Money Matters: Go into 2025 strong with this year-end financial checklist

Jeff Witz, CFP

This year has been a rollercoaster. Inflation finally came back within the Fed’s target range, but concerns about an underlying recession remain. Strong employment numbers have tempered those fears, but other indicators suggest we are not out of the woods yet. Existing and new geopolitical conflicts continue to foster global uneasiness. The US presidential election has been ramping up tensions and could spill over into the markets with high volatility. When your financial plan faces these types of challenges, the end of the year presents a good opportunity to regroup and close out 2024 in the strongest position possible and ready yourself for 2025. Below is a list of year-end questions everyone should ponder. The sooner these items are addressed and adjustments are made, the better position you will likely be in next year.

Is your emergency fund fully funded? If you tapped into your emergency fund for any reason this year, it is important to make sure the account is replenished. It is always a good idea to review your budget and see whether your necessary spending has increased or decreased, and then review your emergency fund to ensure it is properly funded. As a reminder, the general rule of thumb for an emergency fund is to have 3 months of your necessary expenses saved in cash if you are a dual-income household and 6 months if you are a single-income household or one person earns significantly more than the other and their income is relied upon to maintain your family’s standard of living.

Have you maxed out your retirement accounts, or are they on track to max out by year-end? Contributions toward 401(k) and 403(b) plans must be made by December 31, 2024. The 2024 contribution limit for employee contributions is $23,000, or $30,500 if you are 50 years or older. Individual retirement account (IRA) contributions can be made up until the tax filing deadline in April 2025. The 2024 contribution limit for IRAs is $7000, or $8000 if you are 50 years or older.

Have you used all the money remaining in your Dependent Care or Health Care Flexible Spending Accounts (FSAs)? Withmost FSAs, you either use it or lose it, meaning any money left over in the account at the end of the year is forfeited back to the plan, not back to you. Some employers do offer a grace period into next spring or a $500 carryover from one year to the next for Health Care FSAs, but most do not. Make sure you use this money so you don’t leave anything on the table.

Have you made contributions to your children’s 529 accounts? As the cost of college continues to rise, it is important to start saving as soon as possible. Whether you’re trying to save for college or other post–high school opportunities, 529 plans offer excellent tax advantages. Many states offer a state income tax deduction for contributing to a 529 account. Sometimes, these tax savings can be substantial. Contributions must be made before December 31, 2024, to receive a 2024 tax deduction.

Have you designated all the gifts you planned to give this year? For 2024, the annual gift tax exclusion amount is $18,000 per person or $36,000 for a married couple. This means you can give cash or assets (such as investments) valued up to these amounts to an unlimited number of people without having to worry about gift taxes. Making gifts can be a great way to remove assets from an estate if future estate taxes are a concern. Gifts must be made before December 31, 2024.

Have you made your charitable donations for the year? Giving to charity can be a very powerful tool for tax savings. Check whether you have any appreciated investment assets you could donate instead of cash. Donating appreciated investments allows you to avoid paying capital gains taxes when you sell the investments, and you get to claim a deduction for the full value of the donated asset. The charity can then sell the investment and not have to pay capital gains taxes. However, be aware that with the increased standard deduction under current tax law, you may need to donate a substantial amount to see any tax benefit. Donations must be made by December 31, 2024, to count toward your 2024 taxes.

Have any of your investments lost money this year? Despite many indices having a solid year, there is always a possibility that 1 or more of your investments lost money during the year. If any investments in your taxable accounts are in the red, you could consider selling those investments to harvest the loss. Tax-loss harvesting can be used to offset gains elsewhere or potentially lower your 2024 tax bill. If your captured losses exceed your realized gains, you will have a net capital loss. Up to $3000 ($1500 if you are married and file separately) of net capital losses can be deducted against ordinary income, including salary, self-employment income, and interest income. Any excess loss above these amounts can be carried forward to future years to cancel out gains or deduct against income. Sales to capture losses must occur before year-end to count toward 2024.

Have you taken the required minimum distributions (RMDs)? RMDs are minimum amounts that IRA and retirement plan account owners generally must withdraw annually starting with the year they reach age 72 (or age 73 if you reach age 72 after December 31, 2022). You may also need to take an RMD if you inherited a retirement account. The penalty for not taking an RMD is 25% of the RMD amount; this was reduced in the Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 from the previous penalty of 50%.

Do you need to update beneficiaries? If there has been a major change in your life, such as a marriage or divorce, the birth or adoption of a child, or a death in the family, you may need to update the beneficiaries on your retirement accounts and life insurance policies. You may also need to update your will and power of attorney documents. There is no deadline for these changes, but the sooner the better.

There are likely to be other items to check on, but this list should give you a nice head start on making sure you close out the year on strong financial footing.

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