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Year-end financial planning is an important exercise, arming you with the insights you need to help maximize your savings, minimize your tax bill, and protect the ones you love from risk.
Indeed, with the bulk of the year in the rearview mirror, the fourth quarter provides a unique opportunity to pulse check where you are today versus where you want to be — and course correct as needed.
“We always want to avoid financial surprises,” said Corey Schneider, chief executive officer of Sentinel Solutions in New York, New York. “That’s really the end game. You don’t want to find out after the fact that you didn’t have enough money saved for your kid’s college education, or that you don’t have enough coverage after you become disabled. An annual review helps you avoid forgetting important steps.”
The following financial checklist can help you plan for the year ahead and prioritize your goals.
- Review your employer benefits.
- Update your beneficiary forms.
- Evaluate your tax withholding.
- Optimize your retirement plan contributions.
- Help offset capital gains with losses.
- Rebalance your asset allocation.
- Adjust your withdrawal rate (for retirees).
- Consider family gifting and/or charitable donations.
Review your employer benefits
Many employers offer open enrollment in the fall, during which time you may select or change your benefits such as health, vision, dental, and long-term care insurance, as well as group life and disability income insurance coverage. (Learn more: Why group life insurance at work may not be enough)
You may also be asked to make decisions about voluntary elected contributions to a flexible spending account or Health Savings Account, if offered. (Learn more: Differences between FSAs and HSAs explained)
Financial professionals encourage working adults to resist the urge to simply replicate the benefits package they selected for the prior year, as premiums and benefit offerings change year to year. Your needs may change, too.
“If you are married and your spouse works, compare and contrast both of your benefits packages and choose the one that works best for your family,” said Gil Fernandez, a wealth management advisor with Edify Financial Consulting Group in Ft. Lauderdale, Florida.
“In the last trimester of the year, we start thinking about open enrollment and making sure that any new goals or life changes (marriage, divorce, birth, or a death in the family) are reflected in your benefits,” said Schneider. “We always want to make sure that the benefits you choose at work and what you choose at home are aligned with tax law and your goals and objectives. I would suggest working with a financial professional or someone who really understands the insurance industry in particular, and knows how to protect your assets. Get real advice.”
Update your beneficiary forms
If you’ve experienced a change in family status this year, you should take this opportunity to review and update (if needed) the beneficiary forms for your retirement accounts (IRAs and 401(k)s), life insurance policies, and annuities, which may be among your largest assets.
This is important. Why? The beneficiary forms for such accounts are legally binding documents that transfer outside of what is stated in your will. If you change your will after a divorce, but forget to update your IRA beneficiary form, for example, that asset could go to your ex-spouse (or his or her heirs) decades from now when you die. (Learn more: Common beneficiary mistakes)
Evaluate your tax withholding
You can avoid an unpleasant surprise — and potentially a penalty — when you file your tax return next spring by doing some quick math now to be sure you’re on track to have paid what you owe to Uncle Sam by Dec. 31.
“This is a good time to look at your federal withholding with your accountant or financial professional and review your paystubs to make some projections,” said Fernandez. “If you’re off, there’s still time to make additional elective contributions to increase your withholding.”
You can project your income for the full year and compare that with the previous year, an exercise that is especially important for those whose take-home pay fluctuates, like independent contractors, small-business owners, or commission-based salespeople. Now estimate your annual tax withholding.
If you expect to owe the IRS next spring, you can reduce your pending tax bill and potentially avoid a penalty by boosting your withholding for the remaining pay periods of the year. You could avoid an underpayment penalty if:
- Your filed tax return shows you owe less than $1,000, or…
- You paid at least 90 percent of the tax shown on the return for the taxable year or 100 percent of the tax shown on your tax return for the prior year, whichever amount is less. If your adjusted gross income (AGI) for 2023 was more than $150,000 ($75,000 if your filing status for 2024 is married filing separately), substitute 110 percent for 100 percent.
Conversely, if you project you’ll be receiving a hefty tax refund when you file your income tax return in April, consider withholding less from your paycheck now so there’s more in your pocket monthly. After all, getting a tax refund is tantamount to giving the government an interest-free loan.
The IRS provides a Tax Withholding dalculator that makes it easy to determine how your withholding amount affects your refund, take-home pay, and taxes due.
Optimize your retirement plan contributions
Now is also a good time to be sure that you’re contributing as much as you can to your retirement plan, although many employers allow you to adjust your elected deferrals at any time. (Related: Retirement plan contribution limits: Your need-to-know)
The deadline to make current year contributions to your 401(k) is Dec. 31, but those with an individual retirement account (IRA) may make prior year contributions all the way up to the tax-filing deadline on April 15.
Contributions to a pretax retirement plan reduce your taxable income for the year, which may help lower your tax liability. (Related: 6 simple ways to become a super saver)
If you’re not fully funding your retirement plan, financial professionals recommend at least contributing enough to collect any employer match and setting a goal to increase your contribution with every raise or bonus you receive. (Calculator: How much do I need for retirement?)
With higher income tax rates looming and the lifetime estate tax exclusion limit slated to be cut in half starting in 2026, barring congressional action, higher income households may also wish to consider converting some of their pretax retirement savings to a Roth IRA this year to potentially reduce their future tax bill. (Learn more: Roth IRA conversions explained)
Help offset capital gains with losses
You may be able to reduce your current year tax liability further still by selling some of your underperforming assets to offset some of your capital gains — a strategy commonly deployed at year-end known as tax-loss harvesting. (Learn more: Year-end tax-planning moves)
The IRS permits taxpayers to offset all of the capital gains in a portfolio in any given year with their investment losses. Any excess loss can be used to offset ordinary income up to $3,000 per year ($1,500 for married individuals who file separately) until the loss is used up.1
Rebalance your asset allocation
There is no time like the present to review your investment allocation — your portfolio’s unique blend of stocks, bonds, and cash — to be sure that it still reflects your financial goals and tolerance for risk. (Related: What’s your risk profile?)
Indeed, as market performance ebbs and flows, certain segments of your portfolio will outperform (or underperform) the others, causing your asset allocation to drift. That reduces downside protection and may result in lower returns.
Your financial professional can help you rebalance your portfolio to bring your allocation back in line, or adjust it based on changing priorities. (Learn more: Fix your mix: Asset allocation)
“We normally review portfolios on a quarterly basis — more often than that depending on market volatility — but if you haven’t rebalanced your portfolio yet this year you need to check your holdings,” said Fernandez. “It’s also wise to explore other investment options in an actively managed portfolio that offer downside protection.”
That may include a buffer exchange-traded fund (ETF) that hedges against stock market losses while guaranteeing a payout, or stop-loss orders that trigger an automatic sale if a stock price falls to a predetermined level, he said.
“You want to stay invested, but think about what happens if things go sideways. How do you protect for that?” said Fernandez.
Adjust your withdrawal rate (for retirees)
If you are retired, you should also revisit your withdrawal rate — the amount of money you pull from your portfolio every year — to determine if it’s sustainable based on your investment returns. (Learn more: How to determine your ideal retirement withdrawal rate)
Your ideal withdrawal rate is determined by a combination of factors including your investment’s performance, your expected longevity, the size of your portfolio, your expenses, and the amount of guaranteed retirement income you have coming in.
Schneider said he often recommends that retirees create a guaranteed income stream to cover their living expenses for the next 10 years, typically using annuities, and invest the rest for growth. In many cases, he said, that helps protect them from the effects of stock market volatility and enables them to be more aggressive with their investment portfolio.
A financial professional can help you calculate your income needs, optimize for tax efficiency, and tweak your annual withdrawal rate as needed based on your investment returns. (Learn more: Tips to help maximize your retirement income)
Consider family gifting and/or charitable donations
You may also be able to reduce the size of your taxable estate (and leave more to your heirs and causes you care about) by gifting some of your assets before the new year.
For tax year 2024, the IRS permits individuals to gift any number of people up to $18,000 ($36,000 for married couples) per year tax-free.2 Those numbers rise to $19,000 and $38,000, respectively, for 2025. Thus, in 2024 a married couple with two children and five grandchildren may transfer up to $252,000 ($266,000 in 2025) to their descendants without triggering a tax bill, which removes those assets from their estate.
Separately, individuals are permitted to gift a total of up to $13.6 million ($27.22 million for married couples) to their heirs without triggering taxes under the lifetime gift and federal estate tax exclusion. Those limits rise to $13.99 million and $27.98 million, respectively, for 2025. (Related: Lifetime gifting: Benefits and considerations)
As for charities, philanthropists can donate cash directly to a qualified charitable organization and potentially receive a tax deduction in the year they give. They can also donate appreciated stocks or securities and deduct the fair market value of their donation. Or, they can gift up to $100,000 ($108,000 in 2025) to a charity tax-free through a qualified charitable distribution (QCD). For those at least age 73, QCDs count toward their required minimum distribution (RMD) from their IRA, which may reduce the taxes they owe.2
Another option is to donate a permanent life insurance policy to a favorite cause, which may enable you to give more. When you make a charity the beneficiary of your permanent life insurance policy’s death benefit, you get to retain ownership of the policy during your lifetime, which gives you continued access to its cash value. The charity would receive the remaining death benefit after you pass away. (Related: Using life insurance for charity)
Conclusion
Year-end financial planning is an important step in helping you reach your short- and long-term goals. By working closely with a trusted professional, you can develop a personalized road map to financial security, one that helps protect your family, reduces downside risk, and potentially boosts your risk-adjusted returns.
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1 Internal Revenue Service, “Topic no. 409, Capital gains and losses,” Oct. 16, 2024.
2 Internal Revenue Service, “Qualified charitable distributions allow eligible IRA owners up to $100,000 in tax-free gifts to charity,” Nov. 16, 2023.