End of the Year

I know there are lots of things to do this time of year as we celebrate the holidays. However, it is also a really important time to reflect on your financial goals, to catch any important deadlines and prepare for a great start to the next year.

1. Make a gratitude list.

The end of the year, kicking off with Thanksgiving, is an ideal time to reflect on what God has provided for you in the previous year. Not only does it help prepare you for sharing what you are thankful for, but it is also important to celebrate both what God has provided for you and allowed you to accomplish this year already.

My wife and I enjoy keeping a running praise/gratitude list. It helps us make little memorials of the answers to prayers and the way God showed His provision. This has been a lot of fun to look back and review over the years.

Starting with gratitude always helps to put me in the right mindset for making financial decisions.

2. Review and reassess your financial goals.

Has there been any changes to the goals you have been working towards? Are there any new goals to be prioritized in your plan?

How are you working towards the goals you have set? Are you saving as you planned? Do you need to catch up on your savings plan? Do you have a surprise surplus that you can utilize in your plan?

How are you paying down any debt that you are working on eliminating? Are you sticking with not increasing your debt burden? How are you sticking to your spending plan (budget)?

3. Taxes, Taxes, Taxes…

How are you prepared for finishing the current tax year and being as efficient with your taxes as possible?

Individuals who have unrealized investment losses in a taxable account could consider realizing those losses to offset any gains and/or write off up to $3,000 against ordinary income. If you own investments in taxable accounts that are subject to end-of-year capital gain distributions, you could consider strategies to minimize the tax liability. Do you have any capital losses for this year or carryforwards from prior years? If you do, there may be an opportunity to take offsetting gains.

What do you anticipate your future income to be?

If you expect it to increase, you may want to consider making Roth IRA and Roth 401(k) contributions and Roth conversions. If you are eligible, consider electing Roth employer matching contributions. If you have the ability to make the “mega backdoor Roth” contribution, also known as after-tax contributions, to your 401(k) you may want to do this. If you’re over 59.5 years old, you could consider taking accelerated pre-tax IRA withdrawals during lower income years to pay the lower tax bracket amounts.

If you expect it to decrease, you may want to consider minimizing your tax liability now, by making pre-tax/traditional IRA and 401(k) contributions instead of contributing to Roth accounts.

Be mindful of how close you are to the next tax bracket threshold. You may be able to use tax planning strategies to stay in a lower tax bracket if you are approaching a higher tax bracket. This is important for both ordinary income taxes and capital gains taxes. If your taxable income is below $191,950 ($383,900 if MFJ) you are in (or below) the 24% marginal tax bracket. The next bracket above this income is 32%, an 8% increase. If your taxable income is above $518,900 ($583,750 if MFJ), any long-term capital gains will be taxed at the higher 20% rate. Also, if your Modified Adjusted Gross Income (MAGI) is over $200,000 ($250,000 if MFJ), you may be subject to the 3.8% Net Investment Income Tax on the lesser of net investment income or the excess of MAGI over $200,000 ($250,000 if MFJ).

Charitable giving is a great way to answer God’s call on your heart to be generous but also to provide tax savings. You could benefit from making a Qualified Charitable Distribution from your IRA or making a gift of appreciated securities directly to a nonprofit, importantly transferring in-kind without selling the securities. If you expect to take the standard deduction ($14,600 if single, $29,200 if MFJ), consider bunching your giving every few years enabling you to itemize in those years. You could utilize a donor-advised fund to help you accomplish this “bunching” strategy for your giving.

4. Required minimum distributions (RMDs)

If you are subject to taking a RMD from your IRA or inherited IRA you need to have those withdrawals taken before December 31. RMDs from multiple IRAs can generally be aggregated. However, you may not aggregate RMDs from inherited traditional IRAs. RMDs from employer retirement plans generally must be calculated and taken separately with no aggregation allowed. The exception is for 403(b) plans. RMDs from multiple 403(b)s can be aggregated. Consider the option of making a Qualified Charitable Distribution to both satisfy your giving goals and your RMD requirements providing potential tax savings.

5. Cash flow planning

Are you able to stick to your spending plan with gifts for Christmas and any travel expenses? What can you do to keep to your budget and not let the joys of gift giving turn into the pains of 2025 by needing to pay off credit card debt?

Are you able to save more? If so, consider maximizing your retirement savings. The maximum salary deferral contribution to an employer plan is $23,000, plus the catch-up contribution if you are age 50 or over is $7,500. You will want to check with your plan provider to understand their rules on when you can make changes. Additionally, you may want to consider maximizing your HSA contributions if you are able to participate in that account. You may be able to contribute up to $4,150 ($8,300 for a family) and an additional $1,000 if you are age 55 or over.

6. Insurance planning

Do you have an FSA (flexible spending account) that will have a balance before the end of the year? If so, review your options with your employer. Some employers allow up to $640 of unused FSA funds to be rolled over into the following year. Some employers offer a grace period up until March 15th to spend the unused FSA funds. Many employers offer you 90 days to submit receipts from the previous year. Did you meet your health insurance plan’s annual deductible? If so, consider incurring any additional medical expenses before the end of the year and your deductible resets.

7. Estate planning

Have there been any changes to your family, your heirs or have you bought or sold any assets this year? Are there any gifts to individuals that you need to make this year? If so, gifts up to the annual exclusion amount of $18,000 (per year, per donee) are gift tax-free.

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I love the holidays. It’s a great time to both reflect on the year but also it’s an opportunity to take action before the close of the year. Bless yourself with ending the year strong and giving yourself a great start to the new year.

If you need any assistance with your year-end financial planning, please set up a meeting with me. I’d love to help you.