By Dr. James M. Dahle, WCI Founder

One more year in your financial life has almost come and gone. Before the year ends, run through this checklist to make sure you took care of everything that needed to be done before the calendar year is out. While every item may not apply to your situation, it's still worth a few minutes to make sure you have not forgotten anything you will regret.

 

#1 Complete Backdoor Roth IRA Process

This particular step may be especially important this year, with Congress talking about eliminating the ability to do the Backdoor Roth at all after 2021, but it has always been a smart move to complete both the contribution step and the conversion step within the calendar year. If you are one who has been procrastinating it to the following calendar year or if you simply forgot to do the conversion step, be sure to get it done before year's end.

More information here:

 

#2 Mega Backdoor Roth IRA

The Mega Backdoor Roth IRA is when you make after-tax (not Roth) contributions to your 401(k) and then immediately convert them either within the plan to a Roth 401(k) or by withdrawing them from the plan and converting them directly into a Roth IRA. If this is part of your plan, make sure you complete both steps before the end of the year. This has always been good practice, but it's especially important this year with Congress seriously weighing the elimination of Roth conversions of any after-tax money.

More information here:

 

#3 Roth Conversions

While a Roth conversion of after-tax money is part of both the Backdoor Roth IRA and the Mega Backdoor Roth IRA processes, that's not what I'm talking about here. I'm talking about converting pre-tax money to Roth money, essentially pre-paying the taxes on your retirement savings. This is not always a good idea, but if it is for you and you want to pay the tax bill for it on your 2021 taxes, you need to do the conversion before the end of the year. There is a particular urgency this year for high earners (AGI of $400K+ single and $450K+ married) as Congress is weighing the elimination of your ability to do Roth conversions at all, even of pre-tax money.

More information here:

 

#4 “Employee” Retirement Plan Contributions

Whether you are employed and dealing with an employer 401(k)/403(b)/457(b) or you are self-employed and use an individual 401(k), you need to make the entire “employee” contribution ($19,500 for those under 50) by the last paycheck of the year. Your employer (or you, if you are the employer) has a few more months to make the employer portion of the contribution, and SEP IRA contributions can be made until you file your taxes. But your money needs to get in there now if you want to max that account out for the year.

More information here:

 

#5 Max out 529s, ESAs, ABLEs, and UTMAs

Aside from your retirement accounts and HSA, all of your other investing accounts require contributions to be made during the calendar year. If you're planning to put more in there this year, get it done. This includes college savings accounts such as 529s and Coverdell Education Savings Accounts (ESAs), an ABLE account for your disabled child, and Uniform Transfer to Minors (UTMA) accounts if you are providing a “20s fund” for your kids, like we are. Even though you can contribute to HSAs until tax day, the earlier the better.

More information here:

 

#6 Use Up Your Flexible Spending Account (FSA)

Health Savings Account (HSA) balances are carried over year to year. That is not the case with any money you or your employer have put into a Flexible Spending Account (FSA). You need to use up that money before the end of the year, or you will lose it completely.

More information here:

 

#7 Get Insurance in Place

This one does not technically have a year-end deadline—the price actually goes up either on your birthday or six months before your birthday. However, if you and/or someone else depend on your income, you need to buy disability +/- term life insurance ASAP. This is so important I made it Chapters 1 and 2 in The White Coat Investor's Financial Boot Camp.

More information here:

 

#8 Give to Charity

Giving to charity is always a wonderful thing, but if you itemize, it is far better to give on December 31 than on January 1, at least from a tax perspective. If you're not sure what charity or charities you want to support yet, consider contributing to a Donor Advised Fund to get the tax break now and designate the recipient charities later.

More information here:

 

#9 Register for WCICON

The annual WCI Conference, aka The Physician Wellness and Financial Literacy Conference, is coming up on February 9-12. If you want to attend in person, the deadline to register is January 3, 2022. If you are coming, you also need to register for the room block before the hotel releases those rooms for other guests. You can register for the virtual version right up until the day of the conference. Either way, WCICON is a great value, where you can learn about financial literacy, hear from some wonderful speakers, mingle with your fellow physicians, and enjoy some downtime in the warm Phoenix sun.

More information here:

WCICON22 Registration

 

#10 Spend CME Money

Like FSA money, many people have designated CME funds that are also use-or-lose-it at year's end. Be sure to spend that money on books, computers, courses, or conferences. Remember that WCICON and many WCI courses are eligible for CME including:

Even if you are self-employed and don't have a CME fund, courses and conferences that qualify for CME are deductible business expenses.

More information here:

 

#11 Hit Your Savings Goal

I hope you have a savings goal every year, something like 20% of your gross income toward retirement. How are you doing? Are you behind? If so, put some money toward that goal before the end of the year. If you've already maxed out your retirement accounts, invest it in a taxable account. There is no contribution limit there.

More information here:

 

#12 Get Free Annual Credit Reports

This one doesn't have to be done at the end of the year, but it's definitely worth doing once a year. Why not now? Just go to AnnualCreditReport.com and download all three reports for you and your spouse. They don't give you a credit score, but it's important to make sure there's nothing on there that you either don't recognize or had forgotten about.

More information here:

 

#13 Accelerate Expenses, Delay Income

financial checklist

There is a general rule in tax planning to accelerate (front-load) your expenses and delay (back-load) your income. Assuming that you aren't changing tax brackets between years and that the tax brackets themselves are not changing in the new year, it makes sense for you personally or for your business to pay as much as you can in the old year and to get paid in the new year. Although the federal income tax system is a “pay as you go” system, this could potentially allow you to delay the payment of taxes by as much as a year. In states that are not pay as you go (like Utah), it would be like getting a 12-month interest-free loan from the state tax commission.

A related technique is “bunching” of itemized deductions. Some people don't have enough itemized deductions to bother itemizing, but if they bunch two years' worth of deductions into one year, then it makes sense to itemize. So, they itemize every other year, taking the standard deductions in the opposite years. This might mean making charitable contributions (especially if using a Donor-Advised Fund (DAF)) on January 1 and December 31 of one year, and then none in the next year. You could possibly do this with property/income tax payments or even medical expenses.

This strategy can also be profitably used in years in which your tax bracket or the tax bracket themselves are changing; just make sure you bunch into the right year (the one when you're in a higher bracket)! Businesses routinely do this as well, preferentially paying accounts due while allowing accounts receivable to pile up a bit. A medical practice might actually do the opposite knowing that bills are more likely to be paid by the insurance company at year's end, whereas bills at the beginning of the year might be sent primarily to the patients themselves (who are less likely to pay) since they have not yet met their deductible at that point.

More information here:

 

#14 Change Withholdings

Do you get huge tax refunds? You probably shouldn't be happy about that. You can adjust your withholdings to minimize how much you are loaning tax-free to the IRS each year. Get your money throughout the year instead of the next April. You can also play games using your withholdings if you make estimated tax payments. All withheld money is treated the same, whether withheld in January or December. That's not the case with quarterly estimated payments.

More information here:

 

#15 Get Ready for Q4 Estimated Tax Payment

If you are an independent contractor, make sure you have the cash flow to make that fourth-quarter estimated tax payment by January 15.

More information here:

 

#16 Get Ready to Front-Load Accounts

OK, this one is for the real money nerds out there. Some of us front-load our accounts, including HSA, Backdoor Roth IRAs (if still allowed), 529s, and even 401(k)s, completely funding them the first week of the year. If you are one of those folks, make sure you are planning for the cash flow to do so. You can't invest the same money into a taxable account on December 20 that will be needed for those contributions.

More information here:

 

#17 Make Sure Tax Paperwork Is Ready

While most of your tax paperwork doesn't start coming in until the last week of January, you can go ahead and get the parts that you prepare ready now. That might include:

  • Pulling money out of 529s equal to receipts and possibly scholarships received
  • Storing receipts to justify 529 withdrawals
  • Pulling money out of HSA equal to receipts
  • Storing receipts to justify HSA withdrawals (especially important to have durable storage if doing the “save receipts strategy”)
  • Making sure your business or charitable mileage logs are up-to-date
  • Gathering documentation for charitable gifts
  • Updating contracts and timesheets if your business is paying your kids

It's just a good idea to do all this stuff while it is fresh in your mind, rather than next April when you file your taxes (or two years from now when you face an audit).

More information here:

 

#18 Tax-Loss Harvest

If you invest in a taxable account, you might as well check for tax losses. It's a better habit to check after a big market decline, but December isn't a bad time to compare the basis to the value of your investments. If you have significant losses, why not tax-loss harvest them? You can use up to $3,000 in capital losses every year against your ordinary income and an unlimited amount against your capital gains. There are investors out there (like me) that simply don't pay capital gains taxes thanks to lots of tax losses saved up over years.

More information here:

 

#19 Update Your Spreadsheets

If you use a spreadsheet to track your net worth, your savings rate, or your investment return, get it updated. I measure each of these things once a year as a year-end chore. You might also want to make sure your investing plan is on track by measuring progress toward your goals and making sure it does not need to be rebalanced.

More information here:

 

Whew! You made it. That was a lot of chores. Hopefully, you didn't still have to do all of them. But if you have a bunch, here's a checklist you can print out and use for 2021 and beyond:

 

 

What do you think? What else would you put on your end-of-year checklist? Comment below!

[This updated post was originally published in 2020.]