Q4 Theme: Wealth and Year-End Planning

Our theme this quarter is focused on helping you align your 401(k) and wealth strategy. Retirement planning is just one piece of a larger financial puzzle. By taking some key actions now, you can set yourself and your family up for long-term financial success. Below are the critical areas to review before year-end.

Review Your 401(k) Investment Line-Up

Your 401(k) offers several investment options, and year-end is the perfect time to assess if your portfolio aligns with your retirement goals.

1. *Target-Date Funds: Automatically adjust risk based on your anticipated retirement year, becoming more conservative as retirement approaches.
2. Investment Models: Choose from conservative, moderate, or aggressive models that align with your risk tolerance.
3. Self-Selection Options: If you prefer more control, you can build your own portfolio from a selection of individual funds.

Action Tip: Log in to your retirement account and review your investment allocations. Ensure your current choices reflect your risk tolerance and retirement timeline.

Pre-Tax vs. Roth Contributions: A Key Decision

When contributing to your 401(k), you have the option to make pre-tax or Roth contributions. Understanding the differences can help you maximize tax benefits both now and in retirement:

1. Pre-Tax Contributions: Reduce your taxable income today, but you’ll pay taxes on withdrawals in retirement.
2. Roth Contributions: Contributions are made with after-tax dollars, allowing for tax-free withdrawals in retirement.

Action Tip: Review your contributions to decide which strategy aligns best with your current and future tax planning. Roth contributions can be advantageous if you expect to be in a higher tax bracket during retirement. If you work with a financial advisor or CPA, it’s a good idea to discuss this option with them for personalized guidance.

Maximize Your Employer Match

Don’t miss out on free money! Ensure you’re contributing enough to take full advantage of your employer’s matching contribution. 

For example, if your employer matches up to 5% of your salary, but you’re only contributing 3%, you’re not maximizing this benefit.

Action Tip: Check your current contribution rate and make sure it meets or exceeds the match threshold to take full advantage of the match. This is one of the easiest ways to increase your retirement savings without additional cost to you.

Contribution Limits for 2024

To maximize your tax-advantaged retirement savings, make sure you’re contributing up to the IRS limits:

1. $23,000 for participants under 50.
2. $30,500 for participants 50 and older (including $7,000 catch-up contributions).

If you haven’t hit these limits, consider increasing your contributions before December 31.

Action Tip: Even a small increase in your contribution rate before year-end can significantly impact your retirement savings.

Year-End Wealth Planning Checklist

Effective wealth planning involves more than just retirement contributions. Take a holistic approach to your financial health with these key steps:

Retirement Accounts

1. 401(k) Contributions: Ensure you’re contributing enough to meet your retirement goals and take advantage of employer matching.
2. Roth IRA: If eligible, consider contributing to a Roth IRA to complement your 401(k) savings.
3. RMDs: If you’re 73 or older, ensure you take your Required Minimum Distributions (RMDs) by December 31 to avoid penalties.

Tax Planning

1. Charitable Contributions: If you regularly make charitable donations, consider discussing your giving strategy with your wealth advisor or CPA to explore potential tax benefits. Options like bunching donations through a Donor Advised Fund or utilizing Qualified Charitable Distributions (QCDs) if you’re over age 70.5 can help maximize tax efficiency.
2. Tax-Loss Harvesting: As the year-end approaches, review your taxable investment accounts for underperforming assets. By selling investments that have declined in value, you can use those losses to offset capital gains from other investments, potentially reducing your overall tax liability. If your losses exceed your gains, you can use up to $3,000 to offset ordinary income, and any additional losses can be carried forward to future tax years. Be sure to consult with your wealth advisor or CPA to ensure this strategy fits your overall financial plan and complies with the wash sale rule, which prevents buying back the same or a substantially identical security within 30 days.
3. Flexible Spending Accounts (FSA): Check your FSA balance and use any remaining funds before they expire.
4. Health Savings Account (HSA): If you’re eligible, make sure to maximize your HSA contributions before year-end. For 2024, the contribution limit is $4,150 if you have individual coverage under a high-deductible health plan, or $8,300 for family coverage. HSAs offer triple tax benefits: contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are tax-free. Plus, any unused funds roll over from year to year, making this a valuable tool for both current and future healthcare costs.

Estate Planning

1. Review Beneficiaries: Ensure the beneficiaries on your 401(k) and other accounts are up to date, especially if you’ve experienced a major life change like marriage, divorce, or the birth of a child.
2. Gifting Strategy: Consider making financial gifts to family members or others. The annual gift tax exclusion for 2024 is $18,000 per recipient.

Insurance Review

1. Life Insurance: Review your life insurance policies to ensure your coverage still aligns with your family’s needs.
2. Disability Insurance: Check your disability insurance to ensure you have adequate coverage in case of illness or injury.

Action Tip: Schedule a year-end meeting with your financial advisor to review this checklist and ensure all areas of your wealth strategy are optimized.

*The target date of a target date fund may be a useful starting point in selecting a fund, but investors should not rely solely on the date when choosing a fund or deciding to remain invested in one. Investors should consider funds' asset allocation over the whole life of the fund. Often target date funds invest in other mutual funds and fees may be charged by both the target date fund and the underlying mutual funds. The principal value of these funds is not guaranteed at any time, including at the target date.