The Pack Mule
I hope everyone had a wonderful Thanksgiving. Personally, Thanksgiving is one of my favorite holidays.
We enjoyed some time with my family in Northern California, and as I’m accustomed to doing, I ate way too much food.
Our 7-hour drive home took 12 hours, with three kids in the back seat, ages 1, 4, and 6. Honestly, the kids endured all that holiday traffic, perhaps better than my wife and I did.
The part about family travel that always impresses me is my wife’s ability to pack and organize everything. Not one thing is missing – the clothes, the diapers, the sound machines, the medicine, the monitors, the special blankies, the books, the toiletries, and the list goes on. She jokes that she feels like a pack mule, but she’s a superstar to me.
On the other hand, I’m horrible at packing. I forget things all the time. I lose phone chargers, forget sweatshirts, and leave the house without the diaper bag. I am the worst.
My wife intuitively knows what to bring and doesn’t forget a thing. I need a list, which she often provides me when I’m on daddy duties. I’m a checklist guy.
Personal finance has a lot in common with packing for a trip. A wide variety of items, all varying in priority, each needing to be organized in an orderly manner. So, if you’re like my wife, you may not need an end-of-year financial checklist, but if you’re anything like me, then today’s article will be a lifesaver.
So, let’s jump right in as I provide my non-exhaustive-but-hopefully-helpful end-of-year checklist.
Contributions
There is a wide array of accounts investors contribute to. Everything from 529 college savings plans, Health Savings Accounts, SEP IRAs, and 401(k)s. These contributions are all a part of an investor’s financial plan, and many have associated tax benefits.
I know for me personally, sometimes the years blend together and I don’t often recall if I made my contributions this year versus last year. I often will send one of my colleagues on our operations team to confirm what I had done before the end of the year and what is still left to complete (contribute to). Honestly, it is a lot to keep track of.
There is no better time than December to review your normal contributions to confirm (1) if they were made and (2) if the amounts made match your intentions. Many contribution limits will increase year-over-year, so simply matching last year’s figures isn’t always the best plan of attack.
Distributions
Once you have all of your contributions squared away, you’ll want to double-check your distributions.
Again, these can range – some will have Required Minimum Distributions from their retirement accounts or inherited retirement accounts, while others will have required grants that need to be processed intra-year from their Donor Advised Fund.
This can also apply to folks with Flexible Spending Accounts (FSA) they may need to match a distribution to a certain expense (reimbursement) before year end to ensure they don’t lose access to those funds. For some, perhaps they are looking to clear out their Health Savings Account, as it is not the most efficient asset to leave to the next generation, and they will need to match some historical medical receipts to claim tax-free distributions.
As you can see, this is a wide-ranging category but one that deserves attention as some missed distributions can be very punitive, either from the tax side or the complete loss of use.
Donations
‘Tis the season of giving. As someone who sits on the finance committee for a non-profit, I will tell you that December giving is by far the most elevated month for donations.
So, if you are charitably inclined and you already intend to give an end-of-year gift, you should ask yourself if you are giving that gift in the most tax-efficient manner. Do you have an opportunity to make a Qualified Charitable Donation from a retirement account or an inherited retirement account? Do you have highly appreciated securities that have been held long term that would be more tax efficient for giving? Should you give directly to the charity or resource a Donor Advised Fund? Would bunching multiple years of gifts into one tax year allow you to itemize versus using the standard deduction?
A lot of questions, right? Questions should be asked and analyzed, and conclusions and recommendations should be provided.
Gifts
I’ve separated gifts and donations, as I am referring to gifts to friends and family members. The IRS allows you to make gifts to individuals below a certain threshold ($18,000 in 2024 and $19,000 in 2025) that do not need to be reported.
For clients facing a future estate tax issue, this will be some of the lowest-hanging fruit regarding estate planning. Mom and Dad can each use their $18,000 gift to children, spouses of children, grandchildren, and literally any individual they desire to bestow a gift on. For some of our clients, these are significant end-of-year gifts to their family tree, and those gifts are incredibly helpful when trying to shrink that future estate tax liability.
Perhaps you don’t foresee a future estate tax liability. Still, you want to enjoy the fruits of your labor during your lifetime and prefer to make an end-of-gift versus a windfall future inheritance. December is a great time of year to think through these plans.
Remember, even beyond these gifts, one can cover the cost of things like medical and education without even dipping into the annual exemption limit.
Expenses
Speaking of expenses, do you know how much you spent in 2024? You should. Yes, I am anti-budget, but I am pro-awareness. You need to be aware of how much you spent this year. These figures become crucially important for long-term planning, as your expense assumptions will greatly impact the forecasts within your financial plan.
It’s simple: just know what you spent this year – a little effort goes a long way here.
Additionally, do you have any one-time expenses coming up in the near term? Anything in the next 36 months like a new car, new roof, big vacation, wedding, etc.? We are currently experiencing one of the best years when it comes to investment returns in the stock market; what an opportune time to raise some cash from your investment accounts to be earmarked for these upcoming expenses. Trust me, you will feel a lot better about raising cash and setting aside funds in a money market account in these types of markets versus a less friendly landscape. This isn’t market timing; this is simply squirreling away the cash needed for a bill you know you have coming due.
Be aware of what you spend and prepare for what you will spend.
Taxes
Death and taxes, right?
December is the time to review your 2024 tax situation and make any needed modifications before we close the books this year. If you pay quarterly taxes, you will want to know what those January 15th estimates look like. You’ll want to think about how this tax year may look different than last year and decide if there is any additional planning that can help soften that tax hit.
Perhaps you have a few investments that have unrealized losses and harvesting those losses in 2024 could benefit you. Also, be sure to reference that contributions section above, as there is a lot of overlap and application to how those actions may impact your tax picture.
Again, December IS the month for tax planning.
Even Santa Clause…
So, just as I said at the beginning, I am the worst at packing and preparing for a trip. Thank God that I married the perfect woman who helps to solve for many of my deficiencies.
I am in good company, though; even Santa Claus is making a list and checking it twice. I hope you will do the same, whether you use my checklist for reference or you have your own.
Don’t let December slip by without making sure that your financial hygiene is all in good order.
Till next time, friends…
Trevor Cummings
PWA Group Director, Partner
tcummings@thebahnsengroup.com
Blaine Carver
Private Wealth Advisor
bcarver@thebahnsengroup.com
