Even though the end of the year is packed with holidays, parties, and family visits, it’s also your last chance to make financial moves for the year. While financial planning is likely the last thing on your mind, you have the opportunity to make a difference in your financial and tax positions before year-end.
Most often, investors take the time to meet with their financial adviser or tax consultant to go over their situation. However, given the busy time, not everyone can fit meetings into their schedules. That doesn’t mean you’re out of luck, as there are several things you can do on your own to set yourself up for success in the future.
We first recommend rebalancing your portfolio. Given the lopsided growth of the market this year, there is a good chance that your portfolio is out of alignment with your intended allocation. Even if you have an adviser who takes care of your portfolio, you may still want to log into your 401(k) account and rebalance. This is often an account you control, and currently there are no tax consequences for transactions. Once you’re looking at it, check to see if the administrator’s portal offers automatic options like increasing your contribution annually or periodic rebalancing. Often, 401(k) administrators have useful tools that you can set up to make managing this account easier.
Next, look at any accounts that require mandatory distributions. If you are 73 or older, you generally must take required minimum distributions from traditional IRAs and employer-sponsored retirement plans. If you are not yet RMD age, consider any inherited accounts. Inherited IRAs often also have distribution requirements, depending on when they were inherited and from whom. Penalties for insufficient withdrawals can be up to 25% of the amount not taken.
You can also take steps to improve your tax situation. Make sure you have made contributions to your retirement plans. IRA, 401(k), and health savings account contributions generally lower your taxable income. You can even establish and fund IRAs up until the tax filing deadline of April 15, 2024, for tax year 2023. Another move would be to make charitable contributions before year-end. If you are RMD age, consider a qualified charitable distribution that keeps the distribution from being considered taxable income. You can also explore transferring highly appreciated stock to a qualified charity—this could help with rebalancing and avoiding capital gains while making potentially tax-deductible charitable donations.
Don’t forget gifting to friends and family. You can gift up to $17,000 to an unlimited number of individuals. We know there are few specific situations where an investor may have an extra $17,000 lying around; however, you can fund a 529 Plan and potentially get a state tax deduction.
These are just a few financial moves you can make with limited help from your advisory team. While we generally recommend consulting professionals, saving more for retirement is usually a move that will benefit you and one your adviser would approve of.
If you have questions about the year-end financial moves you’re considering, the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166
Listen to the December 9, 2023 “Henssler Money Talks” episode.
This article is for demonstrative and academic purposes and is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
