Don’t Drop The Ball Before The End of The Year
As pumpkins and falling leaves lead us into the last quarter of the year, it’s time to check in on your finances to ensure you’re on track, as well as make smart adjustments for the new year. Below are our top recommendations to prepare before year end.
#1 – Maximize your retirement contributions.
Review your YTD contributions and consider maxing out your 401k or 403b, contributions prior to year-end. The 2024 401k/403b contribution limits are $23,000 (plus a $7,500 catch-up contribution for those age 50 and older). With three months of the year to go, you still have time to make adjustments to your payroll deferral to hit your maximum contribution before year end. If you’re unable to hit these maximums, consider increasing your retirement plan contributions. Even a 1% to 2% increase can make a big impact on your retirement saving.
#2 - Set up auto-savings to build personal savings.
Automate your savings. That means scheduling transfers of money from your checking account to your savings account after each pay period or month-end, and have the funds deposited directly from your paycheck into an account for your long-term savings. If you dipped into your emergency savings in 2024, now’s the time to rebuild it. We recommend maintaining three to six months of expenses in a liquid account to help cover any unexpected expenses.
#3 – Keep an eye on your taxes.
Taxes are always a big deal, especially at year-end, because it’s one of the last times you can make strategic decisions that will impact your 2024 tax return. Schedule a year end check-in with your CPA. Based on your anticipated income for next year, would deferring or accelerating any bonuses, property sales, or other taxable transactions reduce your overall taxes?
Do you have any losses in non-retirement accounts? Tax Loss Harvesting is a complex name for a simple idea: selling stocks that have lost value and harvest those losses against profits from sales that have gained value in the current year, or in the future. The overall stock market performance has done well YTD, however, If you hold investments that are at a loss, you can lower your tax burden by selling poor performers and immediately reinvesting the funds.
One additional strategy to lower your taxable income is through charitable giving. Consider opening a Donor Advised Fund to make a charitable contribution with appreciated stock, which provides an immediate tax deduction while allowing the funds to be used in future years for charitable gifts. In addition, consider using a “bunching” strategy to combine multiple years’ worth of charitable donations into one single year. The larger donations may allow you to file an itemized tax return.
#4 – Review your employer benefits.
If you’ve funded a Flexible Spending account (FSA) for medical or dependent care expenses, make sure to spend it down before year end to avoid losing funds. Most plans will give you a grace period of a couple of months in the new year to use the funds, or the option to roll over $640 of the balance into the next tax year. Consider contributing to your FSA at least the amount of your health insurance deductible and reviewing how much you spent in 2024 to help plan your 2025 FSA contributions.
Also check into other tax advantaged benefits that your employer may offer such as an Employee Stock Purchase Plans (ESPP). This is often a missed benefit that provides a cost-efficient way to pursue a disciplined savings plan at a discount.
As the year wraps up, it’s natural to reflect back on your goals — professionally, personally, and financially. Planning helps facilitate a smooth transition and lets you start the year off well ahead of the game. Should you have any additional questions on how you can plan before the year end, please let us know.
DISCLAIMER: Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this newsletter (article), will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this (article) serves as the receipt of, or as a substitute for, personalized investment advice from Elmwood Wealth Management. A copy of our current written disclosure statement discussing our advisory services and fees is available for review upon request.