With the holidays on the not-too-distant horizon, now is the perfect time to take stock of your finances and make sure you’re on track to meet your financial goals for the year.
There’s plenty to be thankful for in 2024. With inflation falling and the stock market making big gains, you may be feeling more flush. But even if you’ve had some financial setbacks this year, there’s still time to get back on track.
Before you get wrapped up in the festivities, gift giving, and New Year’s resolutions, do a review of your overall financial well-being. “It’s really important to better understand the decisions you’re making and why you’re making them. Start with a financial plan and have a decent idea of your tax situation,” says Britta Ferguson, a financial advisor at Wealth Enhancement. “Know your priorities,” she adds.
Here are the top seven money matters to zip up before the New Year, as chosen by Barron’s and several money experts.
Time to Top Off Your Savings
Whether you’re looking to gut your kitchen, buy a new car, or just plump up your retirement account, take a close look at your overall savings. Maybe you changed jobs this year and skimped on paycheck deductions or spent more than you expected on everyday expenses. Whatever the reason, it isn’t too late to make a meaningful increase to your nest egg.
With the S&P near a record high, consider taking some profits that you can put toward planned purchases in 2025. “What I would consider recommending is that you take your profits, put the funds aside in a fixed position, maybe some CDs depending on when you are going to need the money sometime,” says Kimberlee Orth, private wealth advisor at Ameriprise.
Of course, you’ll need to consider the tax implications of a sale. It’s best to set aside some of your proceeds to cover the bill and avoid selling assets that you’ve held for less than a year, which are taxed like regular income. Gains on long-term holdings are much more favorable taxwise, starting at 0% for single people earning $47,025 or less and married people filing jointly with incomes up to $94,050, then maxing out at 20% for high earners.
If you want to put some extra cash in a retirement account, keep in mind the 2024 limits for tax-advantaged contributions. For an IRA, that is $7,000 if you’re under 50 or $8,000 if you’re older. For 401(k)s, the limit is $23,000 plus an additional $7,500 in catch-up contributions for those 50 and older. If your employer matches your retirement contributions, make sure you’re putting in enough to max those out.
Just make sure you’ve set aside enough cash for the holidays before stashing the rest away. “This is typically a very expensive time of the year,” notes Corbin Blackwell, a certified financial planner at Betterment, who recommends keeping a “slush fund” of three to five weeks of spending on hand at all times.
Yes, You Do Need an Emergency Fund
No matter your net worth, having easily accessible cash in case of an unforeseen emergency is crucial. The standard advice is to have three to six months worth of living expenses in a bank account, CD, or money-market fund. “I wouldn’t get too creative here,” in terms of where to stash the funds, says Douglas Boneparth, president of Bonefide Wealth, a New York City-based wealth management firm.
The point is that you don’t want to have the money invested in something that could force you to take a big loss by selling when it’s down or that may be hard to sell in general, such as Costco gold bars.
One way to build the fund is by taking some gains from this year’s stock market or putting proceeds from a work bonus into a high-yield savings account separate from your other funds. That can help you resist the urge to spend it for anything but an actual emergency.
Make Taxes Top of Mind
“We always advise in the fourth quarter to check in and do a tax estimate so you’re not surprised in April,” Boneparth says.
The simplest way to figure out if you’ve paid enough is to use the IRS Tax Withholding Estimator, which lets you plug in all your numbers. Don’t forget any interest earned from high-yield savings accounts or estimated year-end capital gains payouts from investments such as mutual funds.
If you’re falling short, you can adjust your W-4 withholdings and make a direct payment to the IRS. Alternately, you can lower your taxable income by selling losing investments to claim up to $3,000 in capital losses to offset gains, contributing more to a health savings account if you’re eligible, or making a charitable contribution.
To Rollover or Not to Rollover?
Tax cuts enacted by then-President Donald Trump shifted millions of American households in lower tax brackets, making rolling money over from regular to Roth IRAs and from mutual funds to ETFs more attractive. While both moves pay off in the long run, being in a lower tax bracket when you make the switch will temper the initial tax hit.
With the cuts set to expire at the end of 2025, you’re only guaranteed this year and next to take advantage of the lower brackets. “You’ve got a little bit of room to do a Roth conversion,” notes David Boniface, wealth advisor at Legacy Capital. “This may be the last time you pay 10% to 12%” in taxes.
Under current rules, taxes are capped at 12% for income of up to $47,150 if you’re single or $94,300 if you’re married and filing jointly. If you have little other taxable income—say if you’re retired or made a large charitable donation in 2024—you can lock in the lower tax rate this year by making a comparable rollover.
Physical Health Is Financial Health
Most health plans cover basic health checkups, although you may owe a copay for the office visit. Whether it’s a physical, flu shot, mammogram, or eye exam, make sure you’ve gotten all the free or discounted checkups you’re due. It pays to book your appointments early to make sure you get everything done before the end of the year.
If you’re among the one in five Americans with a flexible spending account, this is also the time to start making sure you use all the funds in there as it’s a use it or lose it plan. If you aren’t expecting any more medical bills, consider using it for items such as prescription eyeglasses, sunscreen, or a physician-prescribed body weight scale.
Get a Game Plan for Open Enrollment
With open enrollment coming up, it’s wise to review all your health insurance coverage for 2024 and decide if you need to make changes in 2025. That could mean everything from switching to a less expensive health plan to adding optional plans for things such as critical illness or accidents.
“It’s definitely a time to tweak,” says Boneparth. “Go back and look at your health expenses in 2024,” he adds. If you put too much money in your FSA this year, consider allocating less in 2025. If you put in too little, calculate how much more you’re willing to take out of your paycheck. Remember that all FSA contributions are pretax money, making it a good deal as long as you use it.
If you don’t have a chronic health condition or just want to lower your monthly premiums, consider switching to a high-deductible health plan, which has the added bonus of the more flexible health savings account. HSAs enable you to put more money in them each year ($4,150 versus $3,200 in 2024) and have no time limit on when you must spend the funds.
Think Smarter About Giving
Another way to get your investment allocations back on track is by donating stock in some of your more concentrated holdings, which has the added bonus of a nice tax break.
This might also be a year to consider bunching donations and putting money in a donor-advised fund, which gives you the full tax break now but lets you continue to invest and portion out contributions to qualified charities on your own schedule.
When deciding how much to give, Ferguson recommends clearing the threshold for itemizing deductions on your federal tax return. In 2024, that is $29,200 for married couples filing jointly and $14,600 for single people.
Lastly, if you had a really good 2024 and are in a position to give money to your kids or others in need, remember that you can give up to $18,000 a year with no tax implications for either you or the recipient. You won’t get a tax break, but with gifting season upon us, it’s worth considering if a more generous financial gift is in the cards.
Write to Anita Hamilton at anita.hamilton@barrons.com This Barron's article was legally licensed by AdvisorStream. Dow Jones & Company, Inc.