Year-End Financial Planning Tasks
The end of the year is a great time to review your financial plan. By taking the time to assess your current financial situation and goals, you can set yourself up for success in the new year.
Here is a detailed look at some of the key financial planning tasks that you should consider at year-end:
Review your insurance options offered through your employer.
Take time to review your employee benefits package. Make sure you are enrolled in the plans that are right for your family. You may also want to consider making changes to your benefits selections for the upcoming year.
Maximize your retirement plan.
If you have a 401(k) or any other retirement plan, make sure you contribute the maximum amount you can. If over age 50, take advantage of your plan’s catch-up contribution ($7,500 in 2023). This can help you reach your retirement goals faster. If you are not sure how much to contribute, talk to your financial advisor.
Consider a Roth IRA conversion.
If you earn too much money to contribute directly to a Roth IRA, consider doing a back-door Roth IRA conversion. This is a strategy that allows high-income earners to save for retirement in a Roth IRA.
Go over your gains and losses in your taxable investment accounts.
If you have investments that have appreciated in value, you may want to consider selling some of them to offset any capital losses you have incurred. This tax-loss harvesting strategy can help reduce your tax liability.
Open an educational funding account or maximize existing accounts.
If you are saving for a child's education, consider using a 529 educational account. These accounts offer several tax advantages, such as tax-free growth and tax-free withdrawals for qualified education expenses.
Review your life insurance needs.
Make sure you have enough life insurance to protect your loved ones in the event of your death. Your life insurance needs will vary depending on your individual circumstances, so talk to your financial advisor to determine how much coverage you need.
Consider long-term care insurance.
Long-term care insurance can help pay for the cost of long-term care, such as a nursing home or assisted living facility. This type of insurance is especially important as you get older, as the risk of needing long-term care increases.
Update your estate plan.
Estate planning is the process of creating a plan for how your assets will be distributed after your death. This includes creating a will and other estate planning documents. If you do not have an estate plan in place, your assets may be distributed according to state law, which may not be in line with your wishes.
Create or update your budget.
See where your money went this year. Do you see any spending that could be reduced? Develop a monthly budget. This will help you track your income and expenses, and make sure you are on track to reach your financial goals.
Satisfy your Required Minimum Distribution (RMD).
If you are over age 72 and have a traditional IRA or 401(k), you must take an RMD each year. RMDs are taxable withdrawals that must be taken from your retirement accounts. If you do not take your RMDs, you may be subject to a penalty tax.
Make a Qualified Charitable Distribution (QCD).
Speaking of RMDs, ask your financial advisor and accountant/CPA how using your RMD dollars to fund your charitable giving impacts what you may owe the IRS. Depending on how you file, making a QCD can greatly enhance your tax outcome.
Protect yourself from cybersecurity threats.
Take steps to protect yourself from cybersecurity threats. This includes using strong passwords, enabling two-factor authentication, and being careful about what information you share online.
Replenish your emergency fund.
Make sure you have an emergency fund that can cover at least three to six months of living expenses. This will help you weather any unexpected financial setbacks.
Talk to your advisor.
If you have a financial advisor, schedule a meeting to review your financial plan. This is a good opportunity to discuss your goals, risk tolerance, and investment strategy. Your advisor can also make any necessary changes to your plan, such as adjusting your asset allocation or rebalancing your portfolio.
Additional tips
- If you have debt, make a plan to pay it off as quickly as possible.
- Start saving for your retirement. The earlier you start saving, the more time your money has to grow.
- Consider investing in a diversified portfolio of stocks, bonds, and other assets. This will help you reduce your risk.
By taking the time to review your financial plan and make any necessary adjustments at year-end, you can set yourself up for success in the new year.
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