IMPORTANT: End-Of-Year Wealth Planning Best Practices
Go through this checklist before 2025 arrives
At the end of every year, there’s a list of prudent steps to consider that can make a big positive difference to your financial prospects — but only if you take them before January 1st arrives.
If 2024 was a good year to your portfolio, don’t fumble your success right at the goal line by failing to take the right measures.
Or if your wealth goals didn’t go according to plan this year, then do everything you can to increase the odds for a better performance in 2025.
From tax loss harvesting to portfolio rebalancing to maximizing your retirement contributions, there’s a substantial number of smart tactics you should look into taking now — while you still have time.
A top challenge regular investors have with year-end planning is that it sneaks up on them. The winter holidays arrive before you know it and then…a lot of these steps just don’t get taken.
Which is a shame, because a little prudent attention on these today can result in outsized benefits in the future.
Another challenge is that many investors just simply don’t know the right year-end planning steps to take, or how to take them.
If you’re facing either of these challenges, the good news is that both can be easily avoided by working with a quality professional financial advisor.
But if you want their help, you really should act soon, because it’s almost Thanksgiving. Time is fast slipping away. And with family visits, gift buying & holiday prep, the New Year will be here faster than most can imagine.
Below is a helpful 18-point checklist compiled by Ellevest summarizing the main end-of-year financial planning steps appropriate for most investors.
If you’re a successful do-it-yourself (DIY) investor, use this list as a sanity-check to your own efforts.
If you already have a good financial professional advising you, think about sending them this list and making sure they’re taking all the right steps appropriate to your particular personal situation.
And if you don’t yet have a good advisor to go over this checklist with, then consider scheduling a free consultation with one of the financial advisory firms endorsed by Thoughtful Money by clicking here or on the button below:
18 To-Dos for Your Year-End Financial Planning Checklist
Look at your investment portfolio
Rebalance your portfolios.
When the stock and bond markets are volatile, your target portfolio mix can drift off course as some of your investments change value. Rebalancing is the act of buying and selling across your portfolio to bring your investments back in line with your target.
Think about whether you want to realize capital losses.
If you had portfolio losses this year, you may be able to offset current (or future) gains with the losses, with the goal of reducing the amount you’ll owe in taxes, now or in the future. This tactic is also known as tax loss harvesting.
Diversify any concentrated positions.
We’d say you have a concentrated stock position if you have more than 10% of your total investment portfolio in a single stock or company. It's important to put together a plan to ensure that any future stock price volatility doesn’t hinder you achieving your goals.
You can also use some of your stock position to create a donor-advised fund. That'd let you diversify your position by donating stock, allowing for a same-year tax benefit. Then, you could make grants to charitable organizations from the fund over time.
Revisit your current income needs.
If you rely on your investment portfolio to partially or fully support your lifestyle, you’ll want to work with your advisor to estimate the cash flow your portfolio is expected to generate next year. If any other sources of income were disrupted last year, you might also want to talk about modifying your overall financial plan.
Know what your money is doing.
Every dollar you invest makes an impact. If you don’t know the impact your money is making right now, ask your advisor to run a diagnostic of your portfolio to better understand how your investments are aligning with your values.
Check in on your retirement planning
Maximize your 401(k) contributions.
The max contribution into your 401(k) for 2024 is $23,000 ($30,500 if you’re 50 or older). Even if you don’t hit the max, your contributions are still important because they lower your taxable income for 2024. You have until December 31 to make 401(k) contributions.
Think about maximizing your IRA contributions.
The contribution limit for most IRAs in 2024 is $7,000 ($8,000 if you’re 50 or older). With IRAs, you have until Tax Day (April 15) to make the contribution, so you can assess your year-end financial situation before contributing if you like.
Review your beneficiary designations.
Beneficiary forms often supersede will and trust directives in court, and not updating them is a common (and potentially expensive) mistake. Review and update them each year.
Think about a Roth conversion.
With a Roth IRA conversion, you’ll transfer retirement funds from a 401(k) or traditional IRA account into a Roth account. Since a traditional account is tax-deferred while a Roth is tax-exempt, you’ll need to pay those deferred income taxes on the funds you convert. This strategy isn’t relevant every year. It tends to be most relevant in a year when you think your tax bracket will be lower (or when the markets are down) — which means it might be better to pay taxes now than in retirement. The upside? When you withdraw your money in retirement, it’ll be tax-free.
Consider a “child Roth IRA.”
Opening an IRA for a child can give your kids (or grandkids, or any kids you care about) a head start for retirement. You’ll set up a regular Roth IRA as a custodial account. Kids can contribute to it if they earned income from a job or business of their own.
Consider charitable contributions and gifts
Revisit your charitable giving strategy.
If you’re giving intentionally, rather than reactively, you can have a bigger impact on the things you care about most. We like the 80/20 rule, where you give 80% of your giving budget to those causes and organizations you’re deeply connected to, and reserve 20% of it for giving in reaction to requests and opportunities that come up.
Gift your gains.
If you’re donating an appreciated asset, like stock that has increased in value since you got it, donating it in kind may allow you to avoid the capital gains tax that you’d have had to pay if you sold it. That means you can donate the full value of the asset instead of a reduced, after-tax amount. Talk to your legal and tax pros to see if this applies to you.
Consider family gifting before year-end.
You won’t receive any sort of deduction for gifting to a family member, friend, or neighbor in need. That said, if the gift is under $17,000 ($34,000 for married couples), it won’t be subject to gift tax and doesn’t count toward your lifetime gift and estate tax limit. And that’s a per-recipient cap!
Think about upping your giving this year.
Usually, the deduction limit for charitable cash donation is 60% of your adjusted gross income. There’s a tool from the IRS to help you check to see if your donation is deductible, but you may still want to talk to your financial advisor and your legal and tax professionals about whether giving more is right for you.
Other things to check off the list
Tell your team about any major life events.
Weddings or divorces, births and deaths, career changes, relocations … All of these could impact your spending and budgets — or the investment advice and recommendations that are made for you — so make sure you let your team know.
Review your estate planning documents.
Take a look at your will, health care power of attorney, advanced medical directive, and general power of attorney to make sure all names are up to date and they reflect your wishes.
Review your income tax withholding.
Talk to your tax professional to see if the amount you’re withholding still makes sense as you head into the new year.
Think about paying your January mortgage early.
Talk to your financial planner and tax pro to see if it makes sense to make your January mortgage payment in December so you can deduct the interest on your 2024 tax return
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Again, give the above checklist sufficient consideration soon, and decide which steps are most appropriate for you — and then take action before January 1st arrives!
And if you’d like some professional assistance in doing so, consider scheduling a free consultation with one of the financial advisory firms endorsed by Thoughtful Money by clicking here or on the button below. They’ll be happy to be of whatever help they can to you:
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The annual gift “limit” in 2024 is $18,000.