNBC, and PBS. In 2020, Barron’s named her to its inaugural list of the 100 most influential women in finance; she appeared on the 2021 list as well. In 2021, Barron’s named her as one of the 10 most influential women in wealth management.

She holds a bachelor’s degree in political science and Russian language from the University of Illinois at Urbana-Champaign.

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