Year-End Financial Checklist: Steps to Start the New Year Right

As the year draws to a close, it’s the perfect time to take stock of your financial position and make strategic moves to start the new year on solid footing. This checklist outlines essential year-end steps to maximize tax efficiency, optimize your investments, and align your finances with your future goals. These proactive measures can have a significant impact on your financial well-being for the coming year.

1. Adjust Your Tax Withholdings

Reviewing your tax withholdings can help prevent surprises at tax time. Using the IRS’s Tax Withholding Estimator, determine whether you need to adjust your W-4 to cover any gaps. Increasing your withholding for the final paychecks of the year may help you avoid an unexpected tax bill or penalty come April.

2. Maximize Retirement Contributions

Contributing the maximum allowed to retirement accounts not only strengthens your savings but also reduces taxable income for the year. For 2024, the limits are:

· 401(k): $23,000, with an additional $7,500 catch-up contribution for those 50+.

· Traditional and Roth IRAs: $7,000, with a $1,000 catch-up contribution for those 50+.

Maximizing these contributions can significantly impact your long-term financial health. If you’re unsure which accounts to prioritize, a financial advisor can help you tailor contributions based on your goals and tax situation.

3. Consider a Roth Conversion

If you’re in a lower tax bracket or expect your tax rate to rise, converting a portion of your traditional IRA to a Roth IRA may be beneficial. While you’ll pay taxes on the converted amount now, future withdrawals from the Roth IRA will be tax-free. This strategy can be spread over several years to minimize your tax liability and help you maintain a lower tax bracket.

4. Leverage Tax-Loss Harvesting

Offsetting capital gains with losses from investments can lower your taxable income. If you have underperforming assets, consider selling them to “harvest” the loss, which you can use to offset capital gains or even reduce ordinary income by up to $3,000. Be mindful of the “wash sale” rule, which prevents repurchasing the same investment within 30 days. An advisor can help you implement this strategy in line with your broader financial objectives.

5. Review Charitable Contributions

Year-end is a popular time for charitable giving, and your donations can provide a valuable tax deduction. Consider the following strategies:

• Direct Donations: Cash donations are deductible, and you can deduct up to $300 for single filers and $600 for married couples filing jointly, even if you take the standard deduction.
• Donor-Advised Funds: Establishing a donor-advised fund allows you to make a large donation now, take the tax deduction, and distribute the funds to charities over time.
• Appreciated Securities: Donating appreciated stocks or mutual funds that you’ve held for more than a year can let you avoid capital gains taxes on the appreciation while still receiving a charitable deduction.
• Charitable Donation Limits and Requirements: For cash donations over $250, you’ll need written acknowledgment from the charity. For non-cash donations valued above $5,000, a written appraisal is required to claim the deduction.

6. Satisfy Required Minimum Distributions (RMDs)

If you’re 73 or older, you must take required minimum distributions (RMDs) from traditional IRAs and other tax-deferred accounts. Missing the RMD deadline can result in a 50% penalty on the amount you should have withdrawn, so it’s crucial to complete this before year-end. If you don’t need the funds, consider a Qualified Charitable Distribution (QCD) to donate up to $100,000 directly from your IRA to a charity. This move satisfies your RMD and reduces taxable income.

7. Reevaluate and Rebalance Your Investment Strategy

The end of the year is a great time to review your asset allocation and determine if your portfolio aligns with your financial goals. Market fluctuations may have caused some assets to drift from your target allocation, increasing risk. By rebalancing your portfolio, you can bring it back in line with your desired risk tolerance and time horizon. This might involve selling assets that have appreciated significantly and reinvesting in underweighted areas.

8. Reassess Long-Term Goals and Define Your Nest Egg

Reflect on your long-term financial goals and evaluate your progress toward building a retirement nest egg. The end of the year is an ideal time to assess whether your savings are on track to support your envisioned lifestyle. This may involve recalculating your future financial needs and adjusting contributions to bridge any gaps. Setting specific, measurable goals for the coming year can help you stay motivated and aligned with your financial objectives. Consulting with a financial advisor can provide a clearer picture of how much to save and where to allocate funds to support your retirement vision.

9. Plan Ahead for Upcoming Tax Changes

Each year brings potential changes to tax laws, which can impact your financial strategies. Staying informed allows you to adjust your tax planning proactively. Meet with your financial advisor or accountant to discuss any new laws that may affect you, such as changes in tax brackets, deduction limits, or estate tax thresholds.

10. Schedule a Financial Review with a Fiduciary Advisor

Whether you’re looking for a second opinion or comprehensive year-end advice, meeting with a fiduciary advisor can provide clarity and direction. A professional advisor can help you optimize your finances, stay on track for retirement, and make the most of tax-saving opportunities. Kowal Investment Group offers a complimentary review to help you navigate year-end strategies and set a strong foundation for the future.

Start the New Year Strong with Kowal Investment Group

Taking control of your finances at year-end can create a positive impact on your financial health for the new year. Kowal Investment Group is here to help you implement these strategies, from maximizing tax efficiency to aligning your investments with your goals. Contact us today for a personalized review and start the year with a clear financial plan.

Disclosures:

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of Kowal Investment Group, we do not render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

Any opinions are those of Kowal Investment Group. This material is being provided for informational purposes only and is not a complete description, nor is it a recommendation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or a loss regardless of strategy selected. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Kowal Investment Group, LLC (“Kowal”) is a Registered Investment Advisor (“RIA”). Kowal provides investment advisory and related services for clients in State of Wisconsin and other states. Kowal will maintain all applicable registration and licenses as required by the various states in which Kowal conducts business, as applicable. Kowal renders individualized responses to persons in a particular state only after complying with all regulatory requirements, or pursuant to an applicable state exemption or exclusion.