Ignoring your financial plans is like ignoring the gas gauge in your car. There are so many little money moves people should consider each year (many of them have tax advantages) and putting them off for too long means missing lucrative opportunities.
We’re here to help! We’ve created a very thorough – and slightly overwhelming – end of year financial checklist. If you can’t get everything done, that’s OK! Just read through and consider which of the steps apply to your situation, then try to tackle the most impactful ones first.
Annual Financial Planning Checklist:
1. Review your annual goals
Chances are, you made some money goals at the start of the year. Maybe you had a specific savings goal, or you planned on getting a new job or aggressively paying off some bad debt.
Are you on track to finish these goals? Why or why not?
Sometimes goals that you make at the start of the year aren’t applicable anymore towards the end of the year. And that’s OK! Things change and your financial plans might need to adapt. But finishing up your previous checklist is something you might want to think about before starting a new one 🙂
2. Max out your Roth IRA Contributions:
Roth IRA’s are everybody’s favorite retirement account. And for good reason! All the money you contribute to a Roth IRA grows tax free, forever. And there are no penalties for withdrawing your initial contributions at any time. (You do however pay a penalty if you withdraw *the growth* before retirement age)
Roth IRA accounts have annual contribution limits. As each year comes to an end, so does the opportunity to put money into these awesome accounts. If possible, we recommend trying to “max out” your Roth IRA contributions. This account is a priority, and we explain all about it on Podcast Ep #083: The beauty of a Roth IRA!
The IRA contribution limit for 2023 is $6,500 per person. Here is the IRS website if you want to learn more about limits and IRA guidelines.
Also, we wrote in detail about Roth IRA vs. Traditional IRAs and the pros and cons of each. We typically recommend Roths for most folks, but in some circumstances Traditional IRAs might fair better — for example, if you have extremely high income right now.
3. Max out your HSA (Health Savings Account)
Much like a Roth IRA, the HSA is a tax-advantaged account that has an annual contribution limit. Each year the available contribution resets, so you’ll want to make sure to add as much money to your HSA as possible throughout the year.
HSA accounts are only available to those with a High Deductible Health Plan. Also, the annual contribution limits are lower than most other types of retirement accounts. We did a deep dive on all the awesome things an HSA account and it’s triple tax advantage here!
4. Contribute more to your 401k
We certainly hope you’re already contributing to your 401k – at least enough to snag the company match (if your employer offers that).
All money contributed to 401k accounts – or 403bs – is done on a pre-tax basis. This means that it lowers your taxable income for the year. This can be extremely beneficial for higher income earners and if you expect your income to be less in retirement than it is currently.
Changing your payroll deductions can take 1-2 pay cycles to take effect. So if you are planning to contribute more to your 401k before the end of the tax year, make those changes sooner rather than later.
5. Spend all your FSA money
We want to encourage you to spend all your FSA dollars asap. If you don’t, you may lose them.
FSA & HSA accounts are created very differently. Whereas the HSA is a great long-term investment account, the FSA is really only good for paying for same-year healthcare costs. Instead of investing for your future, this account functions in a ‘use it or lose it’ way.
You’re often allowed to roll at least some of those unspent dollars into future years – typically a few hundred bucks. Although over the last couple of years, because of the pandemic, those rules were more lax. That means you might have more dollars in your FSA account than ever before.
Only certain qualified products/expenses can be paid with FSA money. Check with your employer if you have an FSA and if they contribute funds to it. And if so, use that money throughout the year! The FSA Store is a great marketplace for eligible FSA expenses, as well as Amazon’s FSA.
6. Apply for Financial Aid
This isn’t a fun one to think about. But this single task could save you a LOT of money if you plan correctly. If you’ve got a high school senior who is planning to go to college, applying for financial aid should be a top priority.
The earlier you fill out the FAFSA and apply to schools, the more likely your child will be to get financial aid. The portal opens on Oct 1st.
Also, it wouldn’t hurt to check out our podcast episode #337 with Ron Lieber about paying less for college education. If you’re in this phase of life, it’s time to get up to speed & get that FAFSA completed!
7. Tax Loss Harvesting
Basically, tax loss harvesting is making lemonade when you’ve been dealt some lemons in the stock market. The way it works is that you simply sell a security, like a stock or an ETF, at a loss in order to lock in capital losses. You’re then able to use that loss to offset any gains that your portfolio may have experienced.
For example, if you have $10,000 in realized capital gains, you could sell some losing positions (if you have any) to realize $10,000 in losses. The losses would offset the gains and you would owe no tax overall.
Whilst there is no limit to the losses you can realize, there’s a maximum of (-$3,000) total each year for tax benefit purposes. If you have more than that in overall losses in a given year, the good news is that you can roll the additional amount forward to apply to future years (you can do this indefinitely, because those capital losses never expire).
But many of us aren’t interested in drawing down on our portfolios- we’re investing for the long-haul! Luckily there’s a way to take advantage of TLH while at the same time remaining invested. The trick is to do this without breaking the wash-sale rule.
According to the IRS, a wash sale occurs when you sell at a loss, and then repurchase the same security within 30 days. But the simple way around this is to buy something that the IRS considers ‘different enough.’ For ex, if you seem out of an S&P500 index fund, you could buy shares in a Total Stock Market index fund instead without violating this rule.
One last thing to note: Tax loss harvesting really is only applicable to after-tax regular brokerage accounts. There’s no point in saving taxes inside pre-taxed accounts, because all tax is deferred until retirement anyway.
8. Consider a Roth Conversion
Funny enough, taking this action will actually increase your taxable income for the year.
While this seems counterintuitive, a bigger tax bill might be just what the doctor ordered to allow you to curb tax bills in the future. Paying more now, paying less later.
The truth is that a Roth conversion doesn’t make sense for everyone. So much depends on how much you’ve got stashed away in an old 401k or traditional IRA, how much $ you currently make, & how much you’ve got on hand in savings.
If you find yourself in a lower tax bracket while still having the cash to pay the tax bill when you file, converting your traditional IRA to a Roth IRA could be the perfect move for you to consider. This is particularly a great move when the stock market isn’t performing so well (like right now!).
Roth conversions are irreversible. So it’s really important to assess your specific financial situation – and future earning plans – before you pull the trigger. It might make sense for some folks to pay for a bit of time with a fee-only financial advisor, just to ensure the Roth conversion will indeed be beneficial.
9. Give to Charity:
Let’s talk about giving money away. I like to plan donations out across the year instead of doing lump-sum donations at the end of the year. But if you’ve been meaning to donate and haven’t yet, start thinking now about how you can make it happen.
Towards the end of year you’ve still got time to plan for giving w/o crushing your ability to meet other goals. The truth is that the vast majority of folks take the standard deduction while filing taxes, so there’s not going to be any huge tax benefit. But knowing your specific situation is pretty important on this one too, because if you do itemize those donations it’ll impact your bottom line tax-wise.
Taxes or no taxes, giving is always a good practice.
10. Buy All Your Holiday Gifts, Early!
Most people wait until right before Christmas to do holiday shopping. But that can be costly because hurried gift buying usually leads to overspending for convenience.
Instead, make your lists early and plan ahead! Buy things on sale as they come up throughout the year and avoid all the rushed present buying. If you see something on extreme sale, you can even buy a few of those items to have spare gifts on hand for anyone you might “forget” or need a last minute gift for.
For other tips and tricks to plan ahead on holiday spending, check out this episode A Very Merry Minimalist Christmas with Meg Nordmann.
11. Begin Next Year’s Gift Fund
If you don’t already have a sinking fund that you’ve been utilizing all year long, now is a great time to start building one for next year’s holiday season. Making a budget for holiday gifts 12 months in advance helps you build a savings plan to accrue that much.
Start by thinking about all th friends and family members you are buying for and how much you intend on spending. Then, start setting that money apart NOW so that you have the cash on hand to be able to pay for those gifts without going into debt.
The truth is that a huge percentage of Americans buy more than they intend to for others (because they have no budget) and they find themselves in a debt hangover come January. The only way to prevent that is to start proactively planning & saving now.
The average American spends ~$1k for Christmas. If that’s about how much you plan to spend, that means you’ve gotta save about $12 a day. It’s always better to save on the front end vs. trying to cut back that much later in the year or find yourself ~$1k (or more!) in debt come January.
12. Review and Update Insurance Policies:
We recommend shopping around your insurance policies at least once a year. Life changes, your home and cars get older, and your financial progress changes each year. So it’s important to keep your policies up to date (and make sure you have the best rates available!).
For car insurance, we’ve written extensively about how to save the most money possible. It’s not only important to talk to multiple providers, but also to review your deductibles and coverage amounts.
For life insurance, we wrote a lengthy post on how to choose the best life insurance policy that’s cheap and easy to buy.
Most employers hold open enrollment towards the end of the year. Be sure to review your options carefully (not just renew exactly what you had last year). If you’re taking a sabbatical or planning on self employment, perhaps a health sharing plan might be good to look at!
13. Open a New Rewards Credit Card
Many rewards credit cards offer sizable sign-up bonuses. But to qualify for the bonus, usually there are hefty minimum spend requirements in the first 60 or 90 days.
We always recommend that folks plan ahead when opening credit cards to make sure they can naturally meet the minimum spend requirements. And since typically November and December are bigger spending months for many households (due to holidays and travel), that’s a great time to think about opening a new card.
Also, if you have specific travel plans with certain hotel chains or airlines for the holidays, sometimes it makes sense to open a new credit card and purchase your travel with it to get a bigger saving. Here are the top 6 travel rewards credit cards we recommend.
Also, here’s an awesome new credit card search tool that lets you pick your rewards preferences (like points or cash back, etc) and shows you all the current promotions available.
14. Order your free credit report
Federal law allows you to obtain a free copy of your credit report, from each of the major credit reporting companies once per year. It’s a fairly simple process and you can check it all out here at the Consumer FTC site.
Staying on top of your credit report is important to make sure you’re in good financial standing when applying for loans, credit cards or financial services in the future. If you are concerned about identity theft, it might also be a good idea to freeze your credit (it’s also free!) so that nobody can apply for loans under your name.
Start Your End of Year Financial Checklist NOW
The sooner you jump on these items, the better you will feel. But, we also understand that it’s hard to accomplish everything, every year. So don’t beat yourself up if you don’t get everything checked off before the New Year rolls around.
Even if you only tackle the main needle-movers that apply to your situation, your future self will thank you for it.
