As we end the final quarter year, many people begin focusing on holiday plans and preparing for a new year. However, it's also one of the most important times to review your financial picture and determine whether there are any tax-related strategies worth considering before December 31.
While every individual's situation is different, taking the time to evaluate your finances before year-end may help you identify opportunities, avoid missed deadlines, and enter the new year with greater confidence. Here are several areas that may be worth discussing with your financial advisor and tax professional.
Review Retirement Contributions
Year-end is a good opportunity to check whether you're on track with your retirement savings goals. If you're contributing to an employer-sponsored retirement plan, such as a 401(k), you may want to review your current contribution rate and determine whether increasing it before year-end makes sense.
If you're eligible to contribute to an IRA, reviewing your contribution strategy may also be beneficial. Even small increases in retirement savings can have a meaningful impact over time.
Evaluate Capital Gains and Losses
If you have investments held in taxable accounts, reviewing your portfolio before year-end can be valuable. In some situations, realizing investment losses may help offset capital gains, a strategy commonly referred to as tax-loss harvesting.
It's important to remember that investment decisions should always align with your long-term financial goals—not solely tax considerations. Your advisor can help determine whether any portfolio adjustments are appropriate for your overall plan.
Consider Charitable Giving
For individuals who regularly support charitable organizations, year-end is often a popular time to make donations. Depending on your circumstances, charitable giving may provide tax benefits while allowing you to support causes that are meaningful to you.
Some retirees who are subject to Required Minimum Distributions (RMDs) may also wish to discuss whether a Qualified Charitable Distribution (QCD) is appropriate. Eligibility requirements and IRS rules apply, so it's important to consult your financial and tax professionals before taking action.
Review Required Minimum Distributions (RMDs)
If you're required to take a Required Minimum Distribution from certain retirement accounts, it's important to ensure your distribution is completed before the applicable deadline. Missing an RMD can result in significant penalties.
Reviewing your distribution plan well before year-end can help avoid unnecessary stress and allow time to address any administrative requirements.
Maximize Flexible Spending Account (FSA) Benefits
If you participate in a Flexible Spending Account through your employer, review your account balance and understand your plan's rules regarding unused funds. Some plans allow a limited carryover or grace period, while others require eligible expenses to be incurred before year-end.
Checking these details now can help you avoid forfeiting funds you have already set aside.
Review Tax Withholding
Life changes throughout the year—such as marriage, a new job, retirement, or changes in income—may affect whether your current tax withholding is appropriate.
A year-end review with your tax professional can help identify whether adjustments should be made going into the new year and potentially reduce surprises at tax time.
Discuss Roth Conversion Opportunities
Depending on your income, tax bracket, and long-term retirement strategy, a Roth IRA conversion may be worth evaluating before year-end.
Because converting assets may create current-year taxable income, it's important to carefully analyze whether the potential long-term benefits align with your overall financial plan.
Plan Ahead Rather Than Waiting Until Tax Season
One of the biggest advantages of year-end planning is that you still have time to make adjustments before important deadlines pass. Waiting until tax season often means many planning opportunities are no longer available.
Meeting with your financial advisor before year-end can help ensure your investment strategy, retirement planning, and tax considerations continue working together toward your long-term goals.