5 financial items to complete before year end

The end of the year often includes spending time with loved ones, holiday shopping, and finishing up work projects. But it’s also a great time to ensure your financial strategy is in order, so you can enter the new year with confidence.

Nearly 40% of Americans avoid dealing with their finances because it overwhelms  them, according to the 2021 Guardian Study of Financial and Emotional Confidence™.¹ But the study also found that income is not the sole driver of financial wellness: proactive financial habits and knowledge of financial concepts and products are more closely tied to higher levels of financial and emotional confidence.² Use this checklist to inventory your finances and make adjustments to your overall approach, which can help set you up for success in the new year:

1. Review protection policies

Protecting yourself, your family, and your business from life’s uncertainties is critical. Without the proper coverage, if something unexpected occurs, you and your family may struggle to recover. For example, you could have a solid retirement strategy, but if you pass away, get sued, or become sick or injured unexpectedly, your intentions could be impacted. That’s why it’s essential to review your insurance policies, beneficiary designations, and estate planning arrangements, and update them as needed.

2. Complete tax-efficient strategies

Time is of the essence when addressing tax-efficient strategies. Your year-end strategy may include additional contributions to tax-deferred vehicles, such as 401(k)s, IRAs, HSAs, and 529s. The more you contribute to these assets, the less your taxable income will be at year end. So, if you’re looking to reduce your taxable income, it may be a good idea to contribute more to these accounts before the new year hits. For some people, it may make sense to max out contributions to some or all these accounts, but for others it may not. Everyone’s situation is different, and this is where working with a trusted financial professional can come in handy. Your financial professional may also have access to tax-efficient strategies that you’ll want to explore as well.

The end of the year can also be a good time for an IRA conversion to a Roth IRA, commonly called a Roth conversion. If you implement this strategy, you’ll incur more taxes this year, but it does enable you to increase your tax-free income during retirement. You might also consider a partial Roth conversion, where you convert a portion of your IRA assets to a Roth IRA one year and convert the remainder of your IRA assets the next year. This helps spread your conversion out over a couple of years and spreads your taxes out over the same period too.

3. Review your investments

The end of the year is an ideal time to reevaluate your portfolio. Did you receive a raise this year? Maybe that extra cash flow can be put towards an investment and/or a retirement account. As you experience other life changes, such as marriage, having children, becoming a caregiver, and more, you’ll want to make sure your investments and retirement contributions still align with your long-term goals. Also, remember to check your allocations and consider whether you want to maintain or adjust your risk tolerance.

This time of year, you may also consider tax loss harvesting, which is the strategy of selling securities at a loss to offset a capital gains tax liability. These losses can be used to help offset up to $3,000 of your ordinary income.³ But tax loss harvesting is not for everyone and should be done in a strategic and coordinated manner. One should always consult with their tax professional when considering this strategy.

4. Revisit your budget

It’s common to review your cash flow and budgeting during the holiday season. Proactive planning for the year ahead may allow you to save and invest more. The Guardian Study of Financial and Emotional Confidence™ found that “building savings for any reason” is a top financial priority for Americans.⁴ Investing is a long-term strategy, so if you’re able, you want to invest as much as you can to support your overarching goals and to help offset volatility.

5. Personal aspirations and/or business strategies

This is a great time to work on goals and strategies for the upcoming year. It’s important to know now what you want to accomplish for yourself or for your business and to put a plan in place to achieve it. Seventy percent of business owners surveyed in The Guardian Study of Financial and Emotional Confidence™ have a written financial plan, compared to a national average of only 45%.⁵

The study also found that people who work with a financial professional tend to have a written financial strategy, which can lead to increased savings and higher confidence.⁶ Working with a financial professional who listens to you, communicates effectively, and is knowledgeable and trustworthy can make all the difference.