Financial Planning – Year-End Checklist

As we approach year end, it’s a great time to re-visit planning strategies while there is still time to implement and benefit.

For a summary of our top year-end planning considerations, see our checklist and write up below:

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• Maximize Tax Advantaged Savings
• Loss Harvest & Rebalance Portfolios
• Roth Conversions
• Model Tax Scenarios
• Required Minimum Distributions
• Spend Flex Spending Accounts

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• 2 Bonus Year-End Planning Items

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Maximize Tax Advantaged Savings

There are various deadlines for tax advantaged saving opportunities (retirement, education and health saving accounts).

Account openings and/or contribution deadlines can vary from year end to the end of January of the next year, or March, or before the tax filing deadline. It just depends on what type of account fits best into your plan and what those deadlines are.

To ensure that you maximize your tax advantaged savings, review your plan and status of account funding before year-end.

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Loss Harvest & Rebalancing

The silver lining to investment losses, is that losses can reduce your tax bill. In order for this to happen though, you need to sell investments to realize losses.

One strategy to consider, would be to sell investments at a loss, while buying similar investments with the sale proceeds. This allows you to maintain your investment exposure, while gaining a tax benefit at the same time.

Additionally, if you have any investments that you would like to get out of, a down market may be a good time. The underlying gain/tax impact of selling would be relatively less if your investment is down.

Before you implement these strategies however, it is worth noting that investment losses do have limits on what type of income they can offset. And there are timelines on when you sell and re-purchase investments that may dis-allow this strategy. If you are working with us, we will of course help navigate these rules, but it’s worth noting.

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Roth Conversions

Roth IRAs & 401ks offer great future tax advantages. Their tax advantages can be so impactful, that it may even make sense to pay more in tax now, to convert non-Roth accounts to Roth and lock in the future benefits of the Roth account.

As a quick summary, IRA & 401k savings that were made as tax-deferred contributions gave you a tax advantage up front by reducing your taxable income at the time of contribution. This would be a non-Roth contribution. Withdrawals in the future from these non-Roth accounts would then be taxable.

Roth accounts however are tax-free on their growth and withdrawal, but you would not receive a tax deduction up front, on the contribution. In other words, you choose to pay tax now rather than at the time of withdrawal, when making a Roth conversion (or contribution).

There are a number of considerations on whether the Roth conversion would pay off, but generally, if you have over 10 years until retirement or are in a relatively lower tax bracket now, a Roth conversion would be worth considering. This is a very over simplified statement, and more analysis would be needed, but it’s a starting point for those unfamiliar.

Since a Roth conversion requires more in depth tax analysis, it is a great year-end consideration since your income estimate for the year should be fairly clear. This will help in modeling your tax projection and the impact of a Roth conversion.

Additionally, during down markets, you may able to convert retirement accounts for a relatively lower tax cost. Converting while investment values are lower, means you report a lower conversion amount and pay less in taxes than converting when the values are relatively higher.

And finally, tax rates remain at historic lows and are set to increase in 2025. This again could represent a current opportunity to convert to a Roth, at a relatively lower cost.

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Model Tax Scenarios To Help:

• Identify if there are any credits or deductions that would still be available before year end.
• Determine if you need to make estimated tax payments.
• Coordinate any charitable gifting goals with your tax plan.
• Analyze if this is an ideal year to shift income or expenses.
  • This is helpful to identify what planning strategies to pursue.
  • This is also helpful for business owners or rental property owners, who have more control over when cash flows occur.

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Required Minimum Distributions

If you are required to take minimum distributions from your retirement accounts, it is good to review the status of this before the last few weeks of the year. Financial institutions will be closed during holidays and it may take a few days to process a distribution.

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Spend Flexible Spending Accounts (FSAs)

If you have an FSA account that is funded with “use it or lose it” dollars, make sure you spend the money before you, “lose it.” There may be medical items you could purchase now that you’ll use in the future.

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Bonus Year-End Planning Items:

These items don’t necessarily have a set year-end deadline, but they are still great year-end review items:

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Insurance Review

With health insurance enrollment and employer benefit enrollment occurring in the fall, the latter part of the year is a great time to review your insurance coverage along with this enrollment period.

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Estate Plan Review

The year end could also be a good time to review your estate plan. Although a grim topic, if you plan to see family over the holidays, it could be a good opportunity to talk to them about family estate plans.

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Hopefully this list is helpful as we go into the year end. If you would like to talk further about any of the items mentioned or have a year-end check in, please contact us to talk further about your situation.

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Disclosures:
Impact Financial, LLC (“Impact Financial”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Impact Financial and its representatives are properly licensed or exempt from licensure. This article provides general information and should not be taken as advice or a specific recommendation. Please consult with a trusted advisor to receive advice specific to you.