Year-End Financial Checklist

Eyeglasses on Open BookImage Source: PexelsIt seems like we just rang in the new year and here we are almost at the end of 2023. My dad told me the older I got, the faster things would go, and he wasn’t wrong. So, with the time left before the end of the year, there are some financial matters you need to attend to before you sing Auld Lang Syne one more time. Review Investment AccountsIt’s been a tough year, and you may be throwing your unopened statements in a drawer hoping things will be better later on. Here at the end of the year, stop playing ostrich and pull your head out of the sand. This is the time to plan for that improvement.Check your retirement and non-retirement accounts. Has the market moved your accounts out of balance with your investment plan? Ask yourself if it’s time to rebalance, or is it time to change your investment strategy because you’re a little closer to retirement or because there have been changes in your personal life like marriage, divorce, a death in the family, or because you’ve decided to work longer than you originally planned. If that’s the case, make sure your portfolio allocations are in line with your current time horizon and risk tolerance.And truly evaluate your risk tolerance. A wise man I know said you never truly know what your risk tolerance is until the market goes way down. But don’t let fear make you miss the opportunities that will be available when the market turns. You need to plan for those opportunities now.Convert Your Traditional IRA to Roth IRAIn retirement, having access to tax-free IRA distributions can be a benefit. One way to accomplish that is converting some or all of your Traditional IRA into a Roth IRA. But a conversion is taxable and you will have to pay ordinary income taxes on the conversion amount but no early withdrawal penalties. With the value of your accounts down, a conversion may be less painful now than when values are high.Tax Loss HarvestingNo one wants to pay more taxes than necessary and harvesting capital losses to offset any capital gains is one way to do that. Even if you can’t use all the losses this year, excess losses are carried forward to be used in future years.You might be reluctant to sell an investment you really like. But keep in mind the Wash Sale Rule from IRS Code section 1092. It allows you to sell a position at a loss, deduct the loss, and buy back the same investment after 30 days. Buy it back in less than 30 days and the deduction is not allowed. The risk is if there is a major move in that investment during the 30-day period.Max out your deductionsEvery $100 of deductions you gather now can reduce your federal tax bill by up to $37 next April. Here are some possibilities.

  • You can make a tax-deductible contribution to your 401(k) plan. For 2023 you can put in $22,500. If you’re 50 or older and take advantage of the catch-up contribution, you can contribute a maximum of $30,000. 401(k) contributions have to be made by December 31st to count toward your current year deductions.
  • You can make a tax-deductible contribution of up to $6,500 dollars to a Traditional IRA; $7,500 if you’re 50 or older. You have until April 15 of next year to make your IRA contribution for this year.
  • Charitable donations are deductible for donors who itemize when filing their income tax returns. Overall deductions for donations to public charities, including donor-advised funds, are generally limited to 50% of adjusted gross income (AGI). The limit increases to 60% of AGI for cash gifts, while the limit on donating appreciated non-cash assets held more than one year is 30% of AGI. Contribution amounts in excess of these deduction limits may be carried over up to five subsequent tax years.
  • Max out healthcare accountsIf you have a flexible spending account (FSA) at work, check the remaining balance. Some plans allow you to roll unused funds into next year. But if your plan doesn’t have a rollover provision, use the remaining funds before the end of the year. Don’t leave money on the table.Another healthcare account is the Health Savings Account (HSA). If you qualify for an HSA, max it out before the end of the year. For 2023, individuals can contribute $3,850. Families can contribute $7,750. If you’re 55 years old or older you can make an additional $1,000 contribution.Review your insuranceReviewing your insurance is always good advice, but in the current economic environment, it’s more important than ever. Inflation has driven up the price of everything, including the price of cars and the cost of building materials needed if something happens to your house. That’s why most insurance companies have increased premiums—substantially. So, shop around. See if you can get the same coverage or more for a better price than what you’re paying. The extra money is better in your pocket.Also, review your life insurance. See if the amount you have is still what you need. For example, many people buy life insurance in case they die and there’s not enough money to take care of the family—things like income for the family or paying for college. But if the kids are grown, that’s an expense that no longer exists and doesn’t need to be insured against. Review your coverage and see how much life insurance you need now. Check your credit reportYou’ve heard it said, check your credit report at least once a year. With the ever-present threat of identity theft, a check of your credit report will turn up errors and things that don’t belong to you. Fraud on your report can be corrected but it’s best to catch it early.You’re entitled to one free credit report every year from each of the three credit reporting agencies—Experian, TransUnion, and Equifax. You can request those reports at Your Tax WithholdingChanges in your number of dependents, income, and marital status can affect how much tax you owe. A review will tell you whether you should make a change in how much you have withheld from your paycheck. The IRS tax withholding calculator can help.Review Your BudgetLook back 12 months. Did you stay on budget or did you spend more than you planned? If so, why? Did you save as much as you projected or did you get off track? Were you able to pay off debt or did unexpected expenses increase what you owe? Regroup. Refocus. Set your goals for next year.Plan for Large Expenses Coming in the Next 12 MonthsWhat big expenses are coming up next year—a wedding, divorce, birth of a child, starting college, or opening a business? Will you be having major dental work or surgery? What about home repairs or buying another car? If you’re aware of something big you can begin to plan now rather than take the big hit all at once.Check Your BeneficiariesHas anything changed in your life that would affect who you name as beneficiaries? If so, have you changed your beneficiaries to match your current situation? If not, it’s time to review.For example, let’s say you’re divorced and got remarried this year. You didn’t change the beneficiary designation on your retirement accounts to your new spouse. If you die, your ex-spouse gets the money, and wouldn’t that cause some problems?Your Will is not the final authority when it comes to accounts where you named a beneficiary. The U.S. Supreme Court has ruled that the most current beneficiary designation form you filled out and signed is the one that will be used to distribute your money. So, check everything with a designated beneficiary to make sure it’s exactly the way you want it:

  • Life insurance policies – Don’t forget policies through your employer
  • Annuities
  • Traditional IRA
  • Roth IRA
  • Inherited IRAs
  • 401(k) account at your current employer
  • 401(k) accounts at previous employers
  • 403(b) accounts
  • Deferred Compensation Employer Plans
  • 457 Government Plans
  • Health Savings Accounts
  • 529 Education Savings Plans
  • Transfer on Death (TOD) accounts. These can be at banks, investment firms, savings and loans, or any financial institution.
  • Pensions
  • Filling out a new beneficiary designation form and signing it is easy, it doesn’t take much time, and it protects the ones you love.Review Legal DocumentsLaws can change just like your personal situation. So, review Wills, Trusts, Powers of Attorney, and the various healthcare documents to ensure that they’re up-to-date with current law. If you’ve moved to another state since your legal documents were created, you should check with an attorney to see if your documents are in line with the laws of your current state of residence.There are probably lots of other things you’d prefer doing than going through a year-end checklist. But it’s the best way to keep your financial house in order.More By This Author:Macro: PPI – PPI And Powell Fuel Rally Macro: Treasury StatementMacro: NFIB Small Business Trends – It’s All About Expectations And Outlooks


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