What should you do before December 31st to strengthen your finances? At year-end, there are a few critical steps you can take:
- Maximize retirement contributions
- Use up FSA funds or add to your HSA
- Take your Required Minimum Distributions (RMD)
- Review tax-loss harvesting opportunities
- Update insurance, estate plans, and beneficiaries
These year-end financial moves can help you reduce taxes, avoid penalties, and set yourself up for a stronger start to the new year.
Get your copy: Be sure to get your copy of our Year-End Financial Checklist, a concise guide covering the essential steps that will help you maximize tax savings, fine-tune your financial plan, and avoid potential penalties.
Why Year-End Financial Planning Matters
The end of the year always seems to sneak up on us. After Thanksgiving, the buzz of the holiday season keeps us busy through the New Year and tax season probably isn't even a distant thought yet. But there are a number of reasons to make year-end financial and estate planning a priority because once the year turns over there's no going back.
Here are twelve valuable tips to make sure you act on, if needed, before the end of the year so you can head into next year feeling confident about your financial health:
1) Check Your Flexible Spending Account (FSA) Balance Or Contribute To Your Health Savings Account (HSA)
If your employer plan does not allow rolling money over into the next year, make sure you spend the balance on qualified expenses so you don't lose out.
2) Take Your Required Minimum Distribution (RMD)
If you don't take your RMD from accounts that require it, you could be subject to penalties and taxes.
3) Make A Qualified Charitable Distribution (QCD)
If you make a QCD from your IRA, you may reduce the amount of tax owed.
4) Prepay Charitable Gifts
Thinking ahead about next year's charitable gifts may allow for a larger tax deduction this year if you pay out the money this year.
5) Select Next Year's Employer Benefits
Open enrollment is typically in December. Consider taking advantage of all available options, including a Flexible Spending Account (FSA), Health Savings Account (HSA), life insurance, and more.
6) Max Out 401(k) And IRA Contributions
Maximizing the amount you contribute allows you to take advantage of available tax deductions and employer-matching contributions.
7) Consider A Roth Conversion
If you're unable to contribute to a Roth IRA directly because you don't qualify, you may benefit from contributing to a Traditional IRA and then converting the funds to a Roth IRA.
8) Use Tax Loss Harvesting
If you have stock positions that have lost value, consider selling them to offset gains and reduce taxable income. Remember that the IRS only allows $3,000 of losses per year. You should try to be proactive in your tax planning. Learn about some common and not-so-common tax questions here from Debt.com
9) Plan For Upcoming Life Events
A job change, home or car purchase, surgery, or other life event requires planning ahead, where possible.
10) Review Your Estate Plan
Ensure your overall estate plan, including your will, trust, and health care power of attorney, are current.
11) Review Insurance Policies
Review your home, auto, and life insurance policies to determine if you have enough coverage or if deductibles need to be adjusted.
12) Update Your Beneficiaries
Double-check if changes or updates are needed on your accounts. It's all too common to leave an ex-spouse, for example, assigned accidentally.
Final Thoughts: Get Professional Guidance Before Year-End
The most important decision you can make as the year comes to a close is to speak with a financial professional to ensure everything is in order with your overall financial situation. There's still time left in the year to take action if needed, but time is running out.
Wondering which strategies apply to you? Schedule a year-end financial review with Bayntree Wealth Advisors today to make sure you don't leave money on the table this December.
FAQs About Year-End Planning
What financial moves should I make before December 31?
You should review retirement contributions, use up FSA funds, take RMDs if required, consider tax-loss harvesting, and update insurance, estate plans, and beneficiaries.
Why is year-end financial planning important?
Because many strategies have hard deadlines on December 31. Missing them could mean lost tax benefits, penalties, or missed opportunities to grow your wealth.
Should I talk to a financial advisor for year-end planning?
Yes. A financial advisor can help you decide if strategies like Roth conversions, charitable gifting, or maxing out retirement contributions make sense for your situation.
Can I still contribute to my IRA or 401(k) after December 31?
401(k) contributions must be made by December 31. IRA contributions can typically be made up until Tax Day of the following year.
What happens if I miss my Required Minimum Distribution (RMD)?
If you don't take your RMD, the IRS may assess a penalty of 25% of the amount you should have withdrawn (though recent IRS rules may reduce this if corrected quickly).
How can charitable giving lower my taxes at year-end?
Charitable strategies like Qualified Charitable Distributions (QCDs) from an IRA or prepaying donations before December 31 can reduce taxable income for the current year.
What's the difference between using an FSA and an HSA at year-end?
FSA balances are often "use it or lose it," meaning leftover funds may expire. HSA contributions can roll over year to year, and they grow tax-free.
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Investment advice is offered through Bayntree Wealth Advisors, LLC, an SEC-registered investment adviser. Insurance and annuity products are offered separately through Bayntree Wealth Advisors. Bayntree does not provide, and no statement contained herein shall constitute, tax or legal advice. You should consult a tax or legal professional on any such matters. Opinions expressed herein are solely those of Bayntree Wealth Advisors. All content is for informational purposes only and is not intended to provide the basis for any financial decisions.
