Episode 23: 12 Days of Financial Planning

The end of the year is typically a time to slow down, enjoy time with family and friends, and set goals for the year ahead. Yet as you enjoy the holiday season, don’t forget to take advantage of this last chance to potentially improve your finances.

Hi, I’m Brett Fellows. In this episode of The Retiring Entrepreneur Podcast, I’m sharing 12 financial planning strategies you may want to consider before the end of the year to lower your tax bill and set yourself up for financial success.

#1: Check your Flexible Spending Account Balance

If you have an FSA and your employer plan doesn’t let you roll your balance over to the next year, be sure to spend the balance on qualified expenses so you don’t lose out. Eligible expenses typically include health plan co-payments, dental work and orthodontia, eyeglasses and contact lenses, and prescriptions.

#2: Select Next Year’s Employer Benefits

The end of the year is typically open enrollment season. If you haven’t done so already, review your benefits and make sure your selections make sense for next year. Alternatively, choose new options, if appropriate. For example, if you’ve experienced a major life or health change in the last year, it’s especially important to evaluate all options available to you.

#3: Maximize Retirement Plan Contributions

If you haven’t maxed out your retirement plan contributions this year, consider making a year-end contribution to take advantage of a potential employer match and tax deductions.

#4: Consider a Roth Conversion

Roth conversions allow individuals—regardless of income—to transfer retirement funds from a traditional IRA or 401(k) into a Roth account. The account holder pays taxes on the converted funds. However, once the funds are in a Roth account, withdrawals in retirement are tax-free. In addition, Roth IRAs have no required minimum distributions. In other words, funds can continue to grow and be passed to beneficiaries tax-free.

Roth conversions are complex and don’t make sense for everyone. Be sure to consult a trusted financial advisor to determine if this strategy is right for you.

#5: Take RMDs if you’re 72 or older

Owners of employer-sponsored retirement plans, traditional IRAs, SEP, or SIMPLE IRAs must start taking RMDs at age 72 or face tax penalties. Moreover, if you have multiple accounts, you will usually need to calculate the RMD for each separately. You may have to take an RMD from each. A financial planner can help you calculate this amount and ensure you take the necessary RMDs each year.

#6: Consider Donating your RMD to Charity if you don’t need it

If you’ve reached the age where you need to take RMDs from your traditional IRAs, you can avoid paying taxes on them by donating that money to charity. That is, so long as you follow the IRS’s rules for qualified charitable distributions (QCDs). The charity must receive the donation by December 31 for the amount to be applied to this year’s tax return. Be sure to work with a CPA or tax professional to ensure you meet the conditions for this tax break.

#7: Review Your Insurance Needs

It’s important to review your insurance coverage regularly to make sure you’re properly protected and aren’t overpaying. The end of the year is a good time to review your homeowners, auto, life, and other insurance policies, and shop around for better options if necessary.

#8: Check in on your emergency fund

A standard rule of thumb is to have anywhere between three- and 12-months’ worth of living expenses saved. That way you’re prepared for unexpected expenditures or financial setbacks. If you dipped into your emergency savings this year (or don’t have an emergency fund), consider stashing extra cash away to build your reserves for the year ahead.

#9: If you have children, consider contributing to a college fund

Find yourself with extra cash at the end of the year? College savings vehicles like 529 plans can be a great way to save for your children’s future education expenses on a tax-advantaged basis. Indeed, contributions to 529 plans aren’t tax-deductible. However, your funds can grow tax-free until you need them. In addition, withdrawals aren’t taxed if they’re used to pay for approved educational expenses.

#10: Review your investment portfolio and rebalance if necessary

Despite recent volatility, U.S. equity markets are up double-digits so far this year. That means your asset allocation may be off-target since some of your assets may have grown at a faster rate than others. The end of the year can be a good time to rebalance your investments back to their target allocations. Consequently, you can take profits and reinvest them in asset classes that haven’t performed as well recently.

#11: Revisit your account beneficiaries and estate planning documents

Life can change dramatically over the course of a year. If your family dynamics or financial circumstances changed this year, you may want to update your beneficiaries and estate planning documents to reflect these changes.

#12: Celebrate your wins–Financial planning and otherwise

Lastly, be sure to celebrate what you did well this year, financially and otherwise. Financial planning is an ongoing process, and we all experience setbacks from time to time. But like anything, progress is more important than perfection. Don’t forget to acknowledge your hard work by treating yourself or loved ones from time to time.

Enjoy the Episode!

Did you find this information interesting? If so, please share it!