It is hard to believe we are already approaching the end of another year. With holiday gatherings to plan and shopping sprees we can't miss, financial planning might not be at the top of our minds this season.
But this is a great time to ensure that your financial goals won't get derailed and you won't miss good opportunities to maximize your results before year-end.
Regardless of your financial situation, setting aside focused time to make sure you’re on track (or fix areas where you’re not) is crucial to hitting your goals.
If you commit to working through this financial checklist before the clock strikes midnight and the new year begins, I’d be willing to bet your future self with thank you!
Evaluate Your Tax Withholding
When it comes to taxes this far into the year, you want to make sure you are paying enough to avoid federal or state income tax underpayment penalties. The IRS has a Tax Withholding Estimator tool that can help you check if you are on track or not.
Because figuring out your state tax withholding will vary from state to state, this is also a good time to connect with your wealth manager or tax advisor, if you have one, to review your 2024 tax projection and make any necessary adjustments.
If it turns out that you are not paying enough in taxes, you still have options to make up for the difference and avoid underpayment penalties.
You can increase your withholding through your employer's payroll deductions, or you can make a fourth quarter estimated tax payment due January 15th, 2025.
Review Your Investment Portfolio
The end of the year is a key time to review your investment accounts and make sure that your portfolio is in line with your financial goals and risk tolerance.
With the recent uptick in equities, your asset allocation may be out of balance compared to your risk tolerance. If that's the case, it's probably time for rebalancing. While at it, evaluate any tax loss harvesting opportunities that can help you reduce capital gains.
This is also the time to confirm that you are maximizing contributions to your retirement accounts by increasing funding through your employer's 401(k) or Traditional and Roth IRAs, and checking in to make sure your beneficiaries are correct.
Consider Making Roth Conversions
By now, you should have a pretty good idea of your expected taxable income for the year, so this is a great time to evaluate if Roth conversions are a good fit for your financial plan this year.
Usually, you want to plan on doing Roth conversions during tax years when your earned income is expected to be in the lower range of the tax brackets or the 10%, 12%, 22%, or 24% brackets. Roth conversions allow your dollars to grow tax-free, giving you more tax flexibility when you can take distributions at retirement.
Review Your Health Savings Account Contributions
If you are on a high-deductible insurance plan, you can fund a health savings account (HSA) and get triple tax benefits.
Your contributions can help you reduce taxable income, if you invest them, they can grow tax-deferred, and if you use those dollars to pay for qualified medical expenses, you don't have to pay taxes on those dollars!
In 2024, the annual contribution limit for an individual is $4,150 and $8,300 for families. Those age 55+ can make a catch-up contribution of $1,000.
HSA funds don't have to be used up the year of the contribution, which allows you to invest and accumulate these funds for future needs.
Check the Balance of Your Flexible Spending Account
If you funded a flexible spending account (FSA) through work to pay for health care costs like deductibles, copayments, and coinsurance, that also would help you lower your taxable income.
These are limited to $3,300 per year per employer. If married, each spouse can contribute that amount to their employer's FSA.
But here's why it's important to check on your balance now: generally, you must use your FSA balance within the plan year. Some employers may provide a grace period of up to two and a half months to use the money in the following year and may allow you to roll over up to $660.
Be sure to check with your plan provider, because these grace period and rollover features are optional. And here's the bad news, if you don't use the funds in your FSA by the end of the grace period, assuming you have one, you lose them! Don't let that happen to you!
Make College Savings Plans Contributions
Funding a 529 College Savings Plan is one of the most efficient ways to save for college. Your contributions can be invested, grow tax-deferred, and can be distributed tax-free if used to pay for eligible college or education expenses.
What a wonderful way to support your student and get tax deductions! Since the IRS considers contributions to a 529 plan to be gifts, in 2024 single tax payers can contribute up to the annual gift tax exclusion of $18,000, or $36,000 for married couples filing jointly assuming no other cash gifts have been made to that student.
Don't Miss Your Workplace Benefits Enrollment
The end of the year is also the season for open enrollment in many employer benefit plans, and some of those benefits are very important for your financial well-being.
For example, the option to choose a health insurance plan with a lower or higher monthly premium, the option to increase your life insurance or disability benefits, and enrollment in education assistance programs, among others.
With hectic work and life schedules, it's easy to dismiss those annoying enrollment reminders from your employer, but don't miss out! Many employers won't allow changes to your benefits after the deadline unless you have a qualifying life event like a marriage, divorce, or the birth of a new baby.
Missing a chance to evaluate if your coverage and medical plan will be a good fit for next year's needs could cost you a lot!
Have a Plan for Your End-of-Year Bonus
If you get an end-of-year bonus, this is the time to plan how you want to use those dollars to advance your financial goals.
Allow me to offer a few ideas, such as funding contributions to your retirement plans, budgeting a portion of that for vacations, home upgrades, or repairs, gifting to charity or family members, boosting your emergency fund, infusing extra cash into your investment portfolio, paying down credit card and any other high-interest debt, or putting your bonus towards a big goal like the down payment for a home.
Whatever your preference is, as long as you have a plan for the bonus, you’re likely in good shape! December bonuses can easily blend in with your regular income and often get spent down if you don't have a plan.
Review Your Financial Independence Analysis
The end of the year is the perfect time to have a heart-to-heart conversation with your financial advisor or wealth manager about the status of your finances in relation to your future goals and dreams.
We refer to this exercise as a financial independence analysis (FIA), and this is one of my favorite things to do with clients. Through scenario analysis, we can explore your chances of success if you continue the course.
If the results aren't pretty, we can evaluate what levers to pull to get your plan back on target. Your financial advisor or wealth manager will praise your efforts or nudge you in the right direction if you are deviating from your desired results.
Knowing that you are ending the year in the right financial direction will boost your confidence and set you up for improved results in 2025!
Plan to Purchase an Electric Vehicle
If upgrading to an electric vehicle has been on your wish list, you may want to consider pulling the trigger on that purchase sooner rather than later to benefit from the clean vehicle tax credit.
Individuals with modified adjusted gross income (AGI) below $150,000 and couples filing jointly with AGI below $300,000 could qualify for the credit.
But, according to reports, President-elect Trump may push to eliminate the up to $7,500 electric vehicle credit as part of the new administration's tax-reform legislation. So, if you meet the criteria and plan on buying one, you may want to accelerate any potential purchase.
Next Steps
Perhaps not every item on this end-of-year financial planning checklist may apply to you, but giving your personal finance plan a gut check as the year closes out is never a bad idea.
Beyond these steps, our 2-minute financial analysis is a great place to start. You’ll get instant results on how you’re doing in four key areas of your financial plan, including retirement savings and tax minimization, as well as curated resources to take your plan to the next level.
