As the year comes to a close, it’s important to review your financial plan and ensure you're on track to meet your goals. It’s also a key time to take advantage of specific strategies best implemented by year-end. We always recommend an end-of-year meeting with our clients, as it is often an invaluable opportunity to maximize our clients’ positions for the following calendar year. Here are some key areas we like to focus on during year-end meetings.
Roth Conversions
One of the most significant opportunities at year-end is considering a Roth conversion. This involves converting a portion of your traditional IRA or 401(k) into a Roth IRA, if possible. The benefit? While you'll pay taxes on the amount converted, future withdrawals (including earnings) can be withdrawn tax-free. And with tax rates likely to increase over most people’s lifetimes, this is a move your future self may thank you for. We can discuss how a Roth conversion might fit into your overall tax strategy, especially if you expect your tax rate to increase. It’s also an excellent way to reduce your taxable estate.
Maxing Out 401(k) Contributions
If you haven’t yet maxed out your 401(k) contributions for 2024, the end of the year is the time to do so. The IRS allows significant contributions to retirement accounts, and maximizing these contributions can reduce your taxable income. This can be especially advantageous if you’re in the bubble of a tax bracket or thinking you may want to retire sooner than initially planned. We can also review the investment allocations in your 401(k) to make sure they best align with your age, retirement age goal, and other factors.
Tax-Smart Charitable Donations
The end of the year and holidays remind us of the importance of giving back and helping others. If you’re considering making charitable donations before year-end, think strategically about how to do so tax-efficiently. Donating appreciated assets, such as stocks, can provide a double tax benefit: you can deduct the asset's fair market value while avoiding capital gains tax on the appreciation.
Another option is to consider setting up a donor-advised fund (DAF), allowing you to make charitable contributions now and distribute them over time while receiving a tax deduction in the year of the donation.
Reviewing Tax Brackets and Deductions
Tax laws change frequently, and year-end is an ideal time to review your expected income and deductions for the upcoming year. And with the expiration of the Tax Cuts and Jobs Act of 2017 (TCJA) coming up at the end of 2025, it’s vital to understand how any changes may affect you and your plan. We can help you strategize how to time certain income or deductions to optimize your tax situation.
Tax Loss Harvesting
This is one of our favorite tax-smart strategies, and why hiring a professional to manage your investments is key. To explain tax-loss harvesting, suppose you have investments that have lost value during the year while others performed so well that you will owe taxes on the gains. In that case, we can look at tax loss harvesting strategies, which entail selling underperforming investments to offset gains you’ve realized elsewhere, reducing your overall tax burden.
Establishing Next Year’s Goals
Use your year-end meeting to set financial goals for the upcoming year. Whether saving for a home, funding a child’s education, starting a business, or planning for retirement, having clear goals will guide your investment and savings strategies.
A year-end meeting with your financial advisor is a crucial step in ensuring you’re making the most of your financial situation. Reach out or schedule your meeting today to set yourself up for success in 2025.