Prepare for the Year-End Financial Evaluation: Ensure Completion Prior to 2025 (Paraphrased)
Prepare for the Year-End Financial Evaluation: Ensure Completion Prior to 2025 (Paraphrased)
I'm a fan of New Year's resolutions, but to truly move forward and establish new objectives, it's essential to look back and analyze your current situation. The year-end is an excellent time for reflection, and your financial situation is no exception. With only a handful of days left in 2024, you still have the chance to make the most of the year and prepare for financial prosperity in 2025.
Don't miss out on your FSA funds
If you have a Flexible Spending Account (FSA), remember that time is running out to utilize your remaining balance. It's crucial to familiarize yourself with your employer's regulations regarding balances remaining by Dec. 31 this year to avoid forfeiting your well-deserved funds.
If you likely won't schedule several doctor's appointments between now and the end of the year—either because they're fully booked or because the thought isn't appealing—don't worry. You can still spend your leftover FSA funds on eligible healthcare expenditures. Use your FSA funds to upgrade your prescription glasses or purchase additional contact lenses. You can also visit your local pharmacy and stock up on qualifying over-the-counter FSA products, such as first aid supplies, popular cold remedies, and sunscreen. You can find a comprehensive list at the FSA store here.
The employee health FSA contribution limit will increase from $3,200 to $3,300 in 2025.
Maximize your retirement contributions
If your financial situation allows, now is the time to set yourself up to reach the maximum retirement contributions. In 2025, 401(k) participants are entitled to contribute up to $23,500, while IRAs—both traditional and Roth—can be maxed out at $7,000. If you are 50 or older, you can make an additional $1,000 contribution, totaling $8,000. Bear in mind that these contribution limits apply to the total annual contributions you make to all your traditional and Roth IRAs.
Starting in 2025, employees aged 60 to 63 will be eligible for larger catch-up contributions to their 401(k) plans, with new limits set at either $10,000 annually or 150% of the standard catch-up contribution limit—whichever amount is more substantial.
Remember that consistency is key in retirement saving
The most productive retirement strategy involves contributing consistently and allowing your investments to grow undisturbed over time.
Revisit your tax withholdings
Although Tax Day is still a few months away, now is an excellent time to review your tax withholdings and payments. If you experienced a significant life event in 2024, such as a marriage, divorce, or birth, you may need to adjust your withholding. You can use the Tax Withholding Estimator from the IRS to accurately tailor your income tax withholding.
Update your beneficiaries
If you experienced a major life change, you should update the beneficiaries of your financial accounts accordingly. This includes your bank accounts, retirement accounts, life insurance policies, and annuities. The end of the year provides an excellent opportunity to assess any recent entrances or departures in your life that may necessitate beneficiary updates or removals.
Reevaluate your budget
A budget is a fluid document. If you stumbled on your 2024 resolutions during the spring, it's never too late to get back on track.
A good starting point is the 50/30/20 guideline, where 50% of your after-tax income should go towards essential expenses, at least 30% of pretax income should contribute to savings, and 20% is for discretionary spending. You can use this budget calculator to compare your savings and spending.
Establish new financial objectives
Regardless of your current financial situation, it's essential to be truthful with yourself. Identify areas where you can improve the health of your personal finances, such as paying off debt, reining in spending, or allocating savings to investments.
My top tip: stay specific
Determine the specific goals you want to achieve, the deadline for achieving them, and the amount you'd like to save. For instance, if you're saving for an upcoming trip, allocate a specific amount each month to meet your goal. Implement strategies like budgets, high-yield savings accounts, and automated savings contributions to help you accomplish your objectives.
Consider seeking the advice of a financial professional to serve as your sounding board and provide the guidance you need to establish and achieve your short- and long-term financial goals.
In light of the year-end financial checklist, don't forget to review your FSA balance and spend any remaining funds on eligible healthcare expenditures before December 31 to avoid forfeiting your money. Additionally, if your financial situation allows, consider maximizing your retirement contributions by contributing up to the increased limits in 2025.