Year-end Financial Checklist: Five Key Considerations Before Ringing In The New Year

Year-end Financial Checklist: Five Key Considerations Before Ringing In The New Year

As the countdown to 2024 begins, our mind naturally gravitates toward goals, whether it be personally, professionally, or financially.  For many, year-end is a time of reflection.  We look back to what’s been achieved thus far and begin setting our sites on new ambitions.  It’s also an ideal time to take a temperature of your financial health and consider what opportunities can be leveraged to help bolster your financial well-being.  Here are five key considerations to help you minimize taxes and avoid penalties before the clock strikes midnight and we welcome in the new year. 

1. Maximizing Your 401k Contributions

Maximizing your annual 401k contributions provides a dual benefit: it can help reduce your taxable income and help enhance your retirement nest egg.  However, year-end is your last chance to boost your 401k contributions to take advantage of these benefits. As you consider this option, be advised that the 2023 401k employee contribution limit is $22,500, with an additional catch-up contribution of $7,500 for those aged 50 years and over, and the total 401k contribution limit, including both employee and employer contributions, is $66,000.  By contributing the maximum allowed, you’re not only saving for the long term but also potentially putting yourself in a lower tax bracket, which is a win-win for your present and future financial self.

2. Withdrawing Your Required Minimum Distribution

If you’re 73 years or older in 2023 (or turned 72 years old prior to 1/1/23), don’t forget about your Required Minimum Distribution (RMD), which is the minimum amount you must withdraw from your retirement accounts annually, including your traditional IRA, SEP IRA, SIMPLE IRA, and Traditional 401k.  Failing to withdraw these funds in a timely manner can lead to significant penalties – up to 50% of the amount that should have been withdrawn.  That’s why it’s important, as we approach year-end, to review your retirement accounts to ensure that you’ve taken your necessary annual RMD withdrawals.  

3. Rebalancing Your Portfolio

Year-end is an opportune time to review and rebalance your investment portfolio. This entails adjusting your holdings to align with your target asset allocation and considering any changes in your life circumstances, financial goals, and/or risk tolerance. Rebalancing helps maintain the level of risk you are comfortable with and can position you to take advantage of market opportunities in the coming year. It’s also a chance to rid your portfolio of underperformers and redirect those funds into more promising investments. 

4. Harvesting Tax Losses

Investing inevitably involves ups and downs. While we prefer the ups, the downs can be managed smartly through tax-loss harvesting. This strategy involves selling an underperforming investment that has dropped below its original purchase price, i.e., selling at a loss, to offset the capital gains taxes resulting from selling investments at a profit during the year.  The key here is to be strategic – consider your investment positioning, the tax implications, and the broader market conditions.  It’s a silver lining that can potentially transform an investment setback into a tax advantage, offsetting all or a portion of your realized capital gains or reducing your taxable income by up to $3,000 ($1,500 if married filing separately).  Just be sure to avoid the wash-sale rule by waiting 30 days before buying that same (or similar) investment back!  Otherwise, the loss cannot be claimed for tax purposes.    

5. Charitable Donations

The spirit of giving during the holiday season can extend to charitable donations, offering both altruistic and financial benefits. Contributions to qualified charities (those granted tax-exempt status by the IRS) can be deductible if you itemize deductions on your tax return, potentially reducing your taxable income. If you’re considering a large donation, think about donating appreciated securities instead of cash. This strategy could avoid capital gains taxes and still allow you to claim the charitable deduction.

Now a word of caution… For the procrastinators among us, beware!  The deadline to take advantage of these opportunities is December 31st, which is why it’s imperative to always think ahead and plan accordingly.  If in doubt, reach out to your wealth advisor for help.  They can guide you through the labyrinth of restrictions, calculations, looming deadlines, and potential pitfalls and help ensure you check each box on your year-end financial to-do list.   

LSIA is here for you to help address your financial questions. CLICK HERE to contact us.

Data Source:  Internal Revenue Service (, NerdWallet (Tax-Loss Harvesting: What It is, How It Works, by Dayana Yochim; 10/27/23), and Bankrate (401(k) contribution limits in 2023 and 2024, by Brian Baker, CFA & Barbara Whelehan; 11/1/23).  This blog was written with the assistance of Artificial Intelligence, specifically Chat GPT.  Photo courtesy of Adobe Stock.

LS Investment Advisors, LLC (dba LSIA) is a registered investment adviser.  The information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.  Past performance is not indicative of future performance.