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Barrister Brief – Year-End Financial Planning Tips



Year-End Financial Planning Tips: Preparing for a Strong 2025

As 2024 winds down and we approach the holidays, it’s the perfect time to reflect on financial planning and set yourself up for a successful start to 2025. Whether you’re looking to avoid overspending, maximize retirement contributions, or ensure you’re taking advantage of tax-saving opportunities, now is the time to take action. Here are some year-end financial planning tips to help you finish the year strong and enter 2025 with confidence.

1. Avoid Holiday Budget Overload

The holiday season is known for bringing a surge in spending, and it’s easy to let your budget slip as the year comes to a close. While you may have stayed on track for the first 11 months, it’s crucial to remember that your spending habits in December can impact your financial health well into the next year.

Set a clear holiday budget. Determine how much you want to spend per person, per family, and overall. As tempting as it might be to splurge, try to stick to your budget to avoid putting expenses on credit cards with high-interest rates. Too often, clients overspend during the holidays and find themselves struggling the first few months of the new year just trying to pay off their credit card balances. By planning ahead and staying within your budget, you’ll start the new year with financial peace of mind.

2. Maximize Your Retirement Contributions

Before the year ends, make sure you’re taking full advantage of your retirement savings options. For 2024, the contribution limit for 401(k)s is $23,000, with an additional $7,500 catch-up contribution if you’re over 50. This is a great opportunity to maximize your tax-deferred savings and boost your retirement nest egg.

If you have an IRA, you can contribute up to $7,000 for 2024 (plus $1,000 catch-up if you’re over 50). Remember, this is a deadline-sensitive area of planning, and making your contributions before the end of the year could significantly impact your tax situation.

3. Take Required Minimum Distributions (RMDs)

If you have retirement accounts like IRAs or employer-sponsored plans, make sure you’re taking your Required Minimum Distributions (RMDs). RMDs are mandatory withdrawals you must take once you reach a certain age (typically 73). Failing to take the right amount could result in a hefty penalty.

For those who are charitably inclined, consider directing your RMDs to a charity. For example, if your RMD is $60,000 and you typically donate $10,000 to charity, you can have that $10,000 sent directly to the charity. This will count toward your RMD, reducing your taxable income and avoiding taxes on that donation amount. This is a great strategy for charitable giving while keeping your tax burden lower.

4. Gift to Family Members and Friends

If you plan to give gifts to loved ones this holiday season, be mindful of the annual gift exclusion limit. In 2024, you can gift up to $18,000 to each individual without impacting your lifetime exemption amount. For married couples, this means you can combine and gift up to $36,000 per person.

Use this annual gift exemption strategically to help reduce your taxable estate or simply spread some holiday cheer without triggering gift tax consequences.

5. Spend Down Your Flexible Spending Accounts (FSAs)

If you have a Flexible Spending Account (FSA) through your employer, make sure to use up your remaining balance before the end of the year. Some FSAs come with a grace period that extends into the new year, but it’s best to double-check your plan’s specifics and use the funds before December 31st.

6. Tax-Loss Harvesting

For investments held in taxable accounts, now is the time to consider tax-loss harvesting. If you have investments that have lost value, you can sell them to offset gains in other parts of your portfolio, reducing your overall tax liability. If your losses exceed your gains, you can use up to $3,000 of those losses to offset ordinary income.

If your portfolio has been underperforming in certain asset classes, this is a good opportunity to harvest losses and adjust your tax situation. If you’re working with a financial advisor, this is something they can assist with before the year ends.

7. Review Your Asset Allocation

As we near the end of the year, it’s important to review your investment portfolio to ensure that your asset allocation is still aligned with your long-term goals. Sometimes, the performance of certain asset classes can skew your desired balance. For example, if your portfolio was originally set to a 60/40 stock-to-bond ratio but stocks have performed significantly better, you may find that you’re now at a 70/30 ratio.

Rebalance your portfolio as needed to ensure your investments are aligned with your risk tolerance and objectives going into the new year.

8. Look Ahead to 2025

While 2024 is winding down, take a moment to think ahead to 2025. There are several important changes that could affect your finances in the coming year, such as an increase in the annual gift tax exclusion limit and potential changes to tax laws. Staying informed and planning ahead will help you stay on top of your financial goals and make strategic decisions for the year ahead.

As we approach the end of the year, take time to assess your financial situation and make the necessary adjustments to finish 2024 on a strong note. By budgeting for the holidays, maximizing retirement savings, taking advantage of tax-saving strategies, and reviewing your investments, you’ll be well on your way to a financially healthy 2025.

Wishing you a happy holiday season and a prosperous and successful new year!

12/12/2024

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