As the calendar year comes to a close, it’s the perfect time to assess your financial strategies. Many financial opportunities, especially those related to taxes and investments, are time-sensitive and expire at the year’s end. Whether you have a financial advisor or manage your finances independently, this guide will help you stay proactive.
Here are five key questions to ask your financial advisor—or yourself—before the year ends.
1. Are There Opportunities to Accelerate or Defer Income?
Effective tax planning isn’t just about minimizing this year’s tax bill—it’s about reducing your lifetime tax liability.
When to Accelerate Income
If you expect to be in a higher tax bracket in the future, consider strategies to realize income now:
Roth Conversions:
Convert pre-tax funds in 401(k)s or IRAs to Roth accounts.
Pay taxes now at a lower rate, and enjoy tax-free withdrawals later.
Tax Gain Harvesting:
Realize long-term capital gains in taxable accounts while staying within the 0% capital gains tax bracket.
Repurchase the investments to reset the cost basis, reducing future taxable gains.
When to Defer Income
If you’re currently in a high tax bracket, deferring income can save you taxes:
Contribute to pre-tax accounts like 401(k)s, deferred compensation plans, or employee stock ownership plans.
Postpone selling investments or taking distributions until you’re in a lower tax bracket, such as in retirement.
Pro Tip: Be mindful of ripple effects on modified adjusted gross income (MAGI), which can impact Social Security taxes and healthcare subsidies.
2. Can I Minimize My Capital Gains Tax Liability?
Capital gains taxes can erode investment returns, but with careful planning, you can minimize this liability.
Strategies to Reduce Capital Gains Taxes
Avoid Short-Term Gains:
Short-term gains (investments held <1 year) are taxed as ordinary income, often at higher rates.
Hold assets for at least a year to qualify for favorable long-term capital gains rates (0%, 15%, or 20%).
Tax Loss Harvesting:
Sell investments at a loss to offset gains from other investments.
Deduct up to $3,000 in losses against ordinary income, and carry over excess losses to future years.
Defer Sales to a Future Year:
If you anticipate being in a lower tax bracket next year, delay selling investments with significant gains.
Pro Tip: If you see short-term gains in your portfolio, ask your advisor why. Often, rebalancing or other strategies could avoid unnecessary taxes.
3. Have I Maxed Out My Tax-Advantaged Accounts?
Tax-advantaged accounts like 401(k)s, 403(b)s, and IRAs are powerful tools for building wealth and minimizing taxes.
Contribution Deadlines and Limits
Employer-Sponsored Plans (401(k), 403(b), etc.):
Deadline: December 31st or your final paycheck of the year.
2024 Limit: $23,000 ($30,500 for those over 50).
IRAs (Traditional and Roth):
Deadline: Tax filing day of the following year (e.g., April 15, 2025, for 2024 contributions).
Limit: $6,500 ($7,500 for those over 50).
Pre-Tax vs. Roth Contributions
Pre-Tax Contributions:
Favorable for high earners who expect to be in a lower tax bracket during retirement.
Roth Contributions:
Better for early-career individuals or those expecting to be in a higher tax bracket later.
Pro Tip: Consider a mix of pre-tax and Roth contributions to diversify your tax exposure in retirement.
4. How Can I Prepare for Upcoming Life Events?
Major life events often require careful financial planning. Use this question to gauge how well your advisor understands your unique circumstances.
Examples of Life Events to Prepare For
Marriage or Divorce:
Understand how these changes will affect taxes, insurance, and retirement accounts.
Major Purchases (e.g., Home):
Plan ahead by saving or setting aside cash to avoid tapping into investments at an inopportune time.
Retirement:
Develop a withdrawal strategy, plan for healthcare costs, and decide when to claim Social Security.
Pro Tip: Your advisor should also coordinate with other professionals, like business brokers or estate planners, to align your financial strategies with your goals.
5. What Should We Have Done Differently This Year?
Reflection is key to improving your financial strategies. This question encourages an honest assessment of your finances over the past year.
Areas to Review:
Investment Strategy:
Did market fluctuations cause stress? If so, consider adjusting your portfolio to better match your risk tolerance.
Emergency Fund:
Were you caught off guard by unexpected expenses? Build a larger cash reserve to avoid future surprises.
Tax Efficiency:
Review missed opportunities, such as underutilized tax-advantaged accounts or overlooked deductions.
Pro Tip: This question isn’t about critiquing portfolio performance—it’s about ensuring your financial plan evolves with your needs and circumstances.
Take Control of Your Financial Future
Whether you work with an advisor or manage your finances independently, these five questions can help ensure you’re making the most of every opportunity before the year ends.
Next Steps:
Review your financial goals and strategies for the year.
Ask these questions to identify missed opportunities.
Take action before December 31 to maximize tax advantages and savings.
If you’re considering working with a financial advisor, look for someone who takes a comprehensive approach to your financial health—beyond just your investment portfolio.
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About the author
Jake Skelhorn
Jake is a CFP Professional with a focus on planning for both traditional and early retirement. He’s a Florida native, growing up in Fort Lauderdale and now residing in Jacksonville with his husband Chris and their 120-lb “puppy” Barli. Jake enjoys cooking (favorite cuisine to make is Thai), traveling, and spending time with friends and family as much as possible.
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