Optimizing Your Financial Plan for the End of the Year

Jonathan M. Gardey, MBA, CFA®, CFP®

President and Chief Executive Officer

Optimizing Your Financial Plan for the End of the Year

This year has flown by like a whirlwind, bolstered by a hotly contested election, wars in Ukraine and the Middle East, and damaging storms and economic challenges at home. Suddenly, it's October, with just three months left in the year. Now is the time to rise above all the distractions and evaluate your financial plan to ensure you maximize savings, minimize taxes, and position yourself for success in the coming year.

Whatever your goal—preparing for retirement, building your portfolio, or striving to improve your financial health—taking these critical steps now can significantly impact your financial future.

Maximize Retirement Contributions

With three months remaining in the year, you still have an opportunity to boost your retirement accounts while reducing your taxable income for 2024.

401(k) or 403(b): In 2024, you can contribute up to $23,000, with an additional $7,500 catch-up contribution if you're over 50. Check with your employer to see if you can adjust your contributions for these last few pay periods.

Traditional IRA: You can contribute up to $7,000 in 2024 in a traditional IRA ($8,000 for 50 and older). If you participate in an employer-sponsored plan, you might be able to make an additional tax-deductible contribution to a traditional IRA, depending on your income level.

Roth IRA: If you're in a lower tax bracket this year, a better strategy might be to contribute to a Roth IRA. Roth IRA contributions are not tax-deductible; however, withdrawals in retirement are tax-free. Funding a Roth IRA can be an excellent strategy if you're in a lower tax bracket this year. The same contribution limits as traditional IRAs apply.

If you're self-employed, consider maximizing contributions to a Solo 401(k) or SEP IRA. These accounts allow for higher contribution limits and substantial tax savings while adding to your retirement nest egg.

Take Advantage of Tax-Loss Harvesting

If you've experienced losses in your investment portfolio this year, you can use them to your advantage through tax-loss harvesting. This strategy allows you to sell losing investments and use the losses to offset capital gains, reducing your overall tax liability.

For example, if you sold investments earlier in the year that resulted in capital gains, selling underperforming assets now can offset those gains. You can deduct up to $3,000 of net capital losses against your ordinary income and carry any excess losses into future years.

It's essential to avoid the wash-sale rule, which disallows a tax deduction if you buy a "substantially identical" asset within 30 days of selling it. It's critical to be strategic about repurchasing investments to maintain your portfolio balance without triggering this rule.

Review Your Tax Withholding and Estimated Payments

If you've experienced any major life changes this year—such as a new job, marriage, or childbirth—your tax situation may have changed, and you may need to adjust your tax withholding. If you've underpaid your taxes during the year, you could face a penalty when filing your return. Conversely, overpaying results in a larger-than-necessary refund, which essentially amounts to an interest-free loan to the government.

If you're self-employed or receive significant income from investments, ensure that your estimated quarterly payments are up to date.

Boost Your Emergency Fund

Ideally, you should set aside three to six months of living expenses in a liquid savings account to cover emergencies and unexpected expenses. Year end is an excellent time to review your emergency savings and top it off, if necessary, especially if you've had a financially strong year or expect potential risks in the coming months.

Evaluate Charitable Contributions

If you're charitably inclined, now is the time to plan your giving strategy. Charitable contributions are generally deductible up to 60% of your adjusted gross income (AGI) for cash donations and 30% for appreciated assets like stocks.

If you don't think you will meet the standard deduction threshold ($14,600 for individuals and $29,200 for joint filers in 2024), you can consider bunching your contributions from multiple years to itemize deductions in the current year. You could also consider setting up a donor-advised fund (DAF), which allows you to contribute a lump now for a current tax deduction while distributing the funds to charities of your choice over time.

Is Now the Time for a Roth Conversion?

If you've accumulated significant funds in a qualified, tax-deferred retirement plan, now may be the time to consider converting a portion of those funds into a Roth IRA. While a Roth conversion is a current taxable event, it allows your money to grow tax-free, and you can access your money tax-free.

The time to do a Roth conversion is if your income will be lower this year. You can also plan to convert smaller portions over time to manage your tax bracket. With a Roth conversion, you don't have to worry about tax increases in retirement and Roth IRAs are not subject to the required minimum distribution (RMD) rule.

Empty Your Flexible Spending Account (FSA)

If you have an FSA, you must use these funds by year end or lose them. Some employers may allow you to carry over a small amount to the following year, but most FSAs require you to spend the funds by December 31. Now's the time to check your balance and plan for some qualifying healthcare expenditures before the deadline.

Plan for Your 2025 Goals

Finally, use this time to reflect on your overall financial goals. As you review your budget, savings, and investment strategy for the current year, consider how these elements fit into your longer-term objectives.

Are you on track to meet your goals?
Do you need to increase your savings rate or adjust your asset allocation?
Where can you cut expenses or redirect money toward investing or debt repayment?

Creating a comprehensive financial plan for 2025 now will give you a head start on the year and help you stay focused on achieving your goals.

Our Gardey Financial Advisors team can help you create a comprehensive financial plan that is rooted in the dreams you have for yourself and your family. We work with clients in our local community of Saginaw, MI, and throughout the country, to help make their financial goals a reality. Connect with our team today, and together we can create the systems you need for financial success in the New Year. We best serve clients looking for exceptional client service, who value a long-term partnership, and have a minimum of $500,000.00 in investable assets.

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