Your 2023 Year-End Financial To-Do List

The end of the year is upon us. Here are some tasks to check off before 2024 arrives!

It’s that special time of the year when the holiday spirit is in the air, good friends are always near, and family time fills up our schedules. It’s also the perfect time to take financial inventory and reassess your plan to see if it still aligns with your goals. You may need to make tweaks, as your circumstances have almost certainly changed. Maybe that’s because of a major life event or an unexpected expense, which most people experience or incur over the course of a year. It’s only normal, but it can be helpful to ensure that you’re still on track toward the future you idealized. Here are a few things you can do to prepare for the turn of the calendar!

1. Review Your Financial Plan

Your financial plan is never meant to be a “set-it-and-forget-it” type of document. Just like the economic landscape, it’s supposed to change, and the end of the year can be the perfect time to make necessary adjustments that get you back on track toward your goals. Sometimes, those changes can even be for the better or because you had a successful year. For example, maybe you are quickly approaching or have already surpassed a goal you set at the beginning of the year. You can recalibrate your approach for both the short and long term to keep yourself motivated. If you find that you’ve suffered an unfortunate setback, that’s also okay. Your plan is a great place to start when trying to get back on track toward your ideal destination.

2. Adjust Your Monthly Budget

As we near the end of the calendar year, you may have a better idea of your current income and expenditures. Sometimes, that can help you create a more accurate budget, especially if that budget aligns with your financial plan. Additionally, you might have received a nice annual bonus or raise, giving you some more leeway or freedom in your budget, or giving you extra funds to save or create an emergency fund. On the other hand, maybe you had a baby or accrued unforeseen home, auto or medical bills, forcing you to take a moment and reprioritize. Whether you believe you’ve taken a step forward or a step back, mapping out your expenditures and tweaking your budget accordingly can be helpful as we head into 2024.

3. Review Your Investments

How did your investments perform this year? If you can’t answer that question, it’s probably a good idea to look, especially if you plan on using that money in retirement. Remember, the years leading up to retirement and the first few years of retirement are the most dangerous times to experience market volatility, as you likely take those losses when your asset totals are the highest. It can also be helpful to further diversify your portfolio or build a new asset allocation that aligns better with your goals. Though diversification certainly doesn’t promise either growth or protection, different asset classes can offer different features, potentially giving you the opportunity to achieve protection through varying and potentially less volatile investment or saving vehicles.

4. Recalibrate Your Retirement Account Contributions ^[1,2,3,4]

No matter which stage of your career you’re currently at, it’s important to know how much of your income you can contribute to your various retirement accounts, such as 401(k)s, IRAs, 403(b)s, 457 plans, SEP IRAs and SIMPLE IRAs. For example, in 2023, the contribution limit for traditional and Roth IRA accounts is $6,500. That amount will increase to $7,000 for the 2024 tax year. If you’re older than 50, you can also make catch-up contributions up to $1,000. The contribution limit for a 401(k) participant is $22,500 for the 2023 tax year; however, that will rise to $23,000 in 2024. Catch up contributions of up to $7,500 can also be made to 401(k) accounts for those 50 and older. NOTE: These limits are imposed on individuals, not accounts, so the limits are on total contributions to all of your different employer-sponsored accounts or IRAs. It’s also important to remember that you can contribute to your IRA for 2023 until Tax Day of 2024, which is on Monday, Apr. 15. 401(k) contributions, however, must be made by the end of the year.

5. Take Your RMDs ^[5,6]

If you must begin taking RMDs in 2023 or you’ve already begun taking RMDs, those funds must be withdrawn by the end of the calendar year to avoid incurring a 25% excise tax. That makes right now the perfect time to ensure that you’ve withdrawn an adequate amount, as there is still time to pull from your qualified retirement accounts. It can also be beneficial to speak to your financial advisor who can help you calculate your RMDs, as they’re typically determined by your expected lifespan and asset total. To see when you must begin taking RMDs, please refer to the chart below!

6. Spend Money Left in Your FSA ^[7,8]

Flexible savings accounts, or FSAs, are accounts funded by pre-tax money that allow you to use tax-free funds to pay for qualifying health expenses. They can be extremely helpful for those looking for tax advantages for services that are not covered by their health care plan, including deductibles and co-pays. While you may have a grace period provided by your employer, with most FSAs you must spend the money for qualifying health expenses by the end of the year or risk losing it. Some expenses that traditionally qualify include general wellness appointments, annual physicals, visits to specialists, dental cleanings, eyeglasses or in-home care equipment.

Similar to FSAs, HSAs, or health savings accounts, can be used for medical expenses, but the accounts are permanent and stay with the owner. HSAs are tax-deductible and can grow and build up tax-free to cover a long list of medical, health, dental and vision expenses, usually in retirement. In order to open and begin contributing to an HSA, you must purchase a high-deductible health plan that qualifies, or be offered an HDHP through your employer. You cannot contribute to an HSA when you are over the age of 65.

7. Review Your Workplace Benefits and Beneficiaries

Most benefits plans change on a year-to-year basis, and those changes are typically outlined by your human resources department during the open enrollment period. If your employer provides benefits packages, be sure to go through your benefits guide to know exactly what you’re entitled to and how you can leverage those perks to your advantage. For example, you may be able to select from different health care packages, or you might be able to opt into an HSA or FSA. It’s also important to review beneficiaries who are on your plan, as their needs may differ on a year-to-year basis.

8. Talk to Your Financial Professional or Advisor

Your financial professional, planner or advisor is meant to be your personal advocate and consultant when it comes to your financial and lifestyle goals. That means they can help you determine whether you’re on track to reach your goals. If not, they can work with you to set more reasonable expectations, but if you find yourself on the right track, they can help you further purpose your money for both the short- and long-term future. Additionally, your advisor should soon be calling to set up an annual meeting with you to discuss updated options, new regulations, developments in the marketplace and more. As we close out the year, now is the perfect time to have that meeting and prepare for new circumstances and the new year.

If you have any questions about your year-end financial to-do list and how you can prepare for the year ahead, please give us a call today!

Sources:

1. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits
2. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits
3. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-catch-up-contributions
4. https://www.thinkadvisor.com/2023/09/27/smaller-401k-ira-contribution-limit-increases-expected-in-2024/
5. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds
6. https://www.orba.com/what-is-your-required-minimum-distribution-age/
7. https://www.goodrx.com/insurance/fsa-hsa/hsa-fsa-roll-over
8. https://www.investopedia.com/articles/personal-finance/082914/rules-having-health-savings-account-hsa.asp

All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. All views/opinions expressed in this newsletter are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC.

Advisory Services Network, LLC does not provide tax advice.  The tax information contained herein is general and is not exhaustive by nature.  Federal and state laws are complex and constantly changing.  You should always consult your own legal or tax professional for information concerning your individual situation.