End of Year Planning

November 1, 2023 | Todd Little, CFP®, AIF®

In his book “The Gap and the Gain,” Dr. Benjamin Hardy shares the benefits of taking time to look back at where you’ve been and to celebrate the successes. If you have not read the book, I highly recommend it. 

In much the same way, as we approach year end, it serves as a natural time to do just that. Before we turn the calendar to 2024 and begin planning and resolving all that we hope the year brings, let’s take a moment to reflect on 2023 and what went well. Regardless of whether you consider 2023 to be a good year, I’m sure you can find several reasons to celebrate some progress that you’ve made. 

Financially, there are a few broad categories we can suggest you consider during the year in review. I will focus on three of them here, but you can also listen to our podcast where we cover the subject in more detail here. 

General planning and investment:  Year end is a good time to review your investments. First, how did they perform considering the market? While it is never pleasant, don’t be alarmed if your account is down if the markets were down as well. The key is to consider if your account performed in line with expectations given the direction of the investment markets overall.

Second, should you make any adjustments to your investment selections? Is your mix of stocks (riskier investments) and bonds (less risky investments) appropriate for both your goals and time horizon? Many accounts will automatically rebalance your investments to keep these within a range you’ve selected, but it doesn’t hurt to check it yourself and see if you want to make any other changes.

Lastly, can you increase your contributions to your automated investment accounts such as 401(k)s or 401(b)s? Do you have the ability to make any other contributions to traditional or Roth IRAs? (Please check with your tax advisor to determine your eligibility to do so from a tax perspective.) 

Tax planning:  There are two major items that have year-end deadlines to keep in mind. The first is Required Minimum Distributions (RMDs). If you are over the age of 72, you are required by the IRS to take a certain amount in withdrawals out of your retirement account(s). Not doing so can trigger a tax penalty and must be done by December 31st. Since there are a variety of considerations to keep in mind and given some of the changes recently made to the rules, it is wise to work with a financial professional to make sure you are satisfying the requirements and, if there are any strategies to be aware of that can make it more efficient or effective.

The second item is charitable giving. If you’re looking for ways to minimize your tax bill in April and you have some funds available, charitable giving can be an option. Again, the gift must be made by December 31st to count for 2023. It is also recommended you speak with your financial advisor and tax advisor to make sure the gift will have the desired impact. With higher standard deductions, you would need to make sure the charitable donation – along with your other itemized deductions – will have a tax benefit. To be clear, I am not suggesting the only reason to make a charitable contribution is for a tax write-off as many people support causes that are important to them regardless of any tax savings. 

Generational planning:  When was the last time you reviewed your legal documents and beneficiaries? We review beneficiaries with our clients annually and recommend they review their legal documents at least every 5 years. In part, you want to make sure the documents still reflect your desires. Over time, the people who are important in our lives or whom we trust to make decisions for us can change and our documents and beneficiaries should reflect those changes.

Lastly, while it does not have the same tax benefits as charitable giving, do you have an opportunity to gift some money to family to begin transferring wealth more efficiently or simply to bless family while you are still here to see them enjoy it? There is no year-end deadline for these types of gifts, there’s never a bad time to gift someone, especially around the holidays.

As 2023 draws to a close, I hope you have the chance to reflect on at least a few of these or other matters that come to mind. Even if the progress only comes because you made changes now, it still counts as progress, and you can celebrate the gain in 2023.

As always, if you or someone you know has questions or is looking for guidance on year-end financial planning, we are here to help. Simply call our office (215-513-4330) or click on this link to schedule some time with us.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Investing involves risk including loss of principal. No strategy assures success or protects against loss.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.