Time is up: Make these money moves before the end of the year

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Many Americans associate the holidays with extra spending and a loosening of their budget belts. However, for savvy investors, it can also be a time for financial housekeeping.

The end of the year is an ideal time to examine your own financial situation and take strategic steps. Advisors share smart year-end moves and some pitfalls to watch out for in the year ahead.

Annual review

The US economy will remain robust in 2025. After several years of intensive monetary tightening, the US economy appears to have achieved a so-called “soft landing” – falling inflation coupled with steady growth.

Overall, it was a great year for stocks. In mid-November, the S&P 500, fresh from a post-election recovery, posted an impressive year-to-date rise.

Meanwhile, the results for fixed income are much more mixed as the direction of monetary policy changes. The Fed’s long-awaited first round of rate cuts in the second half of the year put downward pressure on bond yields, leaving 10-year Treasury yields at around 4.5%.

“2024 presented numerous challenges and opportunities for investors,” said Tushar Kumar, Private Wealth Advisor and Founder of Twin Peaks Wealth Advisor. “Now I’m telling clients it’s time to reevaluate your portfolio allocations. Make sure your asset mix reflects your risk tolerance. Many portfolios are too concentrated in stocks due to the recent market appreciation.”

Kumar also recommends that clients complete other tasks well before the end of the year. These include taking advantage of state tax deductions for their contributions to their child’s 529 education plan, maximizing 401(k) or IRA contributions to the limit, and harvesting tax losses by selling underperforming assets.

Reap additional profits

A portfolio adjustment at the end of the year can make sense. Investors often cut their losses by choosing underperforming stocks, but that’s not the only option.

“While much attention is paid to tax loss harvesting, capital gains harvesting is an often underutilized tax strategy,” says Zack Gutches, founder and senior financial planner at True Riches Financial Planning.

According to Gutches, this type of harvesting describes the case where a trader intentionally sells an appreciated stock or fund for a profit in a brokerage account and immediately buys it back.

“This strategy is best suited for those whose taxable income is less than $94,000 as a married household or $47,000 as a single household, as it allows you to use assets that you have held for at least a year. to sell at a federal tax rate of 0%.”

More prosperity for health

Many American workers fund their Flexible Spending Account (FSA) accounts at the beginning of the year in anticipation of healthcare costs. However, it may also be worth checking your FSA balance in December.

According to studies by the nonprofit Employee Benefit Research Institute (EBRI), over 40% of workers with FSAs have lost at least some of their account contributions in recent years. Money.com estimates total annual waste at around $3 billion, which equates to about $300 to $400 per worker.

It may be worth checking your FSA balance before January 1st. “The FSA traditionally uses it or loses it, but some employer plans have a rollover provision,” says Andre Small, founder of A Small Investment. “This year the carryover amount is $640 in FSA funds that can be carried forward through 2025,” he adds. “This is a big benefit for those who still have remaining balance in their FSA account.”

Kumar also reminds his clients not to miss the dreaded year-end deadlines. “Make sure you complete open enrollment for benefits, complete charitable giving, and complete any tax planning requirements by December 31,” he says.

Every new calendar year brings uncertainty to finances, and that certainly applies to 2025. While no one can predict what will happen next, proper preparation allows us to respond to most scenarios.

As 2024 comes to a close, financial advisors are encouraging their clients to make strategic financial moves, including reviewing our portfolios, leveraging tax strategies like tax-loss or capital gains harvesting, and maximizing benefits like 401(k) contributions and FSA rollovers, to set ourselves up for success in the new year.

“Work with a financial advisor to set clear goals for 2025,” says Kumar. “Regular check-ins allow you to take responsibility.”

Careful planning can pay off in the coming year.

This article was produced by Media Decision and syndicated by Wealth of Geeks.