Six Year-End Planning Moves to Consider
Making these moves might impact your financial health for the better.
As the end of the year approaches, it's time for review and strategic decision-making that might reduce your tax bill this year and improve your financial well-being going forward. Everyone is different, of course. But you may want to consider, for example, any or all of these six financial moves before the calendar flips.
1. Maximize Retirement Contributions
Contribute to retirement accounts like 401(k)s, IRAs, and Roth IRAs before the year ends to build tax-deferred or tax-free growth. If you opt for tax-deferred contributions, you might reduce your 2024 tax bill. If you opt for after-tax contributions, you might build toward future tax-free income.
Either way, funding these accounts to the maximum allowable extent can help you set the stage for a more financially secure retirement and/or legacy gifting. Don't miss the opportunity to contribute as much as you can before the year concludes.
2. Charitable Gifting
Are you subject to Required Minimum Distributions (“RMDs”) from your tax-deferred retirement accounts? Do you need the income? Do you make charitable contributions? Did you know you can make charitable contributions directly from your retirement accounts and exclude those distributions from your net taxable income?
Did you know you can make charitable contributions of appreciated securities in taxable accounts without having to sell them and pay capital gains taxes?
These and other charitable gifting strategies might not only save you money but also might engage the rest of your family in the learning as well as the philanthropic experiences.
3. Review and Adjust Investment Portfolios
A thorough review of your investment portfolio is crucial before the year ends. Are your investments still aligned with your financial goals and risk tolerance? As life continues to unfold, what financial strategies may need adjusting?
4. Take Advantage of Tax-Loss & Gain Harvesting Opportunities
Tax-loss/gain harvesting involves selling investments that have gained and lost value to offset otherwise taxable capital gains already in your accounts and/or to minimize in a tax-neutral way the accumulation of large unrealized gains that might complicate investment strategy changes down the road.
Wash-sale rules prevent you from repurchasing the same or substantially identical securities within 30 days to claim the tax benefit.
5. Access Your Flexible Spending Accounts and Health Savings Accounts
Consider using these funds for eligible medical expenses, as they can provide substantial tax advantages. Check your balances in FSAs and HSAs. These accounts may have an annual "use-it-or-lose-it" policy. Some FSAs might have a grace period or allow a carryover of a limited amount of funds, but it's essential to understand the specific rules governing your own accounts.
6. Review Insurance Coverage and Estate Planning
As life circumstances change, insurance coverage levels and beneficiaries may need updates. Along with any big life-changing event, of course, the 4th Quarter each year can be a good time to evaluate your insurance policies and estate planning documents.
Do your health, life, and property insurance still meet your needs? Any wills, any trusts? Amy retirement account beneficiaries need updating? Any non-retirement Transfer on Death instructions?
Consider consulting with a financial professional to help you tailor these strategies to your specific circumstances and goals. By making proactive financial decisions now, you can pave the way for a more confident financial journey going forward.
Important Disclosures
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.
Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.
The tax-loss harvesting and other tax strategies discussed should not be interpreted as tax advice and there is no representation that such strategies will result in any particular tax consequence. Clients should consult with their personal tax advisors regarding the tax consequences of investing.
This article was prepared by FMeX.
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