Client Question: Year-End Action Items

November 30, 2023

I’ve had quite a few client meetings this week as we all re-enter the real world after a nice Thanksgiving break (hope you enjoyed the holiday!). During each of these meetings, I’ve provided clients with year-end action items that need to be taken care of before we turn the calendar to 2024.

If you are a Windermere client, rest assured that you will be hearing from me with your own year-end list! But I thought it would be worth sharing a few items everyone reading this should consider taking care of during the final month of the year. Just like Santa, you each have a list to make and check twice!

1.) Finalize contributions to employer plans – Employer plans (like 401ks and 403Bs) follow calendar years. As a result, December is the final month to fund these plans for tax year 2023. The employee contribution max is $22,500 – so if you wish to reach that level and have yet to do so, ramp up your contributions during this final month

2.) Make (or plan for) contributions to individual retirement accounts – you have until tax filing deadline in April to fund individual retirement accounts (such as IRAs, Roth IRAs, Self-employed IRAs). However, now is a great time to evaluate your eligibility (based on 2023 income) and if you qualify, make plans to have the cash on hand early in the new year

3.) Process any Required Minimums Distributions (RMDs) – I wrote about RMDs here and the change to RMD rules here. In short, they are amounts you must withdraw from pre-tax retirement accounts per tax regulations. Penalties if you fail to do so by 12/31 are very steep so if you are subject to these rules, be sure to get your distributions made

4.) Review realized gains/losses and harvest as needed – Taxable (ie: non retirement) accounts generate taxable items such as dividends, interest, and capital gains/losses (difference between what you paid for an investment and what you sold it for). Every year, it is worth taking a close look at taxable accounts and perhaps realizing some losses (that can be partially used to offset income or future capital gains). See more on tax loss harvesting here. Also pay close attention to the impact of mutual fund distributions (learn more here)

5.) Give back – It is an excellent time of year to give to those in need. But beyond that, there may be tax strategies that give you added motivation to donate. Consult your tax advisor – or proceed with gifting no matter the tax impact. A donor advised fund may be worth considering as well, as it allows you to strategically increase your charitable tax deduction in a given year (and make the gifts in future year(s))

6.) Fund health savings accounts and spend Flex Spending  – You can read more about these accounts here. If you have a health insurance plan that allows for contributions to a Health Savings Account, review your YTD contributions (be sure to pick up employer portion as well). If you have yet to max out, you may wish to consider adding more. These are very beneficial from a tax perspective – both now and in the future. You have until April 2024 to fund for 2023 – but make a plan now as that will be here before we know it! And if you have a Flex Spend account, be sure to spend that balance before 12/31 (use it or lose it!)

7.) Refine your 2023 tax estimate – Now is a great time to check in on your 2023 estimated taxes owed vs. withholdings or payments. There may also be some tax strategies you could employ between now and year end to optimize your situation, so as always, consider reaching out to your tax and financial advisor to review your own situation

8.) Give to family and friends– the current annual gifting exemption for 2023 is $17,000 per person per calendar year. As a result, if you are feeling generous, now is a great time to make those gifts and take advantage of the annual exemption. And you can give more, a gift tax return will just be required! You can read more here

9.) Business financial review – if you are a business owner, you should have pretty good sightline to 2023 results at this stage. Work with your tax advisor to determine how your 2023 tax picture is looking and make plans to take any actions prior to year-end as appropriate

10.) Review cash levels – After all of the above are done, you will likely have a better idea on what cash balances are earmarked (for taxes, retirement savings, etc) and which are possibly available for investment, addition to near-term reserves, or other uses. Now more than ever, proper allocation of cash is important as yields on money market funds is well over 5%. Don’t overlook the power and stability of this asset!

11.) Make a savings plan for 2024 – one of the most powerful inputs to the long term compounding of wealth is your savings rate. Set a plan now for the upcoming year – and see what impact that has on your overall financial plan

12.) Enjoy the holidays! – last but not least, the holidays are here. Be sure to unplug and enjoy the time with family and friends.

Here’s to a successful end to 2023!

Note: All commentary above is as of the date of this post and is for education and informational purposes only. Windermere and its principals do not intend for this to serve as investment advice and are not responsible for any actions taken based on this article. Consult your financial advisor before taking any actions as it relates to your own investment portfolio

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