As the year comes to a close, now is the perfect time to take stock of your financial situation and set the stage for a successful year ahead. Whether you’re building wealth, preparing for retirement, or managing your family’s needs, an end-of-year financial review can help you stay on track and identify opportunities to optimize your finances. From tax-saving strategies to investment adjustments, now is the time to make critical decisions that can have a lasting impact. With a comprehensive checklist—and guidance from trusted professionals like attorneys, financial planners, and accountants—you can confidently wrap up this year and enter the next with a solid financial foundation.
1. Enhance Tax Strategies
Reviewing taxable income is an essential part of year-end financial planning. Ensure it aligns with your tax bracket and overall goals to avoid unnecessary tax burdens. Consider deferring income or accelerating deductions if you’re close to a higher bracket. If you are in a lower tax bracket or have sizeable traditional TSP/IRA balances, consider contributing to Roth TSP and IRAs. Taking these steps can help you manage your taxable income more effectively and make strategic contributions.
Maximizing retirement contributions for the upcoming year is another critical area. For 2024, the limits are set at $23,000 for TSP ($30,000 if 50+), $7,000 for IRA ($8,000 if 50+), $4,150 for HSA ($8,300 for family coverage, plus an additional $1,000 if you are 55+), $3,200 for FSA, and $2,500 for DCFSA ($5,000 if married filing a joint tax return). It’s not just about the current year, though—preparing to maximize the same accounts for 2025 ensures you’re ahead of the curve. For 2025, the contributions are slightly higher, providing even more opportunities to build your savings strategically.
Utilizing tax credits can help reduce your overall tax burden. Check your eligibility for credits such as the Saver’s Credit, Child Tax Credit, or Education Tax Credits. Additionally, charitable giving can provide valuable tax deductions. Donating appreciated assets or cash can reduce your taxable income. If you’re over 70½, consider using a Qualified Charitable Distribution (QCD) for an added tax advantage. Accelerating gifting directly or using a Donor-Advised Fund (DAF) during higher income years can also be beneficial. If you plan to leave substantial gifts or bequests to charitable organizations, consider utilizing charitable trusts to maximize your giving impact.
2. Roth Conversions
Roth conversions can be a strategic move to optimize your retirement accounts, but it’s important to be mindful of the implications. Converting pre-tax funds to tax-free funds by paying taxes upfront can offer long-term tax benefits. However, be cautious with your income levels and how close you are to rising into the next tax bracket or the Medicare IRMAA bracket. Understanding the timing and specific rules around Roth conversions is crucial to make the most of this opportunity.
Consulting a tax advisor before converting a traditional IRA into a Roth IRA is essential, as there are tax implications associated with this decision. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. These regulations highlight the importance of strategic planning and consultation with knowledgeable professionals to avoid any potential pitfalls.
3. Refine Investments
Rebalancing your portfolio at the end of the year ensures your investments align with your goals and risk profile. This involves adjusting the asset allocation to maintain a proper balance according to your investment strategy. Harvesting capital losses to offset gains can reduce taxable income and potentially carry forward to future years, providing ongoing benefits.
Similarly, harvesting capital gains by taking investment gains in lower income years or offsetting deductions can be a strategic approach. Planning for required minimum distributions (RMDs) is crucial for individuals aged 72+ to avoid penalties. Those who are charitably inclined may consider Qualified Charitable Distributions (QCDs) to reduce the RMD burden and taxes. For owners of Inherited IRAs, note that 2024 is the last year under SECURE Act 2.0 that you can skip your RMD. By 2025, you must take your RMD to avoid potential IRS penalties.
For those who prioritize ESG (Environmental, Social, Governance) values, setting goals for impact investing ensures your investments align with your personal values and objectives. Confirming your investment strategy with a well-vetted investment philosophy is critical. Evaluating your preferences regarding environmental, social, and governance considerations helps tailor your investments to reflect your values while aiming for financial growth.
4. Manage Debt and Cash Flow
Managing debt and cash flow effectively is essential to maintain financial health. Tackling high-interest debt through strategic repayment or refinancing plans can relieve financial pressure. Assessing and adjusting cash flow for any changes in income, expenses, or priorities is vital to ensure financial stability. Setting emergency fund goals is crucial, aiming for 3–6 months’ worth of expenses held in a money market or high-yield FDIC-insured savings account for quick access.
Planning for major purchases, such as a new car or house, requires ensuring sufficient cash on hand. Avoiding the need to pull from investments in a down market protects against locking in losses. Additionally, developing a strategic withdrawal plan from savings and retirement accounts to supplement cash flow is important. Understanding the tax implications, required distributions, early withdrawal penalties, and overall financial health helps in crafting an effective withdrawal strategy that aligns with your financial objectives.
5. Assess Federal Benefits and Insurance
Maximize open enrollment benefits by adjusting health, dental, or vision coverage to better fit your family’s needs. Switching to a high deductible health plan can be advantageous, especially if you aim to benefit from a Health Savings Account (HSA). Utilizing Dependent Care FSAs or other workplace perks can further enhance your financial situation. Regularly reviewing life and disability insurance ensures you have sufficient coverage to protect your dependents adequately.
Reviewing Long-Term Care Insurance is crucial, particularly evaluating coverage amounts, the types of care covered, the length of coverage, premiums, and inflation protection. As you near retirement, considering the purchase of a long-term care policy can prepare you for future needs. Using FSA and DCFSA funds before the deadline (2½ months after year-end) is essential to maximize benefits. Additionally, retrieve your most recent SF-50 to review for accuracy, including position title, grade, step, pay plan, occupational code, tenure, service computation date, name, social security number, and date of birth.
6. Enhance Estate Planning
Regularly reviewing beneficiaries ensures that your accounts and policies reflect any life changes. Revisit your wills and trusts to make sure they align with your current wishes and future intentions. Utilizing annual gifting limits is also a strategic move. In 2024, you can gift up to $18,000 per individual without tax implications ($36,000 if married). This limit will increase to $19,000 in 2025 ($38,000 if married), allowing for more generous tax-free gifting.
Effective estate planning requires taking proactive steps to update and verify all necessary documents. Whether through personal updates or consulting with attorneys, keeping your estate plans current ensures your wishes are honored and your loved ones are protected. Utilizing the increased gifting limits provides opportunities for strategic financial planning and can help manage potential future tax burdens efficiently.
7. Plan for Education and Family
Contributing to education savings plans is an essential part of family financial planning. Maximizing contributions to 529 Plans can provide significant future benefits. Additionally, exploring employer-sponsored education benefits, if available, can present further opportunities for savings. Taking advantage of state tax-deductible contributions is another way to optimize your financial resources for education.
Preparations for upcoming family milestones, such as weddings, births, or tuition costs, are critical. Evaluating gifts to minor investment accounts, such as UGMA and UTMA, allows for strategic planning and financial generosity. Each of these steps ensures that your family’s education and significant life events are financially supported, reducing potential stress and ensuring readiness for expected and unexpected family milestones.
8. Strengthen Your Financial Future
Strengthen your financial future by confirming you are making the most of the benefits available to you. Taking advantage of learning opportunities, like Federal benefit webinars, can enrich your understanding and help you maximize your benefits. Setting retirement goals is crucial; evaluate your retirement plan progress and adjust contributions as needed to ensure you’re on track.
Planning for transitions, such as optimizing military or federal pension benefits or evaluating the buy-back of military or Peace Corps time, is essential for service members or veterans. Considering the opportunity to suspend FEHB in lieu of Tricare in retirement is another strategic move. Assessing housing plans, including refinancing, paying down the mortgage, or preparing for a new purchase, rounds out a comprehensive approach to strengthening your financial future.
9. Organize and Document
Preparation for tax filing is a significant aspect of year-end financial planning. Collect all necessary documents, such as receipts, W-2s, 1099s, among others, to ensure a smooth filing process. Tracking charitable donations and deductible expenses throughout the year simplifies this process. Backing up financial records using secure tools provides peace of mind that important documents are protected and easily accessible.
As the year winds down, taking a proactive approach to your finances ensures you’re set up for success in the coming year. This end-of-year checklist covers a wide range of considerations—from optimizing taxes and investments to ensuring your family and future goals are protected. However, financial planning can be complex, and the best strategies are often tailored to your unique circumstances.
Conclusion
As the year draws to a close, this is an ideal moment to evaluate your financial situation and prepare for a prosperous year ahead. Whether you’re focused on building wealth, saving for retirement, or addressing your family’s financial needs, conducting an end-of-year financial review can help you maintain your financial health and uncover opportunities to enhance your finances. This is the perfect time to consider tax-saving strategies, make necessary investment adjustments, and make critical financial decisions that will have long-lasting effects.
A thorough review of your finances can bring to light areas where you can save more, optimize your budget, or invest wisely. Taking the time to go over your financial situation can reveal opportunities you might have missed during the busy year, ensuring that you are making the most of your resources.
Utilize a comprehensive checklist and seek advice from trusted professionals such as attorneys, financial planners, and accountants. Their expertise can provide valuable insights and recommendations tailored to your unique situation, helping you wrap up the year with confidence.
By performing a detailed financial review and making informed decisions, you can set a strong financial foundation for the upcoming year. This methodical approach will not only help you stay on track with your financial goals but also give you peace of mind as you step into the new year, ready to tackle any financial challenges that come your way.
