5 Year-End Financial Moves to Strengthen Your Strategy

Discover How to Begin the New Year on Stronger Financial Footing

By Danny Bullock

We’re just a few short weeks away from changing the calendar to 2024, and it’s a time when many people take stock of their lives — including their financial health. Money is of particular importance during this season. People are more aware of their spending habits over the holidays as they shop for gifts and personal needs. It’s a good time to make important year-end financial moves so the coming year will be as navigable as possible.

The year’s end is a good time to reflect on how you’ve managed money over the last 12 months. You can use this time to define the most pressing budget priorities and set up investment strategies for future success. You can also find opportunities for saving and earning tax breaks in areas you were unaware of.

Here are 5 year-end financial moves that can make a real difference in your finances moving forward.

1. Take a Close Look at Your 2023 Finances

The end of the year often inspires people to reflect on their accomplishments. It’s also a good time to look back on whether they made progress on reaching their financial goals. The first of your year-end financial moves should be to inspect the state of your money closely in light of the goals you set last year

How much closer did your savings get for that new car? How much value did your investments gain? Were you able to contribute as much as you could toward your retirement?

One of the most important year-end financial moves is to get a clear picture of your tax status. Big capital gains might have moved you into a higher tax bracket. Shifting interest rates may have accelerated (or slowed) your income and changes in tax law may impact you in ways – positive or negative – that you’re not yet aware of.

If you’re unsure how to take on this type of assessment yourself, a financial advisor can be helpful. They can easily measure how your wealth has grown in the past year and point out areas for improvement, as well as discuss a proactive tax plan to help you keep more of your hard-earned money.

2. Adjust Your Tax Strategies

Taxes were mentioned briefly above, but they deserve their own section in an article on year-end financial moves because they often have a significant impact on your finances. Determining areas where you can mitigate or manage tax savings is one of the most important year-end financial moves you can make. It may be possible to offset capital gains taxes, for instance, by reporting losses on your investment sales. You can also earmark up to $3,000 of your normal income to count against future financial gains in 2024 or later.

If you’re retired and drawing money from your IRA or investment funds, it’s important to know the tax ramifications on distributions from your account. Remember, too, that your retirement account has a required minimum distribution (RMD) for the year. If you haven’t met that threshold, you may be charged a penalty equal to 25% of your remaining balance.

If you’re 72 or older now, your first RMD is due on April 1, 2025. Consider setting up a plan to donate to a charitable organization to stave off taxes and do some good if you don’t need to take an RMD before then.

3. Rethink Your Retirement Plan Contributions

There are several reasons why reviewing your retirement plan contributions is one of the best year-end financial moves you can make. Retirement plans are particularly subject to annually-based data and results, so taking a close look at your retirement fund strategies is always a smart idea in December.

Taxation of retirement funds is an important detail to take into account. Contributions to traditional IRA accounts before retirement are free of tax liability, but distributions after retirement are taxed. On the other hand, Roth IRA contributions are made after taxes on income are withheld, and distributions after retirement are tax-free.

If you’re finding taxation to be an issue before retirement, you may want to emphasize contributions to a traditional IRA in the next year. However, if you feel relatively confident in your current financial condition, you might want to consider upping your contributions to a Roth IRA.

There are alternative financial instruments that merit consideration at the end of the year, too. Flexible spending accounts (FSAs) are typically set up to save employees taxes on certain expenses. Health savings accounts (HSAs) allow for unused balances to be carried over into future years and help pay for medical expenses during retirement. 529 plans help pay for approved education expenses without the burden of federal income tax.

At the end of the year, meet with your financial advisor to devise a strategy for 2024 contributions that will put you in the best shape possible for the future.

4. Create a Charitable Giving Plan

The year’s end is also a good time to think about crafting a plan to donate to charity if you haven’t done so already. In 2023, individuals can make up to $17,000 in charitable gifts without affecting their federal estate and gift tax exemption. Married couples can split their charitable contributions so they can effectively double that limit to $34,000. You can also provide for tuition and medical expenses on someone else’s behalf without depending on the lifetime exemption or annual exclusion.

One strategy that’s proven effective is charity “bunching.” This is arranging for two to three years’ worth of charitable donations to maximize your tax benefit through line-item deductions. Donation bunching is especially effective when using a donor-advised fund to channel your charitable contributions.

Retired individuals 70½ years or older may want to look into qualified charitable distributions (QCDs). With a QCD, donating straight from your IRAs to a qualified charity may allow you to exclude up to $100,000 from your adjusted gross income. The deductions count toward your RMD and immediately reduce your annual taxable income.

5. Refine Your Long-Term Financial Strategy

Putting a few measures into place for your finances can guide your investment decisions for years to come. That’s why one of the most typical year-end financial moves responsible people make is to take a high-level, holistic view of their financial strategies and make alterations where the need is greatest.

These strategies involve taking a look at some of the most common aspects of investment philosophy, such as the following:

Risk Tolerance

Your financial situation may have evolved throughout 2023. You may have earned enough wealth to feel comfortable taking on greater risk in the new year, or maybe you had to “tighten the belt” and focus on more dependable investments. Alternatively, you might not have made any decisions about altering your approach to risk.

Take a little time out to assess whether you should increase or pull back on your investments according to how well you can manage risk. Here are a few things to keep in mind as you undertake these year-end financial moves:

Diversification

Diversifying your investment portfolio is the cornerstone of risk management. Spreading your investment dollars across different business sectors and financial instruments helps to mitigate risk during economic downturns. Your financial advisor should be able to review your portfolio to find investments that will diversify your holdings according to your needs.

Protection

We can never know the future, especially in what have proven to be historically uncertain times these past few years. A single emergency can entirely upend your financial status and imperil your future wealth.

The end of the year is a good time to review the status of your emergency strategy. If you haven’t set up an emergency savings fund covering six months of regular expenses, now is a good time to do so. Also, check your insurance coverage to ensure it’s in line with your current needs.

Year-End Financial Moves Can Have Lasting Impact

The end of 2023 is sure to be a time when Americans look more intentionally into their lives and how they manage their resources. Making just one of these year-end financial moves can position you for greater financial success in the future. Reach out to our team today and learn how we can help you craft the most powerful strategy for you and your family as the new year dawns.