The end of the year is the perfect time to review your financial planning needs with a financial advisor. This checklist can help you review your investment portfolio, assess year-end tax planning opportunities, review retirement goals, and manage your wealth transfer and legacy plans. You may also want to consult a tax professional as you comprehensively consider your options.
As the end-of-year approaches consider the following with your financial professional:
1. Income Tax Planning
Strategic tax planning can help minimize your tax liability and maximize savings. Key steps include:
- Manage Income Tax Brackets:
Assess whether you’re in a higher tax bracket this year and explore strategies to reduce taxable income, such as deferring income to 2025 or accelerating deductions. - Ensure Appropriate Tax Withholding:
Check your current withholdings to avoid surprises come tax time. Adjust withholding for bonuses, freelance income, or changes in employment. - Evaluate State Income/Estate Taxes:
Understand how state-level taxes impact your overall liability, particularly if you’ve moved states or own property in multiple locations. - Reduce AMT (Alternative Minimum Tax) Liability:
If applicable, work with your advisor to manage income timing or deductions to avoid triggering the AMT. - Lower Taxable Income for Closely Held Business Owners:
Consider options such as increasing business expenses or making tax-deductible contributions to retirement accounts. - Non-Qualified Deferred Compensation:
Assess whether participating in a deferred compensation plan can help lower your taxable income this year.
2. Retirement Planning
A solid retirement plan sets the foundation for long-term financial security. Here’s what to address:
- Fund Retirement Accounts:
Maximize contributions to accounts like 401(k)s, IRAs, or SEP-IRAs, keeping in mind annual limits. - Contribute to a Health Savings Account (HSA):
If eligible, contribute to your HSA to take advantage of tax-deductible contributions and tax-free growth. - Fund Roth Accounts for Children:
If your children have earned income, help them establish and fund a Roth IRA for tax-free growth and compounding. - Weigh Roth Conversion:
Consider converting traditional IRA funds to a Roth IRA if you’re in a lower tax bracket this year. - Review Beneficiary Designations:
Confirm that the beneficiary designations on your retirement accounts reflect your current wishes. - Take Retirement Account Distributions:
If you’re over 73, ensure you’ve taken your Required Minimum Distributions (RMDs) to avoid penalties. - Review Social Security and Medicare Benefits:
Evaluate your benefit elections to maximize payouts and ensure proper Medicare coverage.
3. Investment Portfolio Review
Fine-tuning your investment strategy at year-end can set you up for success in the coming year.
- Recognize Capital Gains/Losses:
Sell underperforming investments to offset gains, reducing your tax liability. - Review Strategies to Avoid Wash Sales:
Ensure compliance with the wash-sale rule if you plan to rebuy securities you sold for tax loss purposes. - Consider Executive Compensation Provisions:
For executives, evaluate stock options, restricted stock units, or other compensation provisions before year-end deadlines. - Rebalance Portfolios:
Rebalance your portfolio to align with your investment strategy, risk tolerance, and financial goals.
4. Wealth Transfer and Legacy Planning
Prepare your estate and legacy plans to secure your financial impact for future generations.
- Make Annual Gifts:
Utilize the annual gift exclusion limit (currently $17,000 per recipient in 2024) to reduce your taxable estate. - Fund Education Savings Plans:
Contribute to education savings plans for children or grandchildren, benefitting from potential state tax deductions. - Fund Charitable Giving:
Donate to charitable organizations to support causes you care about while receiving potential tax benefits. - Elect Qualified Charitable Distributions (QCDs) from IRAs:
If you’re over 70½, donate directly from your IRA to a qualified charity to meet RMD requirements and reduce taxable income. - Consider Advanced Estate Planning Strategies:
Explore trusts, such as GRATs (Grantor Retained Annuity Trusts) or ILITs (Irrevocable Life Insurance Trusts) , to reduce estate taxes and protect assets for beneficiaries. - Conduct Family Meetings:
Discuss your legacy intentions and financial mission with family members to ensure alignment and understanding.
5. Additional Considerations
- Review Insurance Coverage:
Ensure your life, health, and disability insurance policies provide adequate coverage for your needs. - Plan for Debt Management:
Use year-end bonuses or surplus cash flow to reduce high-interest debt. - Set Goals for 2025:
Reflect on your financial achievements in 2024 and create actionable goals for the coming year.
Work With Your Financial Team
Partnering with a financial advisor and tax professional ensures your year-end planning is tailored to your unique situation. This proactive approach can save money, reduce stress, and position you for financial success in the coming year.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. The services of an appropriate professional should be sought regarding your individual situation.
