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Smart Financial Moves in 2021

Smart Financial Moves in 2021

| November 12, 2021

These next few weeks provide the last chance for many families to make impactful 2021 financial decisions. Many financial do-it-yourselfers spend their working years on autopilot. Every month, when their paychecks come in, they pay their bills, make their automatic contributions to savings, retirement and investment accounts, and enjoy what’s left. But there are additional critical areas of planning that I outline below.

More than half of Colorado’s workforce is unable to easily put their retirement savings on autopilot because their employers do not offer a retirement savings plan for them, such as a 401K. Some Coloradans are employed at small start-ups, some work part-time, and some are self-employed. I have spoken to a few of my realtor friends in Evergreen who have had multiple record years recently. Many of them have experienced personal booms and busts that matched the real estate market, and 2021 has been an amazing year.

Big Income Year?

Pay off all your consumer debt. Pay off all high-interest debt such as credit cards, home equity lines, personal loans, and even student loans. If you had a banner year, this is the first place to direct some of your profits. You can also take this a step further and create an emergency fund, so next time you run into a tough patch, you won’t need to immediately rely on credit.

Pay estimated federal and state taxes. I know it might not feel great to surrender your money before you are compelled to, but the truth is, you will not miss out on significant profits from now until tax time since bank rates are so low. Leaving the funds in your personal accounts may give you the false impression that you have more money than you really do.

Create or update your estate plans. According to a 2021 Gallup poll, less than half of American adults have a will, and a quarter of Americans over age 65 have no will. Many others have dated estate plans in need of revision. Effective January 1, 2020, the federal government placed new restrictions on how beneficiaries can inherit retirement assets and how those assets are taxed. Per these new restrictions, your heirs are no longer allowed to “stretch” Required Minimum Distributions from inherited accounts over the course of their lifetimes. In most cases, those distributions now must be completed within 10 years. These and other rule changes have created situations where, from a tax perspective, it might be prudent to create family trusts and be more intentional about how certain assets are passed down, and to whom. We work with excellent estate planning attorneys who can address your planning needs in every U.S. state.

Max out your workplace savings contributions or create a Solo 401K and fully fund it. You can contribute $19,500 in 2021 toward your employer 401K and another $6,500 if you are 50 years old or above. If you don’t have access to a workplace plan and you are self-employed, you can create a Solo 401K. If you are at least 50 years old and made $154,000 or more in 2021, you would be eligible to contribute (and deduct) as much as $64,500 to your Solo 401K. This compares to a maximum of $38,500 to a SEP IRA or $21,500 to a SIMPLE IRA with the same $154,000 of income. Note: This is not meant to be tax advice—you will need to confirm your specific details with your tax professional.

If you are an entrepreneur, it may be possible to create a Solo 401K for your spouse as well. Many entrepreneurs set up SEP IRAs, but Solo 401Ks are just as easy to set up and, as you can see, they allow for larger “employer” contributions for the same income and also allow for Roth contributions.

Help your spouse fully fund their 2021 retirement contribution. While you can’t directly contribute to another person’s retirement account, you can replace the funds they invest, allowing them to maximize their 2021 contributions.

Consider long-term care insurance. Long-term care costs are a very common retirement concern and your windfall may provide the perfect opportunity to set aside some funds to address this concern. We work with LTC insurance specialists who understand the complex nuances of these products.

Open a taxable investment account. Saving money into tax-favored retirement accounts is a critical first step, but it is also important to have other investment dollars that are available without penalty before age 59 1⁄2. 

Fund Roth IRAs for your kids or grandkids. Your kids or grandkids can contribute up to 100 percent of their earned incomes up to a maximum of $6,000 into a Roth IRA. If you would like to help, you can gift the Roth contribution, allowing them to spend their earnings and still get the benefit of this great early savings opportunity. And if your heirs have access to a workplace plan, you can use this same strategy with the higher $19,500 limit.

Open a Donor Advised Fund (DAF). If you are charitably minded and have large gifts in mind to specific beneficiaries before the end of this year, you can make those donations before December 31 and claim the deduction in 2021. Or you can make a contribution into a DAF before December 31 and enjoy the tax benefits in 2021 without having to define what charities will eventually receive your contributions or when.

Stewardship can help you tailor any of the strategies above to your unique circumstances. We can also help you dream and define your own financial future and create a matching financial plan to support living your best life. Call us at 303.500.1931 or schedule a virtual meeting at We are able to provide all your planning and investment needs remotely, although our office is also open for in-person meetings.