The Best Gift You Can Give Yourself This Year: A Year-End Financial Review

Why do a year-end review of your finances?

The end of the year is a natural time for reflection, and your finances deserve a spot on the list. Here’s why:

• A lot changes over the course of a year: This year may have brought major life transitions—marriage, a new child, retirement, or even unexpected loss. These events often require adjustments to your investment strategy, tax plan, and estate documents.
• Some financial deadlines are tied to the year’s end: Many financial deadlines, like contributions to employer-sponsored retirement plans, are tied to the calendar year. A review helps ensure you don’t leave money on the table.
• You may have new goals or priorities: By understanding where you stand, you can start the new year with clear investment priorities, whether it’s saving for a major purchase, reducing debt, or fine-tuning your portfolio for growth.

What should a year-end financial review include?

A thorough year-end review involves taking stock of your current financial picture and making adjustments for the year ahead.

We recommend taking the following steps before the end of the year:

• Take a look at your spending and saving habits over the past year
• Ensure your retirement contributions are on track
• Make sure you’re taking advantage of any employer offered benefits
• Update documents such as your will, trust, or beneficiaries
• Review the performance of your investments
• Evaluate tax strategies to maximize deductions or minimize liabilities
• Check the alignment of your portfolio with your long-term goals

Several of those you may be able to take care of on your own. For a few of them, depending on your knowledge, experience, and the time you have available, you might want the help of an advisor. The reality is, not many of us have time to shop, host, and evaluate tax strategies!

The following checklist offers some of the steps and helpful information we guide our clients through every year during their year-end review.

Year-end Investment Review Checklist

1. Check in on your spending habits

• Think about what you spent money on this year, and how much. Did you achieve your family’s financial goals? If not, what might need to change in your budget?
• Consider any changes in income, expenses, or priorities for the upcoming year.
• Consider what changed in your life this year, and what could be in store the following year that might impact your spending.

2. Review your employer-offered benefits (especially with open enrollment for the following year currently in effect)

• Check your 401(k) or IRA contributions. Did you maximize them or at least meet your employer match?
• Review stock options, restricted stock units, or other equity compensation.
• Use any remaining funds in flexible spending accounts (FSA) before they expire.
• Even employer-offered benefits can get a little technical, so don’t be afraid to use an investment advisor as a sounding board.

3. Review your debt and credit

Debt can have a place in your financial strategy if it is used correctly and balanced with other goals, including saving and investing.

• Check progress on paying down high-interest debt. This is a great time to make a plan for managing and paying off debt in the new year. (This can be a line item in your budget.)
• If you haven’t made the progress you hoped for, are there ways to minimize total interest payments by prioritizing high-interest rate debt or consolidating balances?

4. Assess your investments

While investing is a long-term activity, looking at whether your allocations still meet your needs should be an annual event.

• Are certain assets underperforming or overperforming? If so, this might leave your portfolio unbalanced. This is something a good advisor should help you look out for.
• Make sure your investments take account of any needs you might have in the near future.
• Do you see any large gains or losses for the tax year? This might impact the taxes you owe in April. (An investment advisor may be able to help you reduce tax obligations, depending on the gains and/or losses you’ve experienced.)
• Take advantage of the IRA extension. Did you know you can wait until April 15 the following year to get your 2024 IRA contributions in?
• Consider a Roth IRA conversion, especially if you have a Traditional IRA with a significant balance. If you anticipate tax rates will increase over time (like we do), this could be a great strategy for protecting yourself against owing more taxes in retirement.

5. Take a look at your insurance

• Take time to look at your existing policies and coverage. Do the original motivations for all your insurance policies still exist? If so, is your coverage sufficient for your family’s needs?
• Make sure your insurance beneficiaries are up to date, especially if you went through a life event this year.
• Take a hard look at how your medical insurance has provided for you and your family over the past year. Consider any changes you might anticipate the following year. This will dictate the right kind of coverage for you in the coming year. (Same goes with dental and vision insurance.)
• Look at your remaining health insurance deductible - can you accelerate or postpone medical treatments?
• Use up the money in your FSA.
• Take a longer-range view of the benefits of a Health Savings Account and consider whether it could benefit you and your family. Not only does an HSA allow you to set aside pre-tax dollars for qualifying expenses, you can also use an HSA as a long-term care plan substitute. For instance, if you allow money you contribute to your HSA to accumulate and grow tax-free over time, you can use it to pay for medical expenses in retirement. Depending on your situation, this may be a good supplement to a long term care insurance policy.

6. Conduct a year-end tax review

This may be one of the areas where you’ll want the help of a financial professional, as tax liability is dependent on many factors and can get complex. But the following questions will get you started thinking.

• Did you experience any life transitions (marriage, birth, divorce, deaths, retirements) that could affect your tax withholding status?
• Take a look at how you should allocate your 401k contributions, between Roth and Traditional 401k, based on your current tax situation and anticipated tax situation the following year.
• Is there an opportunity to undergo a retirement plan conversion, moving money from a pre-tax bucket to a tax advantaged bucket?
• Would deferring or accelerating any bonuses, deductible expenses, and charitable gifts benefit you? (This is an example of a strategy you could use to lower your adjusted gross income to offset gains and lower tax obligations.)

7. Think about estate planning strategies

• Review your will and or trust if you have experienced life events recently (e.g., getting married or having kids). Even if things are on an even keel, you should review estate planning documents every 3 to 5 years.
• If you have a complicated family situation, consider naming a corporate trustee or co-trustee who can objectively administer your trust and has experience managing family dynamics. We serve in this role for many of our clients.

8. Review and plan for charitable contributions

Charitable giving doesn’t just feel good. It can bring tax savings, too.

• Did you maximize your charitable donations or donate assets other than cash to the causes you care about?
• If you are 70.5 or older, consider making Qualified Charitable Distributions from your Traditional IRAs.
• Consider whether it makes sense to “bunch” donations. For example, if you plan to donate the same amount of money each year, consider bunching the entire amount in one year. This could increase your potential itemized deductions for that year.
• Tip: You may be able to use a donor advised fund to spread out the giving while taking advantage of bunching.
• If you are planning on making a charitable donation, consider donating appreciated assets like stocks with large capital gains to charities you support. You can deduct the full amount of the appreciated assets but are not required to pay tax on the gains.

Ready for next steps?

Taking the time to review your investments and financial situation at year-end is a gift that can help give you increased clarity for years to come. It gives you a much clearer view of your financial picture, ensures you’re prepared for the upcoming year, and sets the foundation for achieving your goals.

Year-end planning can feel complicated, but that’s exactly why we’re here. We follow this process with each of our clients every single year. If you’d like some help talking through the above checklist or want a seasoned advisor to help you plan for the coming year, reach out to our office at (804) 362-9010 to schedule an appointment.

Wells Fargo Advisors Financial Network does not provide legal or tax advice.