2023 Year-End Financial Planning Checklist

Year-end is often an ideal time to reflect on the year that’s passed, take inventory, and set goals for the year ahead. It’s also a crucial period for implementing last-minute tax planning strategies and taking key steps to set yourself up for financial success in the new year. This year-end financial planning checklist is designed to help you optimize your financial situation, reduce this year’s tax burden, and prepare for a prosperous 2024.

Here’s Your 2023 Year-End Financial Planning Checklist:

#1: Estimate Your 2023 Taxable Income

The first task on your year-end financial planning to-do list is to estimate your 2023 earnings. Understanding your financial position is crucial for effective tax planning, budgeting, and setting realistic goals for the new year.

As you review this year’s earnings, be sure to include income from all sources, including wages, bonuses, side hustles, and investments. With a clear picture of your taxable income, you can identify strategies to lower your tax bill and direct extra cash toward longer-term financial goals before the end of the year.

#2: Max Out Tax-Advantaged Account Contributions

The next item on your year-end financial planning checklist is to look for opportunities to contribute to tax-advantaged investment accounts. Maximizing your tax-deferred account contributions doesn’t just boost your retirement savings; it can also be a valuable year-end tax planning strategy.

In 2023, individuals can contribute up to $22,500 to a 401(k) plan and $6,500 to an individual retirement account. However, for those 50 or above, the contribution limits are $30,000 and $7,500, respectively.

You may also be eligible to contribute to a health savings account (HSA) if you have a qualifying high-deductible health plan. HSAs offer triple tax benefits, as contributions, capital gains, and withdrawals are all tax-free if you use your funds for eligible healthcare expenses. In 2023, individuals can contribute up to $3,850 to an HSA, and families can contribute up to $7,750.

#3: Give Intentionally

For many people, year-end financial planning includes intentional charitable giving. By making donations before December 31st, you can impact the causes you care about while potentially realizing valuable tax benefits.

As of 2023, taxpayers who itemize deductions on Schedule A (Form 1040) of their tax return can give up to 60% of their Adjusted Gross Income (AGI) to public charities and deduct the donation amount on this year’s tax return. For non-cash donations—for example, appreciated stock or real estate—the deduction limit is 30% of AGI.

In some cases, contributing to a donor-advised fund can be an effective way to maximize this year’s tax deduction while allocating your charitable gifts over several years. A fiduciary financial planner like Milestone Asset Management Group can help you identify which strategies can help you achieve your philanthropic and financial planning goals most efficiently.

#4: Identify Additional Tax Planning Opportunities

Maxing out retirement account contributions and giving to charity are two relatively straightforward ways to lower your taxable income for the year. However, as you work through your year-end financial planning to-do list, there may be other strategies you can leverage to lower your tax liability. Examples include:

  • Roth Conversion. If you anticipate being in a higher tax bracket in retirement, you may want to consider converting a traditional IRA to a Roth IRA. You’ll pay ordinary income taxes on the conversion amount in the year you make the conversion. However, future withdrawals in retirement will be tax-free.
  • 529 Plan Contributions. Consider contributing to a 529 educational savings plan if you have young children. Contributions grow tax-free, as are any funds you withdraw for qualified education expenses. Some states even offer state tax deductions or credits for contributions.

It’s important to note that these strategies may not make sense for everyone, and other tax savings opportunities may be more appropriate. Be sure to consult with a financial professional to determine which methods best align with your personal objectives.

#5: Review Your Insurance Coverage and Needs

Another important yet often overlooked aspect of year-end financial planning is a comprehensive insurance review.

Indeed, financial circumstances and family dynamics can change meaningfully in a year’s time. By assessing your current coverage versus your evolving needs, you can determine whether you need to expand your coverage or adjust existing policies accordingly.

At the same time, you may need more sophisticated strategies to protect your wealth as your net worth increases. Having the right insurance coverage can help safeguard your assets from events that might jeopardize your financial future.

#6: Update Your Beneficiary Designations

Lastly, updating your estate plan can be an essential component of year-end financial planning.

At a minimum, this includes reviewing your beneficiary designations and updating them where appropriate. These designations override your will, so making sure they’re accurate is crucial to avoid future conflicts and potential legal disputes.

The following types of accounts typically have beneficiary designations:

  • Retirement accounts, including IRAs, 401(k)s, and other retirement savings plans.
  • Life insurance policies that pay a death benefit.
  • Transfer on Death (TOD) accounts for certain investment accounts.
  • Payable on Death (POD) accounts for bank accounts such as savings or CDs.

By proactively reviewing your beneficiary designations at year-end, you can feel confident that your estate plan is up to date and that your assets will be distributed according to your wishes.

Milestone Asset Management Group Can Guide You Through Year-End Financial Planning

Year-end financial planning is an important exercise that offers numerous benefits, paving the way for long-term financial health and stability. Ultimately, this practice isn’t just about closing out the current year on a strong note; it’s about setting the stage for future financial success, offering peace of mind and a clearer path towards achieving your financial objectives.

As you work through this checklist, keep in mind that depending on your individual situation and goals, there may be additional strategies that offer financial benefits. An experienced financial advisor like Milestone Asset Management Group can help you proactively identify these opportunities throughout the year, ensuring you’re well-positioned for the future. To find out how we can help you achieve your financial goals and aspirations, please schedule an introductory call.