Getting Ahead of Year-End Planning

The end of the year tends to sneak up on us and often accelerates amidst a flurry of activity with friends, family, and events. It can be a time to reflect on the difficulties of the past year, as well as a time to celebrate and acknowledge what we’ve accomplished over the year.  

In addition to the whirlwind of lights, celebration, and holiday preparations, there are also practical steps to take as we wrap up the year. Below are some financial considerations and actions to take before the holiday season shifts into full swing.  

While all donations are appreciated, it can be helpful for the organization as well as your planning to not wait until the last minute. On an annual basis, over 30% of all nonprofit donations occur in the month of December, with 11% happening in the final three days of the year. Making an early plan can help you feel more in control and more intentional with your giving. 

For gifts to family and friends, the IRS allows tax-free gifts up to $17,000 per person, per recipient, each year. Some families choose to make these gifts as part of their holiday giving or as part of their estate planning. 529 college savings accounts for kids and grandkids are another place where many people channel their generosity. 

Year-end gifting also commonly includes contributions to Donor Advised Funds (DAFs) or directly to charities. In a recent article, we outlined the myriad benefits of DAFs. Now is also a good time to consider whether to donate highly appreciated stock to a DAF or your favorite charity directly. Talk to your tax professional and financial advisor to evaluate these strategies and how they may impact your financial picture.  

Online donations are much more common, but if you prefer to write checks and mail them to charities, give yourself plenty of time to do so. Mail is unpredictable at the end of the year, and you want to ensure your donation arrives on time. The deadline for tax-deductible charitable gifts is December 31st. 

Year-end is also the time to update your insurance coverage during the annual open enrollment window. Reviewing current plans and comparing new offerings for 2024 can help you navigate healthcare expenses in the following year. Adjusting your contributions to your FSA or HSA, for those who have access to them, can help you prepare to absorb anticipated higher medical expenses. If your FSA plan doesn’t allow rollovers from year to year, make sure to use the remaining funds before the end of the year. Consider the portion of your medical insurance deductible that has been fulfilled this year and whether it would be advantageous to schedule a procedure or update your eyewear prescription now before the deductible resets. 

Medicare Open Enrollment runs from October 15th – December 7th and allows participants to make changes to their Medicare, Medicare Advantage plans, and prescription drug coverage for the following year. Just as with an employer insurance plan, it’s important to review your current coverage along with other options available, as your medical needs may have changed.  

If you’re under age 50, you can contribute up to $22,500 to your workplace’s 401k or 403b in 2023. Those aged 50 and above can contribute an additional “catch-up” amount, bringing the total allowable contribution to $30,000 for 2023. Most 401k contributions, unless you are self-employed, must come directly from your paycheck before the end of each calendar year. If you aren’t on track to hit this target and would like to, it may not be too late to increase your contributions. If you typically receive a year-end bonus, you might direct a bigger portion of your bonus to top up your retirement contribution.

It can pay to start planning for holiday expenses now, especially if party-hosting and gift-giving are part of your tradition. It helps to determine an overall figure you want to spend and specify amounts for gifts, travel, and food. Be intentional, as it can be very easy to go beyond your initial spending plan.  

This is also an opportunity to fine-tune your annual budget or spending plan for the coming year. You may want to reallocate funds from one category to another if your actual costs in one area have increased or decreased. Perhaps a new grandbaby has arrived on the scene, so travel expenses will be higher, or you can plan to save more because you’ve recently paid off your mortgage. It’s important to be aware of where your funds are going so that you don’t simply increase overall spending from year to year.

As part of your year-end reflection, take a moment to acknowledge financial and personal wins for the year. Perhaps you finally took a much-anticipated trip, paid off debt, or navigated difficult conversations with a parent about aging and their evolving care needs. Recognize the things you accomplished that are meaningful to you.  

There are various opportunities to take advantage of before the calendar flips to a new year, but our list is certainly not exhaustive. Those who are retired, yet below the required minimum distribution age, may want to consider a Roth conversion. Small business owners may want to think about deferring a portion of income to 2024, for example. At North Berkeley, we regularly assist clients with these questions and are happy to talk through these concepts with you. If there are meaningful actions you can take to make progress on your financial goals, then doing so now may set you up for more financial flexibility in the future. We’re here to support you along the way.