Many Americans associate the holiday season’s festivities with extra spending and a loosening of their budgetary belts. Yet, for savvy investors, it can also be a time for financial housekeeping.
The end of the year is an ideal time to examine one’s financial picture and make strategic moves. Advisors share smart year-end actions and a few pitfalls to watch out for in the year ahead.
Year in Review
The U.S. economy remains robust as 2025 approaches. After a couple of years of intense monetary tightening, the U.S. economy appears to have achieved a so-called “soft landing” — receding inflation coupled with steady growth.
Overall, it’s been a great year for equities. By mid-November, the S&P 500, fresh off a post-election rally, notched an impressive year-to-date gain.
Meanwhile, fixed-income results are decidedly more mixed as the direction of monetary policy shifts. The Fed’s long-awaited first round of interest rate cuts in the year’s second half put downward pressure on bond yields, with 10-year Treasuries sitting at about 4.5%.
“2024 brought its share of challenges and opportunities for investors,” says Tushar Kumar, Private Wealth Advisor and Founder of Twin Peaks Wealth Advisor. “Now I’m telling clients it’s time to reassess your portfolio allocations. Ensure your asset mix reflects your risk tolerance. Many portfolios have become overly concentrated in equities due to recent market appreciation.”
Kumar also recommends that clients complete other tasks promptly before the year closes. These include taking advantage of state tax deductions for their contributions to their child’s education 529 plan, maxing out 401(k) or IRA contributions to the upper limit, and harvesting tax losses by selling underperforming assets.
Harvest Extra Gains
End-year portfolio pruning can be prudent. Investors often cut their losses on underperforming equities, but that’s not the only play to make.
“While tax loss harvesting gets a lot of attention, an often underused tax strategy is capital gain harvesting,” says Zack Gutches, Founder & Lead Financial Planner at True Riches Financial Planning.
Gutches says this kind of harvesting describes when a trader intentionally sells an appreciated stock or fund at a gain in a brokerage account and immediately buys it back.
“This strategy is most optimally used by those who have less than $94,000 in taxable income as a married household or $47,000 as a single household, as it allows you to sell assets you’ve held for at least a year at 0% federal tax rates.”
More Wealth for Health
Many American workers pad their Flexible Spending Account (FSA) accounts at the start of the year in anticipation of healthcare costs. Yet, it can also pay to check your FSA balance in December.
According to studies by the nonprofit Employee Benefit Research Institute (EBRI), over 40% of workers with FSAs have lost at least part of their account contributions in recent years. Money.com estimates the total annual wastage at around $3 billion, translating into roughly $300-400 per worker.
It can pay to check your FSA balance before January 1. “The FSA is traditionally use it or lose it, but some employer plans allow a carryover provision,” says Andre Small, Founder of A Small Investment. “This year, the carryover amount is $640 of FSA funds that can be carried over to 2025,” he adds. “This is a huge benefit for those with a remaining balance in their FSA account.”
Kumar also reminds clients not to miss those dreaded year-end deadlines. “Ensure you complete open enrollment for benefits, finalize charitable contributions, and handle any tax planning needs by December 31,” he says.
Every new calendar year brings uncertainty for finance, and that’s certainly true of 2025. While no one can predict what will happen next, proper preparation enables us to respond to most scenarios.
As 2024 comes to a close, financial advisors encourage their clients to make strategic financial moves, including reviewing our portfolios, taking advantage of tax strategies like tax-loss or capital gain harvesting, and maximizing benefits such as 401(k) contributions and FSA carryovers, all to set ourselves up for success in the new year.
“Partner with a financial advisor to create clear objectives for 2025,” says Kumar. “Regular check-ins can keep you accountable.”
Thoughtful planning now can pay big dividends in the year ahead.
This article was produced by Media Decision and syndicated by Wealth of Geeks.
Source: Time’s up: Make these money moves before year-end | New Orleans CityBusiness
