It seems like we just rang in the new year and here we are at the end of 2024. So, with the time left this year, here are some financial matters to attend to before you sing Auld Lang Syne again. For example:
Review investment accounts
Check your retirement and non-retirement accounts. Are your accounts out of balance with your investment plan? Is it time to rebalance? Is it time to change your investment strategy because you’re a little closer to retirement or because there have been changes in your personal life like marriage, divorce, a death in the family or because you’ve decided to work longer than originally planned. If that’s the case, make sure your portfolio allocations are in line with your current time horizon and risk tolerance.
Evaluate your risk tolerance honestly. A wise man I know said, “You never truly know what your risk tolerance is until the market goes way down.” But don’t let fear make you miss the opportunities that will be available when the market turns. You need to plan for those opportunities now.
Convert your Traditional IRA to Roth IRA
In retirement, having access to tax-free IRA distributions can be a benefit. One way to accomplish that is converting some or all of your Traditional IRA into a Roth IRA. But a conversion is taxable and you will have to pay ordinary income taxes on the conversion amount. There are no early withdrawal penalties. If the value of your IRA is down, or if you have less income this year, now may be a great time to do a conversion.
Tax loss harvesting
No one wants to pay more taxes than necessary and harvesting capital losses to offset any capital gains is one way to do that. Even if you can’t use all the losses this year, excess losses are carried forward to be used in future years.
You might be reluctant to sell an investment you really like. But keep in mind the Wash Sale Rule from IRS Code section 1092. It allows you to sell a position at a loss, deduct the loss, and buy back the same investment after 30 days. Buy it back in less than 30 days and the deduction is not allowed. The risk is if there is a major move up in the price of that investment during the 30-day period.
Max out retirement plan contributions
Every $100 of deductions you gather now can reduce your federal tax bill by up to $37 next April. Here are some possibilities.
- For 2024 you can contribute $23,000 to 401(k)s, 403(b)s, 457 plans and the government Thrift Savings Plan (TSP).
- If you’re 50 or older and take advantage of the catch-up contribution, you can contribute an additional $7,500 for a maximum contribution of $30,500. Retirement plan contributions must be made by December 31st to count toward your current year deductions.
- You can make a tax-deductible contribution of up to $7,000 dollars to a Traditional IRA; $8,000 if you’re 50 or older. You have until April 15 of next year to make your IRA contribution for this year.
- If you are self-employed, you can contribute to a Simplified Employee Pension (SEP). Maximum contribution is 25% of compensation or $69,000, whichever is less.
IRA qualified charitable distribution
Charitable donations are deductible for donors who itemize. Deductions for donations to public charities, including donor-advised funds, are generally limited to 50% of adjusted gross income (AGI). The limit increases to 60% of AGI for cash gifts, while the limit on donating appreciated non-cash assets held more than one year is 30% of AGI. Contribution amounts in excess of these deduction limits may be carried over up to five subsequent tax years.
Max out healthcare accounts
If you have a flexible spending account (FSA) at work, check the remaining balance. Some plans allow you to roll unused funds into next year. But if your plan doesn’t have a rollover provision, use the remaining funds before the end of the year. Don’t leave money on the table.
If you qualify for a Health Savings Account (HAS), max it out before the end of the year. For 2024, individuals can contribute $4,150. Families can contribute $8,300. If you’re 55 years old or older, you can make an additional $1,000 contribution.
Gift life insurance
Another charitable giving option is life insurance. Purchase a life insurance policy and name the charity as owner and beneficiary. You can fund the policy with a lump sum or pay premiums. Both are tax deductible in the year given.
You can also gift an existing policy. For example, you may be considering whether to cancel a policy you purchased for a need that doesn’t exist anymore. Transfer the policy to the charity, making it the owner and the beneficiary. You’ll get a current tax deduction for the policy’s fair market value.
Pay your property taxes early
If you have to pay property taxes in January, pay them in December. Do that and you pick up another tax deduction for this year.
Clean out and give away
Go through your clothes. Go through your attic. Get rid of stuff you don’t need, don’t wear, don’t use or doesn’t have sentimental value. You’re better off getting a tax deduction for stuff that’s just taking up space in your house, your garage, or your storage unit. Donations must be made by December 31.
Review your insurance
Reviewing your insurance is always a good idea, but in the current economic environment it’s more important than ever. Inflation has driven up the price of everything, including the price of cars and the cost of building materials. That’s why most insurance companies have increased premiums—substantially. So, shop around. See if you can get the same coverage or more for a better price than you are currently paying. The extra money is better in your pocket.
Also, review your life insurance. See if the amount you have is still what you need. For example, many people buy life insurance in case they die and there’s not enough money to take care of the family—things like income or paying for college. But if the kids are grown, that’s an expense that no longer exists and doesn’t need to be insured against. Review your coverage and see how much life insurance you need now.
Check your credit report
You’ve heard it said, check your credit report at least once a year. With the ever-present threat of identity theft, a check of your credit report will turn up errors and things that don’t belong to you. Fraud on your report can be corrected but it’s best to catch it early.
You’re entitled to one free credit report every year from each of the three credit reporting agencies—Experian, TransUnion and Equifax. You can request those reports at annualcreditreport.com.
Review Your Tax Withholding
Changes in your number of dependents, income, and marital status can affect how much tax you owe. A review will tell you whether you should adjust your W-4 withholding from your paycheck. The IRS tax withholding calculator can help. It may be too late for changes to your withholding this year, but you can get it in place for next year.
Review Your Budget
Look back 12 months. Did you stay on budget or did you spend more than you planned? If so, why? Did you save as much as you projected or did you get off track? Were you able to pay off debt or did unexpected expenses increase what you owe? Regroup. Refocus. Set your financial goals for next year.
Plan for Large Expenses Coming in the Next 12 Months
What big expenses are coming up next year—a wedding, divorce, birth of a child, starting college or opening a business? Will you be having major dental work or surgery? What about home repairs or buying another car? If you’re aware of something big, you can begin to plan now rather than take the big hit all at once.
Check Your Beneficiaries
Has anything changed in your life that would affect who you name as beneficiaries? If so, have you changed your beneficiary forms to match your current situation? If not, it’s time to review.
For example, let’s say you’re divorced and got remarried this year. You didn’t change the beneficiary designation on your retirement accounts to your new spouse. If you die, your ex-spouse gets the money, and wouldn’t that cause some problems?
Your will is not the final authority when it comes to accounts where you name a beneficiary. The U.S. Supreme Court has ruled that the most current beneficiary designation form you filled out and signed is the one that will be used to distribute your money. So, check everything with a designated beneficiary to make sure it’s exactly the way you want it:
Life insurance policies – Don’t forget policies through your employer
Annuities
Traditional IRA
Roth IRA
Inherited IRAs
401(k) account at your current employer
401(k) accounts at previous employers
403(b) accounts
Deferred Compensation Employer Plans
457 Government Plans
Health Savings Accounts
529 Education Savings Plans
Transfer on Death (TOD) accounts. These can be at banks, investment firms, savings and loans, or any financial institution.
Pensions
Filling out a new beneficiary designation form and signing it is easy, it doesn’t take much time, and it protects the ones you love.
Review Legal Documents
Laws can change just like your personal situation. So, review Wills, Trusts, Powers of Attorney, and the various healthcare documents to ensure that they’re up-to-date with current law. If you’ve moved to another state since your legal documents were created, you should check with an attorney to see if your documents are in line with the laws of your current state of residence.
There are probably lots of other things you’d prefer doing than going through a year-end checklist. But it’s the best way to keep your financial house in order.
Disclaimer
This information is presented for informational purposes only and does not constitute an offer to sell, or the solicitation of an offer to buy any investment products. None of the information herein constitutes an investment recommendation, investment advice or an investment outlook. The opinions and conclusions contained in this report are those of the individual expressing those opinions. This information is non-tailored, non-specific information presented without regard for individual investment preferences or risk parameters. Some investments are not suitable for all investors, all investments entail risk and there can be no assurance that any investment strategy will be successful. This information is based on sources believed to be reliable and Alhambra is not responsible for errors, inaccuracies, or omissions of information. For more information contact Alhambra Investment Partners at 1-888-777-0970 or email us at [email protected].
