As the year draws to a close, it’s easy to get distracted by news cycles, elections, and policy speculation. However, the most successful financial plans are built on consistent, disciplined actions, not reacting to external events. Year-end financial planning is an opportunity to focus on what you can control—your investments, savings, taxes, and goals. Here are key steps to help you confidently close the year and prepare for a strong financial future.
1. Review Your Portfolio: Items to review alongside your trusted advisor:
- Revisit Your Allocation: Market volatility can shift the balance of your portfolio over time. Rebalancing ensures your investments remain aligned with your long-term goals and risk tolerance.
- Tax-Loss Harvesting: If some investments underperformed, selling them to offset capital gains elsewhere can reduce your tax liability.
- Stay Disciplined: Avoid making portfolio changes based on short-term headlines. Timing the market around elections or potential policy shifts is difficult and often counterproductive.
2. Max Out Contributions to Tax-Advantaged Accounts
- Retirement Accounts: Review your 401(k) and IRA contributions to ensure you’re taking full advantage of annual limits ($23,000 for 401(k)s and $7,000 for IRAs, with higher limits for those aged 50+). Contributing the maximum helps you build wealth while deferring taxes.
- Health Savings Accounts (HSAs): If you have a high-deductible health plan, HSAs are a powerful tool to save for medical expenses with triple tax benefits: contributions are pre-tax, growth is tax-free, and qualified withdrawals are tax-exempt.
- 529 Plans: Year-end contributions to a 529 plan for education savings may also qualify for state tax deductions, depending on where you live.
3. Evaluate Cash Flow and Build Reserves
- Review Your Budget: Compare your year-to-date spending to your budget and make any necessary adjustments for the coming year.
- Replenish Your Emergency Fund: If you used your emergency savings this year, aim to restore it to cover at least 3-6 months of essential expenses.
- Plan for Major Expenses: If you foresee large purchases—such as home repairs or travel—allocate savings now to avoid relying on debt later.
4. Take Advantage of Charitable Giving
- Direct Donations: Giving to qualified charities not only supports causes you care about but may also provide a tax deduction if you itemize.
- Donor-Advised Funds: These funds let you make a charitable contribution this year, with the flexibility to decide later how and when to distribute the funds.
- Qualified Charitable Distributions (QCDs): If you are 70½ or older, consider making QCDs from your IRA to satisfy required minimum distributions (RMDs) while reducing taxable income.
5. Focus on Tax Planning
- Review Withholdings and Quarterly Payments: Make sure your tax withholdings or estimated quarterly payments align with your income to avoid penalties.
- Plan for RMDs: If you are 73 or older, you must take RMDs from retirement accounts before December 31 to avoid penalties.
- Explore Available Credits: Tax credits for energy-efficient home improvements or electric vehicles could help reduce your overall liability.
6. Evaluate Insurance and Estate Plans
Update Beneficiaries and Estate Documents: Life changes—like marriage or children—may require updates to your will, trust, or beneficiary designations.
- Review Insurance Coverage: Ensure that your life, health, and property insurance policies provide adequate protection. If long-term care insurance is part of your plan, assess whether your current policy still meets your needs.
- Consider Gifting Strategies: You can gift up to $18,000 per person in 2024 without affecting your lifetime gift tax exemption.
7. Set Goals for the Year Ahead
- Clarify Your Objectives: Whether you’re saving for retirement, a new home, or education, setting clear goals will help you stay on track.
- Automate Savings and Investments: Automating contributions ensures you consistently build wealth, no matter what’s happening in the markets.
- Schedule your next review: Your advisor can help fine-tune your strategy and provide clarity amid uncertainty, reinforcing the value of sticking to your plan. Keep a consistent schedule for reviewing your plan.
It’s easy to feel anxious about elections, potential policy changes, and other external factors. However, financial success comes from focusing on what you can control—like your savings rate, investment strategy, and cash flow. By taking these practical steps before year-end, you’ll strengthen your financial position and start the new year with confidence. The economy and markets will always change, but a disciplined, goal-oriented approach will help you navigate uncertainty and build lasting wealth.
