Summary

In this conversation, Mike and Amy discuss essential financial planning strategies to consider as the year comes to a close. They cover topics such as maximizing retirement contributions, reviewing investment portfolios, preparing for tax season, and the importance of insurance and estate planning. The discussion emphasizes the need for proactive financial management to ensure a strong financial position heading into the new year.

Chapters

00:00 End of Year Financial Planning Essentials

03:17 Maximizing Retirement Contributions

06:22 Investment Portfolio Review and Rebalancing

09:26 Preparing for Tax Season

12:20 Insurance and Estate Planning Review

15:26 Cash Flow and Budgeting Strategies

18:24 Planning for College Expenses

Takeaways

• Maximize your retirement contributions before the year ends.
• Review your investment portfolio for necessary adjustments.
• Create or update your financial inventory for better clarity.
• Prepare for tax season by organizing financial documents early.
• Review insurance coverage to ensure adequate protection.
• Update your estate plan to reflect any life changes.
• Track your cash flow and budget to align with your financial goals.
• Understand FAFSA requirements for college planning.
• Don’t procrastinate on financial deadlines; act early.
• Finish the year strong with comprehensive financial planning.

Links

Send Us A Question or Comment: [email protected]

Schedule a consultation with Mike: https://nextmissionfinancialplanning.com/contact/

Schedule a consultation with Amy: https://www.instarfp.com/contact

TRANSCRIPT

Mike Hunsberger (00:00)

You may not believe it, but it’s already the end of the year. Where did the time go? Today we’re going to be talking about 10 things that you should consider as we do approach end of year. These are all financial related planning decisions that you should be thinking through before 2024 is over.

Amy (00:53)

Hey Mike, so like you said, I don’t know where the time went for 2024, but here we are at the end. And, you know, to start off on things that people should be thinking about before year end in terms of finances, maximize your retirement contribution. So making, make sure that you’re taking full advantage of your retirement account contributions. So that means for 401k’s, your TSP, the 2024 limit is 23,000 with a $7,500 catch up if you’re 50 and older.

Starting in 2025, so this is a new, so thinking ahead, starting in 2025, those who are each 60 to 63 can contribute even more with an additional catch up of $10,000 or…

it’s going to adjust each year. So 150 % of the standard limit. So it’s 10,000 for 2025. So looking ahead, getting ready to contribute even more if your age is 60 to 63. And then don’t forget about your IRAs. You can contribute up to $7,000 to an IRA.

or collectively IRAs, but a total of 7,000 into IRAs with an extra $1,000 catch up if you’re 50 or older. And sometimes that can help reduce your taxable income depending on your tax bracket and things. I think we talked about this earlier in the year. Mike, what’s the second thing that people should think about doing before the end of the year?

Mike Hunsberger (02:18)

The other thing is just reviewing their overall investment portfolio, looking at that. Is it where you want it to be? Did things grow or did you have a down year in certain aspects that you’ve gotten a little bit out of kilter with your overall investment profile for your risk tolerance? So looking at that, end of year is just a good time to…

take an assessment and see if you need to do any rebalancing, any taxless harvesting, any of those type of things, or even if you’re in a very low tax bracket, maybe it’s tax gain harvesting. So those options are things that you should definitely be looking at as we approach the end of year.

Amy (03:06)

This next one is something that probably nobody likes to do, but you should. And that is to create a financial inventory or update your financial inventory if you have one.

And a financial inventory is basically a list of all your assets, your debts, and other financial information. So this is important for getting everything together in one place. It also gives you a snapshot of your overall financial health so that you’re able to make decisions heading into the new year. A lot of people want to wait to do this in the new year, but by the time you get to the new year, you’re already thinking about all the next things. This really is an opportunity to look backwards. So create your financial inventory.

What’s the number for Mike?

Mike Hunsberger (03:48)

So you said nobody likes that, but I enjoy. I do it twice a year. I do it at mid year and end of year, do the full, OK, update the balance sheet, see how the year was, taking that into account. So I would say I’m one person that always kind of looks forward to it, in up years like we’ve had so far this year.

Amy (04:08)

Well…

Mike Hunsberger (04:14)

you know, the down years, little less excited to see that, but you know, it definitely is important.

Amy (04:21)

Well, but, and to be fair, I think that as financial advisors and financial planners, we’re much more excited about the inventory piece of things. I do it as well, but I know that I have many clients that probably would hate to do this.

Mike Hunsberger (04:35)

Yeah, I definitely agree. So all right, number four, if you’re required to take required minimum distributions from your traditional accounts, like a traditional 401k or traditional TSP or traditional IRA, you need to make sure you’ve done that. for this year, it’s those aged 73 and older that turned 73 this year.

And, you know, if you’re older than that and have those accounts, you do have a required minimum distribution that you’ll need to make sure that you’ve taken before the end of the year. So that’s really important.

Amy (05:21)

Next up.

everybody’s favorite time of the year, it’s time to get prepared for tax season because that’s next. So along the lines of what I mentioned before with the financial inventory, this is getting down into the nuts and bolts of preparing for tax season. starting to organize your financial documents, making sure you know what financial, what tax forms you should be expecting. So if you have your inventory together, then you know that if you have taxable accounts at three different custodians,

you know that you need those 1099s from three different custodians or you at least need to verify that there’s no 1099s coming. If you worked for two or three employers, you know that you need to look for two or three W-2s. And then try and get a handle on whether or not there’s potential tax changes for 2025. So looking ahead at any potential tax rule changes that you know are coming and maybe making some adjustments.

to prepare for that right from the gate rather than catching up later and then you’ve already missed maybe two, three or four months of opportunity in 2025.

Mike Hunsberger (06:35)

All right, and the next one is tax strategies in addition to getting all your documents together. And hopefully, if you’re doing this earlier in the year, because sometimes if you’re doing it too late in the year, you may have missed opportunities. So it’s looking back some for 2024, but it’s also preparing for 2025 and how you think about that. But again, charitable giving.

goes in here, if you’re thinking about doing that, how do you do that in the most smart way? I talked a little bit about the required minimum distributions. Once you’re 70 and 1 half, even before you’ve got to take the RMDs, you can make what is called a qualified charitable distribution out of your 401k, TSP, traditional IRA, and have that sent directly to a charity.

And then you never realize that as income for yourself. And if you’re above the required minimum distribution age, that could be a great option to not have to take a tax hit. The other thing I like to encourage folks if they’re thinking about the charitable giving is if they’ve got things in a taxable brokerage account,

you know, maybe an ETF, maybe a stock that you’ve owned that’s appreciated significantly. And so it’s got a big capital gains potential tax tied to it. If you gift those shares, a lot of charities can now accept that. Or you could consider opening a donor advised fund where you gift that appreciated security and then, you know, kind of donate out of that account in the future. But that could be a really good

way to avoid having to recognize those long-term capital gains. that’s the other point is they need to be long-term gains to be able to qualify for gifting that. And then right now, the standard deductions pretty high. The tax cut job tax raised that significantly. So a lot of people are unable to

you know, itemize or, you know, get much benefit from itemizing. If you are charitably inclined and, you know, significant amounts, you know, it can make sense to kind of bunch them into a single year versus, you know, kind of peanut butter spreading. So maybe you take three years worth of your charitable giving, bunch that into a single year.

And then you’ll be able to itemize your deductions. And it can overall lower your tax rate versus just using a little bit of that with that higher standard deduction. anything I missed that you think about on the tax side?

Amy (09:47)

mean, you brought it up a little bit earlier. So tax loss harvesting or tax gain harvesting. The other thing that people sometimes forget about, if you’ve changed preparers a few times and you had losses in previous years that were more than $3,000, and some people are in that boat because we had some rough years there in 2020 and whatnot, in 2022, I think.

If you’ve changed tax preparers, make sure that they have your old tax returns so that they can get your carry forward losses so that you can take advantage of deducting up to another $3,000 there. those are the only other additional things.

Mike Hunsberger (10:29)

I guess I’ll throw one other thing that I just thought of is your IRA contributions. Those can go into April or the tax filing date for next year, 2025. So that is one tax planning piece that you could do if you haven’t made that contribution yet and you’re trying to decide, do I do Roth? Do I do a traditional piece? Thinking about that.

when looking at your total tax picture, you know, kind of makes sense because you’ll have a better understanding of what your tax situation looks like and then you could make the contribution based on what makes the most sense.

Amy (11:17)

Perfect. Next up.

Review your insurance coverage. A lot of people tell you to do this, but it really, really is important. If you haven’t done this for a few years, it is really important that you look at all of your insurance coverage. So everything from life insurance, particularly if you’ve had a life event happen. So marriage, of child, maybe you purchased a new home, now you have a mortgage. So that’s, you know, those are the things that might drive changes to life insurance. But also take a look through your homeowners insurance. There’s been

quite a bit of appreciation in home valuations. And there’s consequences if your home is not fully covered. So if you’re only covered for $500,000, but your home, the replacement value is up around $700,000 or something like that, you’re not going to get full coverage if something horrible happens. So take a look at your insurance policies, make sure it makes sense. If you’ve added a new driver to your auto insurance policy, hopefully you reviewed coverage at that point, but it might be time to

take a look at it again. Do you need to change deductibles or maybe one of your children have aged off your policy so can you update a deductible to be a little bit higher now that you your driver off. But just take a look at all of it. It’s not fun but it’s definitely something that’s worthwhile. It can save you money in premiums but also money in the event that you have a claim and then you’re disappointed because you don’t get as much coverage as you thought.

Mike Hunsberger (12:46)

Yeah, the inflation piece is big both on the homeowners and even on the auto policies. know, cars are more expensive today. So really look at that minimum coverage. If that’s what you’re you know, you have on your policy may not be enough, especially as you start to accumulate assets. You know, you don’t want something to happen.

and then you’re underinsured and you’re getting sued now and you have assets so they’re going to come after you for those type of things. yeah, it’s a great point. This is one that I don’t look forward to, but it is important to do this at least every couple of years to make sure your coverage is still good.

Amy (13:31)

Yeah

Great points.

Mike Hunsberger (13:43)

And the other one that I’ll throw out probably in the same category as exciting and fun and that nobody else wants to do is review in your estate plan. You know, like you said with insurance, if stuff’s changed, it’s always time to make sure you know what’s in your estate plan, that you have the documents, and then if something changed, you’ve had a baby or maybe you’re

kids are now all over 18 or even beyond that, updating an estate plan is something that is critical and make sure that your wishes are carried out should something happen to you.

Amy (14:29)

Yeah, and everyone loves reviewing their estate plan and or talking to their attorney as much as they love a root canal. But it really is important. And another, you know, another thing that may change that might drive changes to your estate plan. So, you know, for military members, you move around and then you accumulate real estate in different states. So as soon as you have real estate in a couple of different states, you should have somebody take a look again and just make sure you’re in good shape. It’s not fun, but it’s got to be done and it’s better in the long run for your family.

if you take care of it. Next up, this is kind of where we started this year, cash flow and budget. Another thing that’s a lot like getting a root canal. So, know, not everyone keeps a budget, but everyone should be tracking, you know, spending at least, you know, are you spending less than you earn type of thing. If you do keep a budget, were you mostly on track? Are you able to save more?

Do you know where to save if you are? So, you know, just some thoughts around that. Assuming retirements are maxed, your emergency fund is funded, your near-term goals are funded. Do you have access to flexible savings accounts? So whether they’re dependent care, flexible savings accounts or healthcare flexible savings accounts, 529s, tax-efficient investments that are in a brokerage account, which might be, you know, stocks that pay qualified dividends or municipal bonds, depending on your

tax bracket, that sort of thing. But taking a look at what cash flow is looking like, how close you are to your budget, and the adjustments that you can make heading into the new year within reasonable, within kind of reason. We’ve talked about this at the beginning of the year. You start out strong, and then you kind of peter out. Consistency is better than one.

great big set of intentions that, and then you fall off the wagon pretty early. We talked about that at the beginning of the year. Mike, any more thoughts around cashflow and budget before we hit the last one?

Mike Hunsberger (16:31)

Yeah, it’s kind of the basics of any financial plan is just understanding where your money’s going and making sure it’s aligned with your values and what you really want to emphasize. It’s easy to get off track, especially if you’re not looking at it regularly. So the end of year is definitely a good time to get that in shape.

Yeah, and then the last one, number 10, as you approach, you have kids that are approaching college or in college, understanding the FAFSA and planning for that, in those years of basically from the year that they’re, the spring of their 10th grade year and fall of their 11th grade years, that first year you’re gonna

file the FAFSA or that’s what your taxes will be based off of. if you think you’re going to qualify for aid, you want to make sure you’re kind of minimizing your tax burden in those years and not taking large, you know, even taking those taxable, tax gain harvesting or selling or doing a big Roth conversion in those years to, again, keep your

Keep your income as low as possible so that means you’ll qualify for as much aid as possible. And that kind of extends, first year is really important, but that extends for those years that they’ll be in college, again, up through kind of their junior year where those tax returns will be assessed by the colleges and the federal government of AFSA.

to determine your aid eligibility. So always keeping that in mind. At this point, it’s probably late in the game if that is your first year. But if you’re coming up on that, just keeping that in mind and planning multi-year strategy around keeping taxes low.

What?

Amy (18:44)

Awesome. So this is a hefty list. What I would kind of like to conclude with is the fact that, you know, it’s really important that you do these things or at least check on these things before the end of the year. Some of the deadlines are not until and into the new year.

But a lot of the deadlines are December 31st. So taking a look at this now versus waiting until December 29th when things may not work out in terms of timing, because you’ve got to place trades maybe and things like that.

So don’t wait till the last minute. Some of the deadlines are December 31st. Some of the deadlines are April 1st. Some of the deadlines are April 15th. Some of the deadlines are self-imposed and those are the hardest ones, right? So updating your state plan. Nobody’s going to tell you when you have to do that by. You have to do that on your own.

go ahead and get after it. Finish the year out strong and we’ll look forward to our next show is a wrap-up show to head into the new year. Take care.

Mike Hunsberger (19:45)

Thanks, Amy.

Amy (19:46)

Thanks Mike.