A practical year-end checklist for making more intentional financial decisions before December 31
The end of the year can be one of the most valuable times to review your finances. Many tax, retirement, investment, insurance, and estate-planning opportunities are tied to the calendar year - and some may be harder to address once December 31 has passed.
Rather than waiting until tax season to look backward at what happened, year-end planning gives you an opportunity to look forward and make intentional decisions while there is still time.
Here are five financial planning moves to consider before year-end.
Start by looking at how much you're contributing to your retirement accounts.
If you participate in a 401(k), 403(b), 457(b), or another employer-sponsored retirement plan, review your year-to-date contributions and determine whether increasing your contribution before year-end makes sense.
For some people, that may mean trying to maximize their available contribution. For others, the more important question may be where those contributions should go.
Should you be making traditional pre-tax contributions, Roth contributions, or a combination of the two? The answer may depend on your current tax bracket, expected future income, existing retirement assets, and long-term tax strategy.
The goal isn't necessarily to accumulate the largest possible pre-tax retirement account. It's to build assets in a way that provides flexibility when you eventually need to create retirement income.
Many people think about taxes when they file their return in the spring. By then, however, many of the planning decisions that could have affected the prior year's taxes are already behind them.
Before December 31, consider reviewing your overall tax picture. Depending on your circumstances, potential strategies could include realizing investment losses to offset gains, strategically realizing gains, evaluating charitable contributions, reviewing Roth conversion opportunities, or coordinating income and deductions between tax years.
For investors with taxable accounts, year-end is also a good time to review whether the portfolio is generating unnecessary taxable distributions or whether highly appreciated or concentrated positions should be addressed as part of a longer-term strategy.
Tax preparation tells you what happened. Tax planning asks what you can still do about it.
Your financial professional and tax advisor can work together to determine which strategies may be appropriate for your individual situation.
Markets move - and when they do, your portfolio can gradually move away from its original strategy.
For example, strong performance in one part of the market may leave you with significantly more stock exposure than you originally intended. Conversely, market declines can create opportunities to rebalance or reposition assets.
Year-end is a natural time to ask whether your current portfolio still reflects your goals and risk tolerance, whether you are properly diversified, whether concentrated positions should be addressed, how much money you may need from the portfolio over the next few years, whether your time horizon has changed, and whether your taxable and retirement accounts are working together efficiently.
The purpose of rebalancing isn't to predict what markets will do next. It's to make sure the amount of risk you're taking remains aligned with the financial plan you're trying to accomplish.
Financial planning isn't only about accumulating money. It's also about protecting what you've already built.
Take a few minutes before year-end to review your life insurance, disability income insurance, and long-term care insurance. Life changes quickly. Marriage, divorce, a new child or grandchild, a new home, a business transaction, retirement, or simply another year of financial progress can change the amount and type of protection you need.
This is also a good time to review your beneficiary designations on retirement accounts, life insurance policies, annuities, and other financial accounts. Beneficiary designations are easy to overlook, but they can play an important role in how assets ultimately transfer.
You may also want to revisit your will, trusts, powers of attorney, healthcare directives, and overall estate plan with your attorney - particularly if your family or financial circumstances have changed.
Estate planning isn't just for the ultra-wealthy. At its core, it's about making sure the assets you've worked hard to build ultimately go to the people and causes you care about in the manner you intended.
Perhaps the most important year-end move has nothing to do with December 31. It's deciding what you want to accomplish next.
Ask yourself: If we're sitting here one year from today, what would need to happen financially for me to feel like I made meaningful progress?
Maybe it's increasing retirement savings. Maybe it's finally developing a retirement income strategy. Maybe it's paying down debt, building an emergency reserve, funding college, purchasing a second home, protecting your family, updating your estate plan, or creating a strategy to transfer wealth to the next generation.
Once you identify those priorities, you can begin putting actual numbers and timelines around them.
That's where financial planning becomes more than a collection of investment accounts and insurance policies. It becomes a coordinated strategy designed around the life you're trying to build.
Year-end financial planning doesn't have to be complicated.
In many cases, the most valuable first step is simply taking inventory: Where are you today? What has changed? What opportunities exist? And what do you want the next several years to look like?
The answers to those questions can help determine which strategies deserve your attention before the calendar turns.
Not every strategy will be appropriate for every person. Decisions involving investments, retirement accounts, taxes, insurance, and estate planning should be evaluated based on your individual circumstances and coordinated with the appropriate financial, tax, and legal professionals.
The goal is not simply to finish the year. It is to enter the next one with a plan.