Your Year-End Financial Check List
As we approach the end of the year, it's a great moment to take stock of all that has transpired over the past twelve months. It's a time for self-reflection, a time to pat ourselves on the back for the goals we've achieved, and a time to prepare for a fresh start in the upcoming year. One crucial aspect of this should be your financial well-being. To help you on this journey, let's walk through a checklist of year-end financial tasks that are worthy of your attention.
1. Paycheck Stub Review
One of the first items on your year-end financial checklist should be a thorough review of your paycheck stubs. It might not sound like the most exciting task, but it can yield significant benefits. Here's what you need to look out for:
Health Care and Dependent Care FSAs: If you contributed to a Health Care Flexible Spending Account (FSA) or a Dependent Care FSA this year, make sure to check your balances. You don't want to lose that money, so plan to spend it down before the year ends.
Income Changes: Compare your income this year to previous years. If you had a significant increase or experienced a windfall (like an inheritance, RSU vesting, stock options, or bonuses), it's essential to assess whether you've had enough withheld for taxes. It might be a good idea to set up a meeting with your accountant to ensure you're on the right track.
Retirement Contributions: If you're contributing to an employer-sponsored retirement account, such as a 401(k), check if you have room to increase your contributions before the year ends. In 2023, you can contribute up to $22,500, and if you're 50 or older, you can add an additional $7,500. This is a great opportunity to boost your retirement savings and maximize tax-deferred growth. The 2024 limits are $23,000 for your 401(k) and the catch-up contribution remains at $7,500.
2. Savings & Investments
The second point on your checklist relates to your savings and investments. Consider the following:
IRA, Roth IRA, and 529 Contributions: If you contribute to an Individual Retirement Account (IRA), Roth IRA, or a 529 college savings account, make sure to make your contributions before the year ends. The sooner you invest your money, the greater potential you have for compounding your earnings.
Investment Review: It's not just about the contributions; you should also review your investment performance. Ensure your investments align with your financial goals and risk tolerance. The end of the year is a great time to check if your investments are still appropriately allocated and align with your financial goals. Reviewing your risk tolerance is a great first step and your financial planner can help you understand the specific risk and return expectations for your specific investment allocation.
3. Tax Planning
Now, let's discuss the importance of tax planning during your year-end financial review. Here are some tax-related considerations:
Tax Loss Harvesting: If you have taxable accounts, take advantage of tax loss harvesting opportunities. You can carry forward $3,000 of losses each year to offset ordinary income.
Roth IRA Conversions: Consider whether you'll be in a lower tax bracket this year compared to previous years. If so, think about converting some of your pre-tax retirement savings to a Roth IRA. This strategy allows you to pay taxes on these funds now and enjoy tax-free growth in the future.
Managing Tax Brackets: If you're nearing the threshold that might push you into a higher tax bracket, explore strategies to defer income or accelerate deductions to stay in a lower bracket.
Charitable Contributions: If you're inclined to make charitable donations, think about bunching your contributions every few years instead of giving annually. This can help maximize your itemized deductions.
4. Review Your Estate Plan
Estate planning is an often overlooked aspect of personal finance. Take the time to review your will or trust documents. Ensure your beneficiaries are designated correctly, not only for life insurance and retirement accounts but also for taxable investments and workplace benefits.
5. Review & Plan Annual Financial Goals
Finally, the end of the year is the perfect time to review your past financial goals and set new ones for the future. Consider the following:
Did you accomplish the financial goals you set for yourself this year? If not, reflect on what happened and what adjustments you can make to stay on track in the coming year.
This is also an ideal moment to discuss your financial goals and plans with your financial planner. They are here to help and provide guidance. Don't hesitate to reach out with your questions or if you need more information on any of the topics mentioned.
Bottom Line
Your financial well-being is a vital aspect of your overall life satisfaction. As the year draws to a close, these year-end financial tasks can help ensure you're on the right path to financial success and peace of mind in the coming year. So, take a moment, gather your financial documents, and get ready to check those final financial to-dos off your list. Your future self will thank you for it!
Andrew Comstock, CFA