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Checklist for Year-End Planning and YTD Market Recap

It’s been a tough year for many in 2020, but it’s not over yet. There is still time to take care of financial planning moves before year-end, which are covered in this month’s newsletter. We also have a short recap of the markets through November.

The planning moves are described in some detail, adding to length of this post, so you may want to skim each topic to see if it applies to you. Our holiday schedule appears at the end.

9 Smart Planning Moves to Consider

Investment and Financial Planning

I. Review your income or portfolio strategy. Are you reaching a milestone in your life such as retirement or a change in your personal circumstances? Has your tolerance for taking risk changed? We experienced historic volatility this year. The broad-based S&P 500 Index lost over 30% in one month. The sell-off was steep and violent but short-lived.As November came to close, the major market indexes had recaptured prior highs. It’s a testament to adhering to the long-term financial plan.

Did you take volatility in stride, or feel any uneasiness? A pandemic, a shuttering of the economy and a swiftly falling stock market are bound to create some anxieties. But if you experienced sleepless nights or sought the safety of cash, now may be the time to re-evaluate risk and your approach. 

One of my goals has always been to remove the emotional component from the investment plan. You know, the one that encourages investors to load up on stocks when the market is soaring or one that prods us to sell when volatility surfaces. The shortest distance between an investor and his/her financial goals is adherence to a well-diversified holistic financial plan.

II. Rebalance your portfolio. Despite the rollercoaster ride, overall market performance has been good this year. U.S. equities have provided a nice lift to your portfolio, but you may have too much exposure to stocks as we approach 2021. 

If that’s the case, you may need to trim back on equity exposure. However, in non-retirement accounts, you will want to do this without running up your tax bill. Your ability to do this in a tax-smart way may be dictated by whether you were able to take tax losses March’s market decline, or whether you have a tax-loss carry forward.

III. Take stock of changes in your life and review insurance and beneficiaries. Let’s be sure you are adequately covered. At the same time, it’s a good idea to update beneficiaries if the need has arisen.

IV. Tax loss deadline. You have until December 31 to harvest any tax losses and/or offset any capital gains. It may be advantageous to time sales in order to maximize tax benefits this year or next. You may also want to book gains and offset with any losses.

But be aware that short- and long-term capital gains are taxed at different rates, and don’t run up against the wash-sale rule (IRS Publication 550) that could disallow a capital loss.

A wash sale occurs when you sell a security at a loss and then purchase that same security or “substantially identical” securities within 30 days, either before or after the sale date. (See Schwab: “A Primer on Wash Sales”)

V. Mutual funds and taxable distributions. This is best described using an example.

If you buy a mutual fund on December 15 and it pays its annual dividend and capital gain on December 18, you will be responsible for paying taxes on the entire yearly distribution, even though you held the fund for just three days.

It’s a tax sting that’s best avoided because the net asset value hasn’t changed. It’s usually a good idea to wait until after the annual distribution to make the purchase.

VI. Required minimum distributions (RMDs) are minimum amounts the owner of most retirement account must withdraw annually.

Please note that the CARES Act eliminated the RMD requirement in 2020. But let’s go through RMD requirements at a high level.

 The SECURE Act made major changes to RMD rules. If you reach age 70½ in 2020 or later you must take your first RMD by April 1 of the year after you reach 72 (IRS: Retirement Plan and IRA Required Minimum Distributions FAQs). Some plans may provide exceptions if you are still working (IRA FAQs: Required Minimum Distributions).

If you reached the age of 70½ in 2019 the prior rule applies.

For all subsequent years, including the year in which you were paid the first RMD by April 1, you must take the RMD by December 31.

While delaying the RMD until April 1 can cut your tax bite in the current year, please be aware that you’ll have two RMDs in the following year, which could bump you into a higher tax bracket.

The RMD rules apply to all employer-sponsored retirement plans, including profit-sharing plans, 401(k) plans, 403(b) plans, and 457(b) plans. The RMD rules also apply to traditional IRAs and IRA-based plans such as SEPs, SARSEPs and SIMPLE IRAs.

They do not apply to ROTH IRAs.

Don’t miss the deadline or you could be subject to a steep penalty.

VII. Contribute to a Roth IRA or traditional IRA. A Roth gives you the potential to earn tax-free growth (not just deferred tax-free growth) and allows for federal tax-free withdrawals if certain requirements are met.

You may also be eligible to contribute to a traditional IRA. Contributions may be fully or partially deductible, depending on your income and circumstances. Total contributions for both accounts cannot exceed the prescribed limit.

 There are income limits, but if you qualify, the annual contribution limit for 2019, 2020 and 2021 is $6,000, or $7,000 if you’re age 50 or older.

You can contribute if you (or your spouse if filing jointly) have taxable compensation.

For 2020 and later, there is no age limit on making regular contributions to traditional or Roth IRAs.

For 2019, if you’re 70½ or older, you can’t make a regular contribution to a traditional IRA. However, you can still contribute to a Roth IRA and make rollover contributions to a Roth or traditional IRA regardless of your age (IRS: Retirement Topics-IRA Contribution Limits).

You can make 2020 IRA contributions until April 15, 2021 (Note: statewide holidays can impact final date).

VIII. College savings. A limited option called the Coverdell Education Savings Account (ESA) allows for a maximum contribution of $2,000. It must be made before the beneficiary turns 18. Contributions are not tax deductible.

 Distributions are tax free if used for qualified education expenses. But beware of income limits (IRS: Coverdell Education Savings Accounts).

Any individual (including the designated beneficiary) can contribute to a Coverdell ESA if the individual’s modified adjusted gross income for the year is less than $110,000. For individuals filing joint returns, that amount is $220,000.

A 529 plan allows for much higher contribution limits, and earnings are not subject to federal tax when used for the qualified education expenses of the designated beneficiary.

As with the Coverdell ESA, contributions are not tax deductible.

IX. Charitable giving. Whether it is cash, stocks or bonds, you can donate to your favorite charity by December 31, potentially offsetting any income.

Did you know that you may qualify for what’s called a “qualified charitable distribution (QCD)” if you are over 70½ years old?

A QCD is an otherwise taxable distribution from an IRA or Inherited IRA that is paid directly from the IRA to a qualified charity [Fidelity: “Donating to a charity using a qualified charitable distribution (QCD) ”].

A QCD may be counted toward your RMD, up to $100,000. If you file jointly, you and your spouse can make a $100,000 QCD from your own IRAs.  This becomes even more valuable in light of tax reform as the higher standard deduction may preclude you from itemizing.

You might also consider a donor-advised fund. Once the donation is made, you can generally realize immediate tax benefits, but it is up to the donor when the distribution to a qualified charity may be made.

I hope you’ve found these planning tips to be helpful. Please feel free to reach out if you have any questions, or check in with your tax advisor.

Market Recap through November

Cruising at 30,000 feet

November was a standout month for stocks, as illustrated by Table 2. The major U.S. stock market indexes recorded new highs, including the smaller-company Russell 2000 Index, which had a stellar month.

Table 2: Key Index Returns

  MTD % YTD %
Dow Jones Industrial Average 11.8 3.9
NASDAQ Composite 11.8 36.0
S&P 500 Index 10.8 12.1
Russell 2000 Index 18.3 9.1
MSCI World ex-USA** 15.2 0.7
MSCI Emerging Markets** 9.2 8.1
Bloomberg Barclays US

Aggregate Bond TR

1.0 7.4

Source: Wall Street Journal,, MarketWatch, Morningstar

MTD returns: Oct 30, 2020-Nov 30, 2020

YTD returns: Dec 31, 2019- Nov 30, 2020


**in US dollars

In particular, the better-known Dow Jones Industrial Average eclipsed 30,000 for the first time ever. It has been an impressive rally from March’s low, when the economy was locked down, unemployment was soaring, and the economy was contracting at its fastest rate in history.

The DJIA was published in 1896, according to the Library of Congress—Business References.

The index first topped 100 in 1906, reached 1,000 by 1972, 10,000 by 1999, and 20,000 by 2017, according to LPL Research and data from the St. Louis Federal Reserve.

Landmarks have come at a faster pace given that the percentage gain to reach the next key marker declines. No one knows when we might hit 40,000, but a 33% advance is what’s needed to push the Dow to the next milestone.

In a broader context, what does this tell us? Stocks have a long-term upward bias, which is a piece of the well-diversified plan we recommend for you. However, we have to recognize that massive monetary and fiscal stimulus has accelerated recent gains, and that’s why it is important so important to have both a financial plan and a diversified portfolio. We simply cannot predict what lies ahead, and if nothing else, 2020 taught us that at many levels.

Catalysts during November

A bitter election is over. We have a new President. Whether you are jubilant, bitterly disappointed, or somewhere in between, a big unknown has been erased.

Talk of civil strife pre-election didn’t materialize. We have a degree of certainty where uncertainty once existed. The election removed a hurdle for investors, and the prospect that we may have divided government also cheered investors.

In addition, the announcement of at least two vaccines for Covid-19 received a very warm welcome from investors.

So far, the economic recovery has been far more robust than nearly every economist has anticipated. Yet, problems remain.

With new vaccines, beaten-down sectors such as leisure, hospitality, travel, and the broad-based service sector have a fighting chance to recover next year. But success is dependent on approval of the vaccines, and acceptance and a quick rollout to the public.

Though we may see more volatility, the straightest line to your financial goals hasn’t changed. The financial plan is still your roadmap forward.

Summary, Giving Back, and Holiday Schedule

I hope you’ve found this review to be educational and helpful. Once again, before making any decisions that may impact your taxes, please consult with your tax advisor.

Please know that as clients that you have helped give to others through the fees you pay. As in prior years, we contribute 10% of profits to the NAPFA Consumer Education Foundation, which provides pro bono financial advice to those in need. For more information, please see

We’ll be taking some time at year-end to wrap up the year and prepare for the next. Please know our office will be closed beginning December 24th through January 1st. We’ll be back in on January 4th, 2021.

Last, but hardly least, please know that we value your relationship and the trust that you have placed in us. We will strive to continue to earn that trust in the year ahead, whatever 2021 brings!