Dec 18, 2024 | 5 min read
Key deadlines for many personal finance and tax planning strategies
As the year winds down, it’s the perfect time to reflect on your financial goals and make any adjustments before the clock strikes midnight on December 31. Taking a proactive approach now can help you save on taxes, maximize your investments, and enter the new year feeling confident about your financial future.
Here’s a financial checklist of 13 essential financial moves to consider before year-end:
1. Max Out Retirement Contributions
Tax loss harvesting provides an effective method to minimize your tax burden by strategically selling investments at a loss to offset capital gains in your taxable accounts. By identifying underperforming positions and selling them, you can reduce the taxes owed on your profitable investments. However, it's crucial to be mindful of the wash sale rule, which could invalidate your tax benefits. With the year drawing to a close, now is an opportune time to evaluate your portfolio and implement this tax-saving strategy while maintaining your overall investment exposure in the market.
2. Spending Unused FSA Dollars
If you have a Flexible Spending Account (FSA), don't let your hard-earned dollars vanish into thin air. Most FSA plans require you to spend your balance by year-end or risk losing it entirely, though some employers offer a 2.5-month grace period. Take inventory of your remaining funds and put them to good use on qualified medical expenses. From contact lenses and prescription medications to first-aid supplies and health monitoring devices, there are plenty of ways to maximize your FSA dollars. Many online retailers now conveniently label FSA-eligible items, making it simple to shop strategically.
3. Roth Conversions
Has your income taken a dip in 2024? This might be the perfect moment to explore a Roth conversion strategy. By transferring money from your traditional IRA or 401(k) into a Roth account, you'll face taxes now, but here's the upside: all future growth becomes completely tax-free. This move makes particular sense if you anticipate earning more down the road, potentially facing higher tax rates. Just do the math carefully – you'll want to ensure the conversion amount doesn't accidentally bump you into a higher tax bracket this year, which could offset the benefits.
4. Charitable Contributions
Want to maximize both your charitable impact and tax benefits? Consider donating appreciated stocks rather than cash – you'll skip the capital gains tax while still claiming the full donation value as a deduction. For even more strategic giving, look into a donor-advised fund (DAF). This powerful tool lets you front-load several years of charitable contributions into a single tax-deductible gift now, while maintaining flexibility on when to distribute the money to your chosen charities. It's a win-win approach that amplifies your generosity while optimizing your tax situation.
5. Backdoor and Mega Backdoor Roth IRAs
Don't let high earnings stop you from enjoying Roth IRA benefits. The backdoor Roth strategy lets you sidestep income limits by converting traditional IRA funds. Even better, if your employer offers it, a Mega Backdoor Roth opens up a significant opportunity to grow more after-tax dollars tax-free. While you technically have until tax filing to make these moves, wrapping everything up by December 31 makes your life easier. Not only does it simplify your tax reporting, but it also helps you stay clear of any pro-rata rule complications.
6. Solo 401(k)
Running your own business? The Solo 401(k) could be your ticket to supercharged retirement savings. This powerhouse plan lets you sock away more money than a SEP IRA, wearing both your employee and employer hats to maximize contributions. And if your spouse is involved in the business, they can join in too, potentially doubling your tax-advantaged savings. Just remember one crucial deadline: you'll need to get your plan set up by December 31 to unlock these benefits for 2024. Don't leave this opportunity on the table – time your setup right to maximize your savings potential.
7. Gift Tax Exclusion
Want to share your wealth without triggering tax headaches? The annual gift tax exclusion is your friend, allowing you to give up to $18,000 to each person this year – or $36,000 if you're married and giving as a couple. Since this allowance doesn't roll over to next year, it's smart to make your gifts before December ends. Looking for a meaningful way to use this benefit? Consider funding a 529 college savings plan for your loved ones. It's a fantastic way to help secure their educational future while taking advantage of this yearly tax perk.
8. Maximize Retirement Contributions
Don't leave retirement savings on the table! Check if you've hit the maximum contribution limits for your retirement accounts this year. For 2024, you can put up to $23,000 into your 401(k) and up to $7,000 into your IRA. By maxing out contributions to traditional retirement accounts, you're not just building your nest egg – you're potentially shrinking your taxable income for the year. Take a quick look at your contribution totals and consider boosting them before December wraps up if you haven't reached these limits.
9. Health Savings Account (HSA) Contributions
Got a high-deductible health plan? Make the most of your Health Savings Account (HSA) – it's like a secret weapon for tax-savvy saving. In 2024, you can stash away up to $4,150 if you're on an individual plan, or $8,300 for family coverage. And if you're 55 or older, you can add another $1,000 to those limits. The best part? Your contributions dodge taxes going in, grow tax-free, and stay tax-free when used for medical expenses. It's one of the few triple-tax advantages available, so don't miss out on maxing it if you can.
10. Education Plan Contributions (529)
Looking to save for education while scoring some tax perks? Consider pumping money into a 529 savings plan before year-end. Many states offer tax deductions for your contributions, putting extra cash back in your pocket. Plus, any growth in these accounts stays completely tax-free when used for qualified education expenses – think college tuition, books, and even K-12 costs in many cases. Whether you're planning ahead for your kids' future or helping set up your grandchildren for success, a 529 plan can be a smart way to build that education nest egg while enjoying tax benefits.
11. Review Beneficiaries
Take a moment to check who's listed as beneficiaries on your financial accounts and policies. Life moves quickly, and major changes like tying the knot, going through a divorce, or welcoming a new baby might mean your designated beneficiaries need updating. Give your retirement accounts, life insurance policies, and other financial documents a fresh look. Making sure these designations align with your current wishes is crucial – it's one of those easily overlooked but critically important financial housekeeping tasks that can save your loved ones from headaches down the road.
12. Review Insurance Coverage
As the year winds down, take stock of your insurance coverage to ensure it still fits your life. Have major changes – like a new home, growing family, or career shift – left gaps in your protection? Give your life, health, disability, and property policies a thorough review. Maybe you need to boost coverage limits, or perhaps you're over-insured in some areas. Consider whether deductibles and premiums still make sense for your current financial situation. This annual insurance check-up helps guarantee you're not paying too much while keeping your loved ones and assets properly protected.
13. Evaluate Your Emergency Fund
Time to peek at your financial safety cushion – is your emergency fund ready for life's curveballs? The golden rule suggests keeping three to six months of living expenses tucked away. If your fund's looking a bit thin, consider channeling any year-end windfalls like bonuses or extra income into beefing it up. In today's uncertain world, having a robust cash reserve isn't just smart – it's essential for weathering unexpected job changes, medical bills, or other financial surprises. Make building this financial buffer a priority before splurging on holiday spending or year-end treats.
Bringing It All Together
As you wrap up 2024, this financial checklist serves as your roadmap to stronger financial health. While it might seem overwhelming to tackle all these tasks before December 31, remember that each step you complete is an investment in your financial future. Start with the most impactful moves for your situation, whether that's harvesting tax losses, maximizing retirement contributions, or updating your insurance coverage. Don't forget that some of these decisions can have long-lasting tax implications, so consider consulting with a financial advisor or tax professional for personalized guidance. By systematically working through this checklist, you're not just closing out the year responsibly – you're laying the groundwork for a more prosperous 2025.
Keep this checklist handy for future years, and remember that good financial planning is an ongoing process, not just a year-end sprint. The time you invest now in these financial moves can pay dividends for years to come.
IMPORTANT DISCLAIMERS
Past performance is no guarantee of future returns
The graphs and charts in this commentary are for illustrative purposes only and not indicative of any actual investment. Index returns do not reflect any fees, expenses, or sales charges. It is not possible to invest directly in an index. Stocks are not guaranteed and have been more volatile than other asset classes. Historical returns were the result of certain market factors and events which may not be repeated in the future. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgement in determining whether investments are appropriate for clients.
This material is intended for information purposes only, and does not constitute investment advice, a recommendation or an offer or solicitation to purchase or sell any securities.
Disclaimer: Investments are not guaranteed and are subject to investment risk, including possible loss of the principal amount invested. Past performance is no guarantee of future results. All allocations and opinions expressed are as of the date of this presentation and subject to change. The information contained herein does not constitute investment advice or a solicitation. Information obtained from 3rd parties is believed to be accurate, but has not been independently verified.
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