Author: Mechanics Bank Investment Management Team
Before we get caught up in the end of the year holiday season, we wanted to review some important year-end financial planning tips. Reviewing the below list will ensure you start 2025 on the right financial footing.
General
- Review financial plans and reflect on savings goals for 2024. Did you accomplish your savings goals? What life events occurred in 2024 that may change your financial situation? Birth, marriage, career change, house purchase, retirement, etc.
- Plan for 2025 savings goals. Are there life events on the horizon or large purchases you are planning in the new year?
- Credit monitoring. You can check your own credit report without it affecting your score and there are many ways to do this for free. Check your credit at least once a year to review your listed accounts and spot any sign of fraud.
- Insurance. Review your home, auto and any other property insurance and confirm that deductibles and coverage are appropriate for your current financial situation.
Investments
- Review asset allocation. Your target portfolio allocation can drift as investments change value over time. Review with your portfolio manager and inform them of any changes to your financial situation. Remember to take into consideration your holdings across all investment accounts.
- Tax loss harvesting. If your account had losses this year, now might be the time to offset realized gains. Our investment team will review all accounts for capital gains and losses; speak with your portfolio manager if you have a unique tax situation or large capital gains or losses outside the bank.
- Diversity concentrations. If any holding in one company or stock is over 10% of your portfolio, it's time to sell. Your portfolio manager will work to set up a plan to reduce the security's percentage, over a period of time if necessary.
- Verify current income needs. If you rely on income from your portfolio, confirm that the expected cash flow and expenses will stay the same for 2025. If not, reach out to your portfolio manager to discuss the change.
Mechanics Bank investment products are not FDIC insured; are not deposits; and may lose value.
Estate Planning & Gifting
- Review and update your estate plan. If there have been major life events this year, you might need to make updates to your estate plan including your will, beneficiaries, financial power of attorney and healthcare proxy.
- Life insurance. Life events such as a new baby, house purchase, or divorce may require changes to your life insurance needs and an update to beneficiaries.
- Gift your gains. If gifting stock to a charity or nonprofit, you may be able to avoid capital gains on an appreciated asset and gift a higher amount than you may have done in cash.
- Gift to your circle. You can gift up to $18,000 tax free ($36,000 for married couples). Anything above this limit will count against the lifetime gift and estate tax exemption.This limit is per recipient.
- Gift to 529 Plans. 529 Savings Plans are a tax efficient way to save for higher education expenses. Annual limits for 529 contributions for tax considerations are $18,000 for an individual and $36,000 for a married couple. Recent changes have also expanded how 529 funds can be used, including tuition for private K-12 and apprenticeship, student loans and allowing unused funds to be rolled over to a Roth IRA. See your tax advisor.
- Qualified Charitable Distributions (QCD). Ever year, you can donate up to $100,000 directly from your IRA to charity if you're 70.5 or older. This is not considered taxable income and can count toward fulfilling your Required Minimum Distribution (RMD).
Retirement & Benefits
- Review your income tax withholding. Confirm your withholdings are correct and discuss with a tax professional if your tax situation is more complex. This can also be confirmed around tax season in the spring.
- Maximize retirement savings. For 2024, the maximum contribution into your 401(k) is $23,000 ($30,500 if you're 50 or older). You have until December 31st to contribute to your 401k. For IRAs the maximum contribution is $7,000 ($8,000 if you're 50 or older). You have until April 15, 2025 to contribute to a 2024 IRA.
- Maximize your Health Savings Accounts (HSA) contributions. HSAs can also be a tool for retirement. If you participate in a High Deductible Health Plan (HDHP), you may be eligible for an HSA. You can contribute $4,150 per year for an individual plan and $8,300 for a family plan. This contribution limit includes employer contributions. Any unused amount may be eligible to be invested and saved for future needs, refer to your plan details to confirm.
- Required Minimum Distribution (RMD). You are required to take an RMD if you turned 73 this year. If you you are taking an RMD for the first time, you have until April 1, 2025 to withdraw. In future years, you'll need to take it before the end of each calendar year. Your IRA administrator will take care of your 2024 distribution. Please contact us if you have any questions about this process.
- Roth Conversion. Talk to a tax professional to see if a Roth conversion may be right for your situation. In traditional IRAs, you are taxed when money is withdrawn while Roth IRA accounts are funded with post tax dollars. Converting traditional IRAs into a Roth account could be appropriate in years when you have a lower income or high deductions.
All content contained herein is for informational and educational purposes only and should not be construed as investment or tax advice, or as a solicitation to buy or sell any specific security.
Always consult with your independent attorney or tax advisor before making any tax-related financial decision, or changing or implementing any financial, tax or estate planning strategy.