Year-End Retirement Checklist: Key Steps for a Secure Future

Essential Year-End Steps to Secure Your Financial Future

December is a pivotal month for retirement planning. It marks the end of the fiscal year and presents numerous opportunities to make smart financial decisions. Whether you’re nearing retirement or still years away, taking proactive steps before the clock strikes midnight on December 31 can significantly impact your financial future. From maximizing contributions to managing tax obligations, here’s a comprehensive guide to year-end retirement planning.

1. Maximize Contributions to Tax-Advantaged Accounts

One of the most effective ways to boost your retirement savings is to contribute the maximum allowable amount to your tax-advantaged accounts. For 2024, the contribution limits are:

• 401(k): $22,500 for those under 50, and $30,000 if you’re 50 or older thanks to catch-up contributions.
• Traditional and Roth IRAs: $6,500 for those under 50, with an additional $1,000 allowed for individuals 50 or older.

Why is this important? Contributions to traditional 401(k)s and IRAs are often tax-deductible, reducing your taxable income. For Roth IRAs and Roth 401(k)s, while you don’t get an immediate tax deduction, your contributions grow tax-free, and withdrawals are completely tax-free in retirement. This can be a powerful tool to hedge against future tax rate increases and provide tax-free income later in life.

2. Take Required Minimum Distributions (RMDs)

If you’re 73 or older, you’re required by law to take Required Minimum Distributions (RMDs) from your retirement accounts, such as traditional IRAs and 401(k)s. Failing to withdraw your RMD by December 31 can result in a hefty 50% penalty on the amount not withdrawn.

To streamline this process, consider setting up automatic RMD withdrawals through your financial institution. Additionally, if you’re charitably inclined, explore a Qualified Charitable Distribution (QCD). This allows you to transfer up to $100,000 directly from your IRA to a qualified charity, satisfying your RMD requirements while avoiding the associated income tax.

3. Leverage Tax-Loss Harvesting

Year-end tax planning isn’t just about saving for retirement—it’s also about minimizing the taxes you owe today. Tax-loss harvesting is a strategy that involves selling underperforming investments in taxable accounts to offset capital gains from winning investments.

For example, if you realized $10,000 in capital gains this year, selling a losing investment for a $5,000 loss can cut your taxable gain in half. Any losses beyond your gains (up to $3,000) can even offset other income, with the excess carrying forward to future years.

4. Consider Roth Conversions

A Roth IRA conversion involves transferring funds from a traditional IRA or 401(k) into a Roth IRA. While you’ll pay taxes on the converted amount now, future growth and withdrawals in retirement are tax-free.

This strategy is particularly advantageous in years when your income is lower than usual, as it minimizes the immediate tax impact. Be sure to complete any Roth conversions by December 31 to have them count for the current tax year.

5. Max Out Health Savings Account (HSA) Contributions

If you’re enrolled in a high-deductible health plan, December is your last chance to maximize contributions to your Health Savings Account (HSA). The 2024 contribution limits are:

• $3,850 for individuals.
• $7,750 for families.
• An additional $1,000 for individuals 55 and older.

HSAs are triple tax-advantaged: contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free. These accounts can also serve as a supplemental retirement savings vehicle, as funds can be used for any purpose without penalty after age 65 (though non-medical withdrawals will be taxed).

6. Plan Charitable Giving and Gifting

The holiday season is a time of giving, but it can also be a strategic financial move. If you’re feeling charitable, consider:

• Donor-Advised Funds (DAFs): Contribute to a DAF by December 31 to claim a tax deduction this year while deciding later where to direct the funds.
• Qualified Charitable Distributions (QCDs): As mentioned earlier, these are ideal for IRA owners who must satisfy RMDs.

For non-charitable gifting, the IRS allows you to gift up to $17,000 per recipient in 2024 without triggering gift tax. This is a great way to transfer wealth to loved ones while reducing the size of your taxable estate.

7. Rebalance Your Investment Portfolio

Year-end is an excellent time to review your investment portfolio. Over the year, market fluctuations may have caused your asset allocation to drift from your target mix. For example, if stocks have outperformed bonds, your portfolio may now carry more risk than intended.

Rebalancing restores your portfolio to its original allocation, ensuring that your investment strategy aligns with your retirement goals and risk tolerance. This is also an opportunity to review fund fees and performance, making adjustments as needed.

8. Spend Down Flexible Spending Accounts (FSAs)

Unlike HSAs, Flexible Spending Accounts (FSAs) often have a “use-it-or-lose-it” rule, meaning unused funds may be forfeited at the end of the year. Some plans allow a carryover of up to $610 into the next year, or a grace period of up to 2.5 months, but not all employers offer these options.

Check your FSA balance and use any remaining funds for eligible expenses like medical copays, prescriptions, or even certain over-the-counter items.

9. Review Estate Planning Documents

Retirement planning isn’t just about accumulating wealth—it’s also about protecting it for your loved ones. Use December to review and update your estate plan:

• Ensure that beneficiary designations on retirement accounts, life insurance policies, and annuities are current.
• Update your will and any trusts to reflect changes in your family, financial situation, or wishes.
• Consult with an estate planning attorney if you have a high net worth and may be subject to estate taxes.

10. Plan Ahead for the New Year

While December is about wrapping up this year’s finances, it’s also the perfect time to set goals for the next year. Some steps to consider include:

• Increase Retirement Contributions: If you’re anticipating a raise or bonus, plan to increase your contributions to retirement accounts. Automating these increases can help you stay on track.
• Evaluate Healthcare Options: Open enrollment for many employer-sponsored health plans closes in December. Review your coverage to ensure it aligns with your needs, particularly if you’re approaching retirement age.
• Create a Budget: Project your income, expenses, and savings goals for the upcoming year, incorporating potential changes like mortgage payoffs or large purchases.

Conclusion

Retirement planning is an ongoing process, but December presents unique opportunities to fine-tune your strategy. By maximizing contributions, managing taxes, and reviewing your financial and estate plans, you can close out the year on a strong note and set yourself up for long-term success. Don’t wait until the last minute—start tackling this checklist today to ensure a financially secure retirement.

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🧑‍💼Authored by Brent Meyer, founder and president of SafeMoney.com, with over 20 years of experience in retirement planning and annuities.

Disclaimer:
The information provided in this article is for general informational purposes only and should not be construed as financial, tax, or investment advice. The content is based on current laws and regulations as of the publication date and may be subject to change. It is important to consult with a qualified financial advisor, tax professional, or retirement planner to address your specific financial situation before making any decisions.