Don't Miss Out: 5 Financial Moves to Make Before Year's End

This article was published in the October 2024 issue of the Traverse City Business News, and can be read in its entirety below. Black Walnut Wealth Management contributes articles and is featured in various media outlets.

The past few years have brought their fair share of stress, with worries about a potential recession and ongoing inflation leaving many feeling uncertain about what lies ahead in 2025.

While these concerns can feel overwhelming, your personal finances don’t have to mirror the challenges of recent times. There are plenty of strategies you can employ to regain control of your finances and pave the way for a brighter future. Take the time to prepare before the end of 2024 (it’ll be here before we know it!) by considering these five end-of-year financial actions to cover all your bases.

1. Assess Your Emergency Fund

Now is the time to ensure that you have enough money set aside in your emergency fund or create a plan to build this up over the next year.

With all stock market uncertainty and recession fears, many experts have suggested maintaining a larger emergency fund closer to 6-12 months of expenses for most individuals. However, if you are in or nearing retirement, it’s wise to consider having at least 1-2 years of cash reserves. This buffer can help you manage unforeseen market downturns or unexpected expenses, without the need to prematurely liquidate investments.

However much you save, be sure this money is held in a highly liquid account. It needs to be readily available and easily accessible, but it should also be in an account that offers a competitive interest rate so that you don’t lose out on potential growth.

2. Review Your Asset Allocation

The end of the year is also a great time to review your asset allocation strategy. Given the continued impact of market volatility and historic levels of inflation these past few years, it’s crucial that you evaluate your investments and make sure your portfolio is properly diversified. You should be earning enough returns to keep up with inflation, but not overexposing yourself to risk.

3. Consider Charitable Donations

Charitable donations are an important strategy to consider as the year winds down. Instead of waiting until the last minute, we advise our clients to schedule their gifts in the fall. This way, you can comfortably contribute to your favorite non-profits, churches, and organizations and enjoy the benefits of giving—without the year-end rush.

Charitable donations can be used as part of your overall tax strategy, or as part of a comprehensive estate plan. Both options provide many potential benefits including supporting causes you care about, reducing your taxable income, and reducing your taxable estate.

4. Focus on Tax Planning

Midway through the year is an ideal time to review your tax strategy. Taking these steps can help you manage your tax liability effectively and keep more of your hard-earned money in your hands:

Tax Loss Harvesting

If you have investments that have declined in value, now may be a good time to sell them to offset gains in other areas of your portfolio. This strategy—known as tax-loss harvesting—can help reduce your taxable income and potentially save on your annual tax bill. You’ll want to consult with a financial professional to see if this strategy fits your overall financial plan.

Roth Conversions

Another effective strategy to consider is converting a portion of your traditional IRA to a Roth IRA. While you’ll pay taxes on the converted amount now, the funds can grow tax-free and qualified withdrawals in retirement will also be tax-free. As with tax-loss harvesting, be sure to discuss this with a financial professional to determine if a Roth conversion aligns with your long-term goals.

Review Deductions and Credits

If you haven’t already, take the time to review any potential deductions and credits to make the most of them. This could include deductions for medical expenses, charitable donations, and education costs. In the end, every bit of savings can contribute to your larger financial picture.

Maximize Retirement Contributions

Now is a great time to consider increasing contributions to retirement accounts like 401(k)s and IRAs. This approach can help you measurably increase your retirement savings and provide tax benefits for the current year.

5. Revisit Your Plans and Policies

Lastly, take another look at your estate plan and insurance coverage. If you took the time and energy to create an estate plan, check it periodically to ensure all the documents are up to date and no major details have changed.

Your insurance needs may also change as the year goes by, so periodically review your coverages and designated beneficiaries to bring them up to date to reflect your current financial situation. For example, if you paid off debt, you may not need as much life insurance coverage since your family’s liabilities have decreased. You might also want to evaluate your need for other types of insurance, such as long-term care or disability insurance.

Preparing for Your Future

As we cross the midpoint of the year, it’s an excellent time to take proactive steps with your financial planning. Focus on essential areas such as building an adequate emergency fund and optimizing your tax strategy, so you may better handle the uncertainties that lie ahead.

By addressing these issues now, you can better prepare for year-end and be ready for any challenges—and opportunities—in the future. Taking this time to assess and adjust your financial plan now can have a positive impact on your financial situation over the long term.

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