10 Must-Do Actions Before December 31st

By Brett Gottlieb

As the new year approaches, many of us are eagerly anticipating a more promising 2024. The turbulence in the financial markets over the past few years, along with continued concerns about a recession, have left even the most experienced investors feeling a bit uneasy. While the holiday season is around the corner and many are ready to say goodbye to the current year, there is still time left to take several proactive steps to make sure you start the new year on the right foot. Below are 10 financial tips to take into consideration before bidding farewell to 2023.

1.   Maximize Your Retirement Contributions

Before the end of the year, consider maxing  out your retirement contributions. Many employers offer retirement plans like 401(k)s, 403(b)s, and 457s which allow you to contribute up to $22,500 annually in 2023.

These contributions are automatically deducted from your paycheck and won’t show up as part of your annual income, so the more you can maximize your contributions during the year, the less taxable income you will have come April 15th. With this strategy, you can defer taxes until your retirement years when you could potentially be in a lower tax bracket. 

2.   Contribute to a Health Savings Account

Health savings accounts (HSA) offer triple tax savings. You can contribute pre-tax dollars, pay no taxes on earnings, and withdraw the money tax-free to pay for medical expenses. Unused funds roll over each year and can be withdrawn without penalty for non-medical expenses at age 65, essentially becoming an IRA. You must be enrolled in a high-deductible health plan in order to qualify for an HSA.

HSAs can be a great tax-management tool if you are able to pay medical expenses out of pocket and leave the HSA funds to earn tax-free growth. The 2022 IRS contribution limits for HSAs are $3,850 for individuals and $7,750 for families. If you are 55 or older, you may also be able to make catch-up contributions of $1,000 per year. You technically have until April 15th for your contributions to count for the previous year’s tax return, but we recommend making contributions by December 31st to ensure you don’t forget.

3.   Contribute to a Traditional IRA

Contributing to a traditional IRA is another way to reduce your AGI if your income is within certain limits. By contributing pre-tax funds, you can effectively reduce your current-year tax liability, but you will owe tax on both the contributions and the account growth when you withdraw the funds in retirement. The 2023 contribution limit for traditional IRAs is $6,500 with additional $1,000 catch-up contributions for individuals over the age of 50. Like HSAs, contributions can be made until April 15th for the 2023 tax year, but the sooner they are made, the less likely you are to forget.

4.   Use Up Your Flexible Spending Account

Unlike HSAs, flexible spending accounts (FSAs) have limits on how much you can carry over from year to year. Because of that, you’ll want to use up as much of your FSA dollars as possible by the end of the year. In 2023, you are only allowed to carry over $610 going into 2024.

That being said, check the restrictions on your account to see what the money can and cannot be used for, and take care of any needs you may have as allowed by your plan.

5.   Consider Tax-Loss Harvesting

Tax-loss harvesting involves selling investments at a loss in order to offset the gains in your portfolio. By realizing a capital loss, you are able to counterbalance the taxes owed on capital gains. The investments that are sold are usually replaced with similar securities in order to maintain the desired asset allocation and expected return. Given the unprecedented market volatility throughout the past few years, this can be a great way to make the most out of a losing situation by using an investment loss to offset your tax liability.

6.   Donate to Charity

Annual gifts to qualified charitable organizations may be deemed an eligible itemized deduction and can be a very useful tax-minimization strategy. With the higher standard deduction, you’ll need to make sure your total itemized deductions for the year exceed $14,600 for an individual filer, and $29,200 for married filing jointly. If your deductions fall below this amount, consider bunching your giving or doing several years’ worth of giving in one year.

Donor-advised funds are another option that allow you to contribute a lump sum all at once and then distribute those funds to various charities over several years. With this strategy, you can itemize deductions when you make the initial contribution and then take the standard deduction in the following years, allowing you to make the most out of your donation tax-wise.

7.   Make the Most of the Annual Gift Tax Exclusion

If you’re in the giving spirit as you head into the new year and you want to reduce your taxable estate, consider making gifts up to the annual exclusion amount. In 2024, individuals can give to each recipient (and to an unlimited number of recipients) up to $18,000 without triggering gift tax. Not only that, but the beneficiary of your gift will not have to report it as income. This is a great way to spread your wealth amongst family and friends.

8.   Consider a Roth Conversion

Roth IRAs are an attractive savings vehicle for many reasons, including no required minimum distributions (RMDs), tax-free withdrawals after age 59½, and the ability to pass wealth tax-free to your heirs. Unfortunately, Roth IRAs have income restrictions, and you may not be able to open an account outright if you are above certain limits.

To get around this threshold, consider a Roth conversion. Using this strategy, you will pay tax on money contributed to a traditional IRA, thereby converting it into a Roth. If you have earned less income in 2023, or your traditional IRA balance has taken a hit due to recent market volatility, a Roth conversion may be a great opportunity for your specific situation. Converting to a Roth allows your money to grow tax-free for as long as you’d like.

9.   Review Your Asset Allocation & Invest With Impact

The end of the year is also a great time to review your asset allocation strategy and incorporate ESG and impact investing if desired. Given the dramatic market volatility and historic levels of inflation over the last year, it’s crucial to evaluate your investments and make sure your portfolio is properly diversified. It should also be tailored to your specific risk tolerance level, ensuring you earn enough returns to keep up with inflation but you’re not overexposing yourself to risk.

If you are interested in using your funds to support environmental, social, or governmental issues (ESG), you can also consider impact investing as a way to earn returns while also promoting change on causes you care about.

10. Work With a Professional

Many of the above suggestions may require a thorough evaluation of your specific financial circumstances to determine if they are the best strategy for your financial plan. If you find yourself uncertain about which recommendations to apply or whether they are the right fit, seeking guidance from a qualified professional is an excellent first step. It’s important to recognize that financial planning, especially in the context of taxes, isn’t a one-size-fits-all process. It’s crucial to speak with the right advisors before making any decisions.

Our team at Comprehensive Advisor is here to assist you in navigating these recommendations while answering your questions. If you’re interested in exploring our financial guidance for the year ahead, please don’t hesitate to contact us via email at info@ComprehensiveAdvisor.com or by calling (760) 813-2125. Your financial well-being is our priority, and we’re here to provide the guidance you need.

About Our Advisors

Brett Gottlieb is the founder of Comprehensive Advisor and a financial advisor with nearly two decades of industry experience. He graduated from California State University-Chico with two bachelor’s degrees in Business Administration and Economics. Brett is Life Insurance licensed in several states. He is passionate about guiding his clients on retirement income planning, helping each client pursue their specific retirement goals and defending the assets his clients have worked so hard to achieve. Brett is a California native and currently resides in San Elijo Hills with his beautiful wife and three children.

With a combined experience of over three decades in the financial services industry, our advisors hail from some of the largest independent broker/dealers and banking institutions in the country. They have dedicated their professional careers to creating personalized financial solutions for individuals and families who seek successful retirement planning and currently offer investment advisory services through AE Wealth Management, LLC. Our advisors take a common-sense approach to the planning process and work with clients to create a retirement road map to help ensure their assets are protected and they receive the income needed to enjoy their future. Based in Carlsbad, California, they work with clients throughout San Diego County and beyond. Learn more by connecting with Brett on LinkedIn or email them at info@ComprehensiveAdvisor.com.

Insurance products are offered through the insurance business C.A. Financial & Insurance Services. Comprehensive Advisor, LLC is an Investment Advisory practice that offers products and services through AE Wealth Management LLC (AEWM), a Registered Investment Advisor. AEWM does not offer insurance products. The insurance products offered by C.A. Financial & Insurance Services are not subject to investment Advisor requirements. CA Ins. Lic. #6000262. This material is intended to provide general information and is believed to be reliable, but accuracy and completeness cannot be guaranteed. Neither the firm nor its representatives may give tax or legal advice. Investing involves risk, including the potential loss of principal. Any references to protection benefits, safety, security, lifetime income, etc. generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. 2045509- 10/23.