As we close in on this year, it would be the ideal time to assess one’s financial position and act exactly in preparation for a booming 2025. Financial planners recommend using those last few weeks of the year for focusing on core components like retirement contribution ceilings, tail ends of tax strategies, and estate planning. Many of these actions hold true across time as experts checked in and verified the advice shared back in 2023. Here are ways to use financial opportunities before December 31.
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Review beneficiaries, estate plans, and insurance coverage.
One of the most important, yet most neglected, financial tasks to complete is checking that your investment accounts and life insurance policies have fresh beneficiary designations. Beneficiaries are those people who will eventually take over the inherited assets to become part of estate planning. Events such as births, deaths, or divorces can lead to major changes in these designations.
“It’s not always the first thing on people’s minds, but reviewing beneficiaries is crucial,” says Colin Day, a certified financial planner based in St. Louis. “The holiday season, when you’re around loved ones, serves as an important reminder to take care of this responsibility and ensure that your hard-earned assets will go to the right people.”
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It is always important to review beneficiary nominations, but just as necessary, experts also recommend that all estate planning documents, including wills, health care directives, and powers of attorney, be reviewed. “Schedule a meeting with an estate planning attorney if you haven’t updated your documents recently,” advises Niv Persaud, a certified financial planner in Atlanta.
Another thing to do is update your policy of insurance. According to Paul Mendelsohn, CPA, from Livingston, New Jersey, one must recognize the importance of life, long-term disability, or long-term care policies. For couples, it is important to understand that the work-sponsored policy might cover only the employee but would leave their spouses exposed. Finally, before the new year rolls in, Mendelsohn encourages families to consider their coverage needs.
Maximize retirement contributions and leverage tax strategies
If you haven’t already, December is the time to ensure you’re maximizing contributions to tax-advantaged retirement accounts. For 2024, the contribution limit for individual retirement accounts (IRAs) is $7,000, or $8,000 for those aged 50 or older. Employer-sponsored 401(k) plans have even higher limits: $23,000, or $30,500 for individuals aged 50 and above.
“Maxing out your 401(k) contributions is critical,” emphasizes Catherine Valega, a financial planner from Winchester, Massachusetts. Contributions typically go through payroll, so adjustments must be made before your final paycheck of the year. Looking ahead, contribution limits will increase in 2025, including enhanced “catch-up” options for individuals aged 60 to 63.
On the other hand, and primarily important to retirees aged 73 and older, would be taking their required minimum distributions, RMDs, from retirement accounts. In Salt Lake City, Devin Pope, a financial planner, warns that the failure to withdraw the required amount by December 31 could lead to a 25% excise tax. A financial advisor or an IRS RMD table will help in the process.
Another beautiful way of touching lives while also enjoying tax benefits will be charitable giving. Donations made in cash for qualified charities are deductible to an extent of 60% of income. The downside is that the American people will not have itemized taxes to support their dues; instead they are opting for the standard deduction.
It is also during this holiday season that people can gift finances to their relatives. Starting in 2024, an individual can give an undisclosed amount of money worth up to $18,000 to someone without triggering the gift tax. This may be an efficient tool to use for minimizing the tax implications of wealth transfer.
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Also, think about losing taxes to offset investment gains. “Sell underperformers and buy similar assets,” said financial planner Seth Benjamin Mullikin. This practice is known as ‘tax harvesting losses.’
Finish strong with savvy financial Planning.
Whether it’s updating your estate documents, maximizing retirement contributions, or leveraging tax strategies, the end of the year provides an invaluable opportunity to solidify your financial future. Use the remaining days of 2024 to tackle these important tasks, ensuring a smoother path forward in the year to come.
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