Nailing End-of-Year Financial Planning

An end-of-year financial checklist will look a little different for everyone. This can be a great time to look at your overall financial health, goals and planning. But keeping an eye toward reducing your tax responsibilities is a major theme that should weave throughout your end-of-year review. 

“Year-end is your last chance to get several financial tasks wrapped up in order for them to be included in the 2023 tax year,” says Treana Lankard, vice president and branch leader at Fidelity Investments in Oklahoma City. 

Lankard mentions items such as Roth IRA (individual retirement account) conversions, required minimum distributions, tax-loss harvesting and charitable donations; these have a deadline of Dec. 31 for tax purposes. But there are several other exercises you may want to perform at the close of the year in an effort to keep your financial life tidy.

The backbone of most financial plans is the goals each individual or family has set. End-of-year is the time to review these goals and discuss where you want to end up next year – and what vision you and your family have for your finances. 

From there, it’s important to take a look at your budget from last year and use it to plan for the next. Understand what worked and what didn’t, what you want to change and what adjustments should be made. Review your debt and any repayment plans, take a look at your credit reports and check for any errors, as these can be costly if not corrected. 

If you are still working, be sure to reassess your employee benefits during the open enrollment timeframe, which is often this time of year. It’s also a good time to look over any employer-sponsored retirement accounts and any other investment accounts you have. 

Check your insurance policies and ensure that you still have the most beneficial amounts of insurance for your current situation. And finally, this is the moment to begin gathering paperwork and information you will need for preparation of your tax return.

Likely the most important aspect of planning at the end of the year should revolve around a tax review. If you prepare ahead of time, you’ll ensure you won’t have any surprises when you finalize that return in the spring.

“If we’re looking at how to be tax efficient at the end of the year, are you putting away money into those certain places that create tax advantages for you?” asks Jessica Jones, vice president and senior financial advisor with Bank of Oklahoma Financial Advisors. “I think it’s good to go through that checklist.”

And what sorts of things are on that checklist? Jones mentions ensuring that you have fully funded any employer-sponsored retirement accounts, as well as any IRAs you may have. The funding limits on these are different and change from year to year, so be sure to check into the details of the specific plan you have.

“[These retirement accounts] are the easiest, quickest way to reduce taxable income for the year, so that you’re keeping more in your pocket and not giving it to Uncle Sam,” says Jones.

Another aspect of planning that comes into play for anyone over the age of 72 is ensuring that any and all required minimum distributions have been taken. These are distributions from either employer-sponsored plans (where you no longer work) or an IRA, both of which are required to be taken by Dec. 31 to avoid a penalty, says Jones. But be sure to check your particular plans or with a financial advisor as these rules can change from plan to plan, too.

Dec. 31 also brings the end to using funds in many flexible spending accounts, or FSA’s, and sometimes unused funds are lost.

“You got the tax advantage of having [the funds] deducted from your payroll, but you don’t get the advantage of getting to spend that money tax free,” says Jones. “So, if you need some new glasses, if you need that year-end check up, if you need to order some contacts, whatever it is, you want to make sure you use those funds before the end of the calendar year.”

Another deadline to watch out for at the end of the year involves charitable giving. And while you may think considering your taxes while making decisions about giving may seem counterintuitive, Lankard points out how they can work together.

“Not only does giving to charitable causes make a difference in the world,” she says, “but your generosity could also qualify you for a tax break.”

Per IRS rules, taxpayers can deduct charitable donations to qualified organizations up to 60% of their adjusted gross income for cash donations if they itemize their taxes, says Lankard. There are ways to donate long-term appreciated securities, such as stocks and bonds, tax-efficiently as well, and some may want to consider donor-advised funds to keep your contribution options open. Be sure to check with a tax professional to ensure your giving is executed properly.

Unfortunately, while many of us are considering charitable donations and other ways of giving back at the end of the year, there are unsavory elements at work as well. Just as with the rest of the year, it’s important to protect your financial assets at this time of year; it can be a season of increased attempts to scam. Many times this happens through phone calls asking for donations.

“Just be cautious, be aware, be careful,” says Jones. “If you’re not familiar with something, it’s OK to say, ‘No thank you.’”

Jones also sees clients who get emails or voicemails – purportedly from the IRS – stating they are doing some type of review, and the recipient of the call needs to submit a check. In those cases, it’s important to call, confirm, check and double check, she says.

Lankard recommends basic preventative measures such as two-factor authentication on devices and doing research on organizations before doing business with them.

“Before reacting to any unsolicited emails, phone calls or messages, always pause and look for red flags, even if it appears to be from someone you trust,” she says.

Additional Resources

If you are looking for more information as you consider your year-end financial planning, it can help to go back to the basics. 

Jones recommends clients check out the IRS (irs.gov) and Social Security (ssa.gov) websites for up-to-date, reputable information. 

Many employer-sponsored retirement plans also have websites and mobile applications that provide insight. But it is always important to check with a tax or other financial professional before making any major financial decisions.

She also recommends checking with your local bank if you’d like to start the conversation about year-end financial planning with an expert. These services are often free (at least for initial consultations) and can help you in finding out what you need to focus on to make next year your best financial year yet.