Year-End Financial Moves from a Financial Advisor

With 2025 fast approaching, now’s the time to tie up any loose ends on your financial checklist. Here are six smart money moves to help you wrap up the year, enjoy the holidays stress-free, and start the new year on the right financial footing.

1. Don’t Let Your FSA Funds Go to Waste

If you have money in a Flexible Spending Account (FSA), now is the time to use it. If you don’t, you might lose it when the year ends.

FSAs come in three types:

●      Health care FSA

●      Limited-purpose FSA (compatible with a Health Savings Account or HSA)

●      Dependent care FSA

Some employers provide flexibility. They let you roll over some of your savings into the next year. This applies to health care and limited-purpose FSAs.

You can also use a grace period of up to 2½ months. This grace period allows you to spend leftover funds from the previous year. This rule applies to all types of FSAs. However, these perks vary, and in most cases, any unspent funds will be forfeited after the deadline.

Make sure to check your balance and employer’s policy so you can maximize your savings before time runs out.

2. Thinking About a Roth Conversion?

As the year comes to a close, remember that December 31 marks the deadline for completing a Roth conversion for the 2024 tax year. If you have been thinking about a Roth conversion, now could be a great time to act. This is especially true if your retirement account balances have gone down.

When converting to a Roth IRA, the tax liability is determined by the amount you convert. If the value of the securities you want to convert has gone down, you can transfer the same number of shares. This will result in a lower tax cost than if you had converted when prices were higher.

Tip: You can often do Roth conversions “in-kind.” This means you can move assets from a traditional IRA to a Roth IRA without selling them first. However, keep in mind that taxes will still be due on the conversion amount.

3. Don’t Forget to Max Out Tax-Advantaged Accounts

Certain accounts, like IRAs and HSAs, allow contributions for the previous year until the tax-filing deadline in April. If you wait until then for HSAs, you may miss the benefits of contributing through payroll deductions. This could result in extra FICA taxes. Other retirement accounts, such as 401(k)s, have strict deadlines that require contributions by year-end.

In 2024, you can contribute up to $23,000 to your 401(k), or $30,500 if you’re over 50.

Tip: If you get a year-end bonus, think about putting some of it into your workplace retirement plan. This can help you maximize your contributions.

If you’re also planning for education expenses, keep an eye on those deadlines as well. Some states require contributions to 529 plans by year-end to qualify for state tax deductions.

4. Can Charitable Donations Help Reduce Your Tax Burden This Year?

If you list your deductions on your tax return, you may be able to deduct donations to qualified charities. Generally, you can deduct cash donations up to 60% of your adjusted gross income (AGI) according to IRS guidelines. For donations of appreciated assets, such as stocks, the deduction limit is typically capped at 30% of your AGI.

To ensure you can claim these deductions for your 2024 taxes, make sure your contributions are made within that tax year. Donating assets like cryptocurrency or restricted stock can be more complicated than giving cash. It’s important to check the specific deadlines and rules for these donations. Your tax situation, the charity’s status, and any elections you may choose could also influence the deduction process.

If you usually take the standard deduction, consider employing a strategy called "bunching." This means combining several years of charitable donations into one year. This lets your total itemized deductions go above the standard deduction for that year. However, this approach requires the financial ability to frontload your donations.

5. Don’t Forget About Required Minimum Distributions (RMDs) if You’re 73 or Older

When you turn 73, you must take out a minimum amount from your retirement accounts, like traditional IRAs. You must take your first RMD by April 1 after you turn 73. All other RMDs are due by December 31.

Missing these deadlines can lead to large penalties—up to 25% on any missed distributions. However, this penalty may be lowered if you take the missed amounts within a certain time.

If you decide to delay your first RMD until April, remember that you will need to take two distributions that year. One must be taken by April 1, and the other by December 31. Both distributions are taxable.

6. Consider Tax-Loss Harvesting

Tax-loss harvesting is a strategy. It lets you sell investments that are not doing well. You can then reinvest the money into similar assets. This can help reduce your capital gains. This will lower your tax bill and let you keep more of your investment money working for you.

You can utilize investment losses in two main ways:

1.     Offsetting Capital Gains: Losses can directly counterbalance any capital gains you’ve realized during the year.

2.     Offsetting Ordinary Income: If your losses exceed your gains, you can use up to $3,000 of the remaining losses to offset ordinary income each year for all filing statuses, except for married couples filing separately, where the limit is $1,500. Unused losses can be carried forward to future tax years.

To use this strategy, be sure to sell your losing investments before December 31. Also, consult your financial advisor.

Bottom Line

If you miss this year's deadline for certain financial goals, don’t worry—you can always try again next year. If you want to get started, talking to a tax advisor or financial advisor can help. They can show you strategies to improve your financial situation.

Sources:

https://www.fidelity.com/learning-center/personal-finance/year-end-money-deadlines

Disclosures:

This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.

This material is provided as a courtesy and for educational purposes only.

These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information

Advisory Services Network, LLC does not provide tax advice.  The tax information contained herein is general and is not exhaustive by nature.  Federal and state laws are complex and constantly changing.  You should always consult your own legal or tax professional for information concerning your individual situation.