Scan the financial headlines these days, and you’ll see plenty of potential action items vying for your year-end attention. Some may be particular to 2024. Others are timeless traditions. If your personal finances were a garden, which actions would actually deserve your attention? Here are my three favorite items worth tending to as 2025 approaches … plus a quick reflection on how to make the most of the remaining year.
1. Prune Your Portfolio
Money market rates are still attractive, but there are still plenty of other actions you can take to maintain a tidy portfolio mix. For this, it’s prudent to perform an annual review of how your proverbial garden is growing. Year-end is as good a milestone as any for this activity. For example, you can:
Rebalance: In 2024, strong year-to-date stock returns may warrant rebalancing back to plan, especially if you can do so within tax-advantaged accounts.
Relocate: With your annual earnings coming into better focus, you may wish to shift some of your investments from taxable to tax-advantaged accounts, such as traditional or Roth IRAs, HSAs, and 529 College Savings Plans. For many of these, you have until April 15, 2025 to make your 2024 contributions. But you don’t have to wait if the assets are available today, and it otherwise makes good tax sense.
Redirect: Year-end can also be a great time to redirect excess funds toward personal or charitable giving. Whether directly or through a Donor Advised Fund, you can donate highly appreciated investments out of your taxable accounts and into worthy causes. You stand to reduce current and future taxes, and your recipients get to put the funds to work right away.
2.Don’t Neglect Taxes
Speaking of taxes, there are always plenty of ways to manage your current and lifetime tax burdens—especially as your financial picture and various tax-related deadlines become clearer toward year-end. For example:
RMDs and QCDs: Retirees and IRA inheritors should continue making any obligatory Required Minimum Distributions (RMDs) out of their IRAs and similar tax-advantaged accounts. With the 2022 SECURE Act 2.0, the penalty for missing an RMD will no longer exceed 25% of any underpayment, rather than the former 50%. But even 25% is a painful penalty if you miss the December 31st deadline. If you’re charitably inclined, you may prefer to make a year-end Qualified Charitable Distribution (QCD) to offset or potentially eliminate your RMD burden.
Harvesting Losses … and Gains: Depending on market conditions and your own portfolio, there may still be opportunities to perform some tax-loss harvesting in 2024 to offset current or future taxable gains from your account. As long as long-term capital gains rates remain in the relatively low range of 0%–20%, tax-gain harvesting might be of interest as well. Work with your tax-planning team to determine what makes sense for you.
Keeping an Eye on the 2025 Sunset: Nobody can predict what the future holds. But if Congress does not act, a number of tax-friendly 2017 Tax Cuts and Jobs Act provisions are set to sunset on December 31, 2025. If they do, we might experience higher ordinary income and capital gains tax rates after that. Let’s be clear: A lot could change before then, so I’m not necessarily suggesting you model all your plans around this one potential future. However, if it’s in your overall best interests to engage in various taxable transactions anyway, 2024 may be a relatively tax-friendly year in which to complete them. Examples include doing a Roth conversion, harvesting long-term capital gains, taking extra retirement plan withdrawals, exercising taxable stock options, gifting to loved ones, and more.
3. Weed Out Your To-Do List
This year, I’m intentionally keeping my list of year-end financial best practices on the short side. Not for lack of ideas, mind you; there is plenty more I could cover.
But consider these words of wisdom from Atomic Habits author James Clear:
“Instead of asking yourself, ‘What should I do first?’ Try asking, ‘What should I neglect first?’ Trim, edit, cull. Make space for better performance.”
— JamesClear.com
Let’s combine Clear’s tip with sentiments from a Farnam Street piece, “How to Think Better.” Here, a Stanford University study has suggested that multitasking may not only make it harder for us to do our best thinking, but it may also impair our efforts.
“The best way to improve your ability to think is to spend large chunks of time thinking. … Good decision-makers understand a simple truth: you can’t make good decisions without good thinking, and good thinking requires time.”
— Farnam Street
In short, how do you really want to spend the rest of your year? Instead of trying to tackle everything at once, why not pick your favorite, most applicable best practice out of my short list of favorites? Take the time to think it through. Maybe save the rest for some other time.