LOUISVILLE, Ky. (WAVE) - 2021 is less than two months away, but before saying a fond farewell and kicking this year out the door, there are some things that should be done financially that will help make ends meet in the new year to come.
Mark Lamkin, CEO and founder of Lamkin Wealth Management, strives to help his clients avoid pitfalls of poor decision making.
“You should be looking to tax harvest your taxable investments,” Lamkin stressed to WAVE 3 News. “If you lose 10 thousand dollars on an investment, you can get a third of it back from tax savings.”
Lamkin explained if someone has an investment that’s underperforming and losing money to sell it. It is always a good idea to go through taxable investment accounts and look for holdings with unrealized losses on an annual basis. That loss can be used to reduce taxable capital gains and potentially offset up to $3,000 of ordinary income but must wait 30 days before a substantially identical investment can be purchased.
“It’s very important,” Lamkin explained. “It has to be done before Dec. 31.”
Also, time should be taken to review and rebalance investments before saying goodbye to 2020.
“When I say review and rebalance, I want you to take a look at your current investments,” Lamkin stressed. “If you see anything on your statement that you wouldn’t buy again today than it needs to be sold and gone and you need to replace with something that is performing better or maybe has a better outlook.”
Look at workplace retirement plans, IRAs, annuities, insurance policies and anything else that may have that transfers ownership or where payment is made to a designated beneficiary upon your death.
“All too often investment choices are made once in these accounts and that’s it,” Lamkin shared.
Company retirement plans should work in harmony with investments outside company plans as a part of an overall financial planning strategy.
“If you’re gonna retire or you need money in less than two years, you shouldn’t have a lot of money in the stock market at all,” Lamkin said.
While looking at one’s stocks, bonds and investments, beneficiaries should also be checked on. It is a simple way to ensure that assets go exactly where they need to go. Proper names and all the necessary information should be provided. 401K contributions should also be double checked.
“You can put in up to $19,000 but if you’re over the age of 50 you have a $6,000 catch up provision so you can put up to $25,000,” explained Lamkin.
If a financial foundation is not solid, hold off on maxing out a 401k and take care of the here and now. Make sure there are at least three to six months of basic living expenses set aside in an emergency fund. Also, people should eliminate high-interest credit card debt and any personal loans.
“With your employer sponsored 401k plan, you’ve got to do this by Dec. 31,” he explained.
To make a charitable donation before this year ends, Lamkin believes there are ways to be more beneficial than just writing a check.
“When you donate appreciated securities to charity, you escape taxes on capital gains and the charity doesn’t have to pay them either,” Lamkin said. “Plus, you can deduct the market value of the securities, which will reduce your taxable income.”
Finally, under the Cares Act, if a person received a stimulus check, it is treated as a fully refundable tax credit for 2020, which means it isn’t included in gross income and thereby is not subject to taxes. If a person received any money from the federal or state government unemployment fund, that money is taxable. It is included in gross income and taxed at an ordinary income rate.
“That unemployment benefit is taxable,” Lamkin stressed. "There are a lot of people out there that have received special benefits from the government, and they don’t understand that those benefits, those tax credits they’re gonna have to pay taxes on those. "