As the year draws to a close, now is the perfect time to review and finalize key financial tasks that can set you up for success in the coming year. This checklist will guide you through essential areas to consider, from maximizing retirement savings to tax strategies and estate planning. With a few smart moves now, you can start 2025 in a strong financial position.
1. Review Your Retirement Contributions
Maximizing retirement contributions is a powerful way to build long-term wealth and secure tax advantages. Here’s what to keep in mind as you close out 2024:
- Max Out Contributions: If possible, maximize your contributions to retirement accounts like 401(k)s, IRAs, or other employer-sponsored plans. For 2024, contribution limits have been updated to allow greater savings:
401(k): $23,000 or $7,500 if you’re over 50.
IRA: $7000, or $1000 if you’re over 50.
- Catch-Up Contributions: If you’re 50 or older, take advantage of catch-up contributions to boost your savings. This can be especially helpful if you’re looking to increase your retirement fund closer to retirement age.
- Check Employer Matching: Many employers match a portion of your 401(k) contributions, effectively giving you free money toward retirement. Make sure you’ve contributed enough to take full advantage of any employer match to avoid leaving money on the table.
- Evaluate Contribution Strategies: Consider Roth vs. traditional accounts based on your expected future tax bracket. Roth contributions are made after-tax but grow tax-free, making them attractive if you expect higher tax rates in retirement.
2. Make Any Necessary Tax Moves
Strategic tax planning before the end of the year can reduce your tax burden and improve your financial outcomes. Consider these steps:
- Review Capital Gains and Losses: If you’ve made gains on investments, check if you also have some losses you can realize to offset those gains. This tax strategy, known as tax-loss harvesting, allows you to reduce your taxable income and potentially lower your tax bill.
- Harvest Losses: Selling underperforming assets to realize losses is particularly valuable if you expect a large tax bill. Up to $3,000 of net capital losses can be used to offset other income annually, and any remaining losses can carry forward to future years.
- Take Required Minimum Distributions (RMDs): If you’re over age 73, you must take RMDs from retirement accounts like traditional IRAs and 401(k)s. Failure to take your RMDs by December 31 can result in a 25% penalty on the amount not withdrawn. Consult with your financial advisor on a withdrawal strategy that minimizes taxes.
- Consider Contributing to a Health Savings Account (HSA): HSAs offer triple tax advantages: contributions are tax-deductible, growth is tax-free, and withdrawals for medical expenses are tax-free. The 2024 limits are $4150 for individual and $8300 for family coverage, so consider maxing out contributions to this tax-advantaged account.
3. Review and Update Beneficiary Designations
Life changes like marriage, divorce, or the birth of a child can affect your estate plan. Ensure your beneficiary designations are up-to-date on all relevant accounts:
- Retirement Accounts: Update beneficiaries on accounts like IRAs, 401(k)s, and pension plans.
- Life Insurance Policies: Confirm the correct beneficiaries are listed for any life insurance policies you hold.
- Other Accounts: Review any payable-on-death (POD) or transfer-on-death (TOD) designations on non-retirement investment accounts.
This review ensures that your assets are distributed according to your wishes and that loved ones are taken care of in case of unforeseen events.
4. Review and Update Your Trust and Estate Plan
A strong estate plan is essential for wealth preservation and providing for your family. Year-end is an ideal time to revisit it:
- Evaluate Your Trust Structure: Trusts can protect assets, avoid probate, and provide direction for how assets should be managed. Confirm that beneficiaries, trustees, and the terms of any trusts are up-to-date.
- Consider Estate Tax Planning: The federal estate tax exemption is $13.61 million, but if your estate exceeds this, you may face estate taxes. Annual gifting can reduce the taxable value of your estate, with the 2024 annual gift tax exclusion set at $18,000.
- Review Your Will: If you’ve recently experienced life changes, make sure your will accurately reflects your intentions.
5. Use Your Flexible Spending Account (FSA) Balance
Flexible Spending Accounts (FSAs) have “use it or lose it” rules, so year-end is the time to spend any remaining balance on eligible expenses:
- Eligible Expenses: Use FSA funds for medical expenses like prescriptions, co-pays, and dental care. Some FSAs may also cover items like contact lenses, first-aid kits, and certain over-the-counter medications.
- Check Your Plan’s Rollover and Grace Period Options: Some FSAs allow a limited rollover of unused funds (often up to $610) or a grace period to spend the balance into early 2025. Verify with your provider to avoid losing funds.
6. Review and Rebalance Your Investment Portfolio
Portfolio rebalancing is essential to keep your investments aligned with your goals and risk tolerance:
- Rebalance for Risk Management: Over time, some assets may grow faster than others, leading to an allocation that may no longer match your risk tolerance. Adjust allocations to maintain your target risk level.
- Consider Diversification: Use this opportunity to diversify into other asset classes if your portfolio is overly concentrated in one area. Diversification can help reduce risk and improve stability.
- Tax-Advantaged Accounts: For long-term tax planning, consider contributing to a Health Savings Account (HSA) or making additional contributions to a Roth IRA if you qualify. These accounts offer unique benefits for tax-efficient growth.
7. Charitable Giving and Gifting Strategies
Giving back is a core part of year-end planning, and it also offers potential tax benefits:
- Make Charitable Donations: Donations made by December 31 are eligible for a tax deduction if you itemize. Be sure to keep receipts for any contributions.
- Consider Donor-Advised Funds (DAFs): DAFs allow you to make a charitable donation now, receive the tax deduction immediately, and decide on the allocation of funds to charities later.
- Annual Gift Tax Exclusion: The annual gift tax exclusion for 2024 is $18,000. Gifting within this limit avoids triggering a gift tax and allows you to pass wealth to loved ones efficiently.
8. Conduct an Insurance Review
Insurance protects you and your loved ones from unexpected events. A year-end review can identify any coverage gaps:
- Health Insurance: Ensure that your health insurance plan covers anticipated medical needs and review options if your employer’s open enrollment period is still active.
- Life and Disability Insurance: Adequate life and disability insurance are vital for protecting your family financially if you’re unable to work. Assess your policies to ensure they provide sufficient coverage for your current lifestyle.
- Property and Liability Insurance: Review homeowner’s, auto, and liability insurance coverage, especially if you’ve made major purchases, home renovations, or other changes that impact your assets.
9. Set New Financial Goals for 2025
As you wrap up the year, it’s a perfect time to reflect on your financial goals and set new objectives for 2025:
- Reflect on 2024 Goals: Did you meet your financial targets for 2024? Identify any goals that need adjusting.
- Define New Goals: Set clear, achievable goals for 2025, such as boosting retirement savings, establishing a trust, or creating a college fund for a child.
- Break Down Goals into Actionable Steps: Outline specific actions for each goal. If your aim is to increase retirement savings, decide how much more you’ll contribute monthly or quarterly.
This end-of-year financial checklist is a great way to take stock, make adjustments, and plan ahead. Completing these tasks can help you optimize tax benefits, protect assets, and ensure your financial plan is up-to-date with your life changes. By addressing these items now, you’re setting up a smoother, more secure path for 2025 and beyond. Financial well-being takes consistency and forethought—taking these steps now will pay dividends in the new year. If you need additional guidance, contact us. We are always happy to help!