Smart Financial Planning Moves to Make Before Year End – Part 2

Explore smart financial moves before year-end, from retirement planning and financial goals, to budgeting and making charitable donations.

Kevin Zywna, Wealthway Financial Advisors: Tonight, we’re going to do a continuation of the last show, which was smart financial planning moves to make before year end. The last show went into granular detail on some specifics regarding money, dollar amounts, income limitations, contribution limits and that sort of thing. In this show we’re going to talk a little bit more conceptually about some high level items to contemplate before year end and as such for success in 2024. So smart financial planning moves to make before year end. But before we jump into that, as promised, we’ve got a call on line, Dean out in Virginia Beach. Good evening, Dean, you’re on Dollars & Common Sense.

Caller Question: Inheriting Money – It is Taxed?

Caller: Hi, great show. Love you guys. I was going to inherit a little bit of money from an estate. And I was wondering, is that going to be taxed? Or can I put it in some way so it won’t be taxed?

Kevin Zywna, Wealthway Financial Advisors: Dean, are you a resident of Virginia?

Caller: Yeah.

Kevin Zywna, Wealthway Financial Advisors: And where are you receiving the inheritance from? The person who is giving you the inheritance, what state were they deceased in?

Caller:  Florida.

Kevin Zywna, Wealthway Financial Advisors: Florida. Okay, off the top of my head, I do not believe Florida has an estate tax which would be taxing the value of the estate at the time of death, or an inheritance tax, which is at the point you receive the money via the inheritance process. So I’d have to double check that for sure. But I don’t think that inheritance is going to be taxed least not in Virginia as an inheritance. So it’s most likely that you can depend upon whatever you’re going to receive, you’re going to receive the full amount and you will not have to worry about tax implications. But I would do a double check on that because I’m going off to top my head for Florida.

Caller: Alright, well, thank you so much. Have a wonderful show. Bye now.

Kevin Zywna, Wealthway Financial Advisors: Okay, thanks a lot for the call Dean. We appreciate it. All right, back to smart financial planning moves to make before the year ends. Last show we talked about specifics like what if you had unrealized investment losses in your portfolio? Are you subject to taking required minimum distributions? What should you do if you expect your income to increase over the following year? Where do you put your money now to get some tax savings, whatever you think is going to decrease like you’re going to retirement, what to do from a savings standpoint. Well, tonight, we’re going to talk a little bit more about some of the concepts on what you should think about from a financial planning standpoint, what to do at year end, and then try to set yourself up for 2024.

Review Financial Goals

So first off, the most obvious, review those financial goals. How’d you do this year? Did you save as much as you wanted to save? You pay down as much debt as you want to pay?  Did you get your benefits set up properly at work? How about savings for your college? For your kids’ college or higher education, not just for college anymore? But the same for your kids’ education past high school? Have you taken action on any? How many of those goals that you set out to achieve? If you didn’t have specific goals, which, from a professional perspective, I can say, most people don’t. They sort of have concepts and ideas in their head. I want to retire one day, but I don’t know when. I don’t know how much I’m going to live on. You know, that type of thing. I want to make sure my kids have enough money to make sure that they can go on to post high school education. I might want a vacation house one day, but I don’t know where I don’t know how big. So the general thoughts and concepts people tend to have from a financial planning goals standpoint. But then there’s certain motions that we’re taking throughout the course of the year, that lead in that general direction, so such as contributing to your company retirement plan.

One of the one of the biggest impediments to people having a secure retirement is simply getting started. The inertia of signing up for your company retirement plan, a 401K, 403B, TSP, have you gone to human resources or filling out the form or going to the website and pressing the buttons and then committing to 100 bucks a paycheck, or whatever. Then realizing, gee, I’m not going to have 100 bucks a paycheck, what’s that going to feel like? But taking that actionable first step is often the hardest. And so if nothing else, hopefully you have an idea of what you’re trying to accomplish. And you know that one day, you’re going to need more money to do that. So you’re taking actionable steps to move generally towards your financial goals.

Same goes true, if you have a fair amount of debt, like just getting that first credit card bill paid off, and maybe you got a couple getting one paid off. It’s so empowering and validating because it’s a tangible sign of success and progress in the right direction. So almost all financial goals require effort, motivation, and direction. They don’t, a lot of them don’t require a lot of deep, detailed, sophisticated analysis they do once the money becomes bigger, believe me. But when you are starting out, and maybe when you’re mid-career, you just have to do the basics. Build the foundation, have that emergency fund of three to six months of savings. Set aside in a bank account, safe, secure, and used truly, only for life’s emergencies like car breakdowns, house repairs, unexpected large medical bills, those type of things. That’s what your emergency fund is for. And that keeps you out of the bad debt. So get that emergency fund, start contributing to your company sponsored retirement plan. Those are the basics and fundamentals. Stay out of the bad debt.

And once you get a little bit of success in that direction, even if you don’t know what your ultimate end goals are, you’re going to have options down the road to start figuring out what those goals are. And start dreaming bigger dreams of what you want your life to be and what you what you want it to become. Over time, as you get older, more mature, wiser and wealthier with the money that you’ve saved up in your early years. So review those financial goals, even if it’s informally. Sit back, enjoy a glass of Christmas eggnog and contemplate how you did this year. And if you didn’t do as much as you want, then stick with the show.


Wealthway Financial Advisors

Welcome back to the show talking about smart financial planning moves to make before year end. Before we get to our next caller on the line, I just want to finish up with Dean who called earlier about an inheritance he’s getting from someone who passed away in Florida. Dean, I did a little quick Google search and according to the Florida Department of Revenue, there is no estate tax in Florida. So the estate will not be taxed in Florida. And then you will receive the inheritance in Virginia. And there is no inheritance tax in Virginia. So no taxation on the estate or the transfer of the property to you in Virginia. Right now we’re going to go out to Chesapeake to speak with Gerald. Good evening, Gerald, you’re on Dollars & Common Sense.

Caller Question – Company Rolling Over 401Ks

Caller: Good evening. Hey, Merry Christmas. And thank you for taking my call.

Kevin Zywna, Wealthway Financial Advisors: Thanks. Merry Christmas.

Caller: I just have a quick question about a 401. I did missions work for about 25 years. So I wasn’t really putting into my 401. I didn’t have one at the time. And so I’ve been working at this one place for a while. And I’ve got, you know, not that much in it – maybe 20 grand 25. And I’m trying to figure out at the year end, they’re switching companies. The funds that for one that they use. And another gentleman that I work with said that he has a financial advisor or whatever, and that he’s able to roll over everything that’s in the company now into his own personal one, and then start afresh with a new one that they’re doing that they’re starting in January, five or whatever after that, when they’re switching it over. Is that something that’s real? I mean, or do I have to stick with specific where I work?

Kevin Zywna, Wealthway Financial Advisors: Good question, Gerald. It is something that is real, except it is very plan dependent. So in the 401k world, to the employee, a lot of the plans look kind of the same. The only thing that’s different is the investments that they get to choose from and maybe how much your employer matches. But there’s a lot more infrastructure that goes into constructing a 401 K plan than just that. And most employees aren’t typically aware of that, or they are made aware of it through human resources, but it’s buried in technical legalese. And so it’s not usually relevant, but it is possible in some plans, if the plan was designed this way. And if the plan allows it to make what’s called an in-service withdrawal. So while you are still employed at your present employer, sometimes there can be a triggering event that allows employees to roll the money out of the 401 K plan into their own self-directed IRA. This is a non taxable event, if done properly, and then once you have the money in your own IRA, you are free to invest it however you choose, depending on where you open the IRA. But if you do it at say a major online brokerage like Fidelity or Schwab or Vanguard or somebody like that, then you have virtually the universe of investments to choose from and you are no longer locked into the say eight to 12 different investment options that are kind of typical in most plans. So it is possible and sounds like the company you work for or the organization you work for, is allowing or their plan allows for the fact that it’s going from one 401k provider to another. Which is a rare but occasional happenstance in the 401k world. They’re probably allowing employees the opportunity to take their money out of the 401 K plan, roll it into an IRA, and then direct it however they choose. Word of caution, I’m using the word rollover, specifically, rollover means directly send the money from the 401 K plan into an IRA. As a qualified custodian, you are not withdrawing the money. You are typically not putting it into your own hands. Occasionally, they might have to send you a check that you then forward to the custodian. But that’s a technical matter. This is not a withdrawal from the plan. You are rolling it over to an IRA. Does that make some sense?

Caller: 100% makes sense. I really appreciate it. And the reason being is at this age, at 58 years old, hey, I need it to be as aggressive as I can get while still being, you know, naturally at my age are telling you to slow everything down? Well, if I didn’t have a whole lot, then you know, it’s not you’re not I’m not dealing with a half a million dollars, that kind of thing. I mean, I would rather have it’ll be a little more aggressive and try it. And so that’s what I was. That’s what I was thinking. So thank you.

Kevin Zywna, Wealthway Financial Advisors: Okay. You’re welcome. Thanks for the call, Gerald. And yes, it is, it’s certainly possible sometimes, even when a company is not changing 401 K plan providers, there might be a triggering age, a lot of times you see 59 and a half. 59 and a half, you know, why 59 and a half, why not? That’s what Congress came up with. 59 and a half is the age at which you can start making withdrawals out of your IRAs penalty free. So I guess that has kind of been aligned with some of the 401k options that some plans provide.

And we see in our practice, sometimes, employees eligible to make a full in-service withdrawal, as long as they’ve reached 59 and a half or older, and, and so you’re still remained an employee of the company, you still have your 401 K plan provider, you have the same options, you sort of clear out that 401 K plan and start afresh with your next paycheck. And whatever you’re contributing to the investments at that point, you know, then then then you just start it again in the 401 K plan, and all those assets come out into IRA, and then you’re free to direct them how you choose. So yes, quite possible, as long as your company allows it, and you’ve got to check with HR, typically, to see if that’s the case.

Maximize Retirement Plan Contributions

All right, back to talking about smart financial planning moves to make for year end, along the same lines. Thanks for the segue, Gerald maximize retirement contributions we got, you know, maybe one or two more paychecks left in the year, have you reached the maximum contribution limits of your company sponsored retirement plan? Do you want to sometimes some employers will let you, you know, this is a little more sophisticated, but contribute your entire paycheck into your company retirement plans, they into the 401K. And I have to contact HR and sometimes, you know, sometimes it’s a hassle or HR won’t let you. But we find that sometimes in a small and medium sized company, you could contribute the entirety of your after tax paycheck. What are you going to live on? Well, if you’ve got bank assets that are set aside, I don’t know if this qualifies as a use of good use of emergency funds. Let’s say you’ve already got that covered, then you just live off the bank assets for a paycheck or two. And that allows you to cram a little bit more into your company sponsored retirement plan before the end of the year, which lowers your overall gross income and saves you money in taxes. So a potential option takes a little bit more administration, but it is an option. So making sure that you can try to max out your 401K plan contributions.

What are those numbers? Well, this year, it’s for 2023, you can contribute up to $22,500. Or if you’re 50 years old, this year or older, you can contribute another $7,500 so a total of $30,000 for 2023. And then little known fact for teachers and some hospital employees, those that have a 403 B plan. They can do an additional catch-up on top of the $30,000. If they’re 50 or older and they have 15 or more years of service, they can contribute another $3,000. So a total of $33,000 into 401K is 403B’s and forfeit those limits applied for 401K, 403B, and 457 plans.

I was giving you some ideas on how you can maximize the 401K’s before year end. Those are the company sponsored retirement plans. How about the IRAs? You know you can have an IRA along with a company sponsored retirement plan. There are some income limitations though on what you can contribute and when you can contribute to an IRA. So you have to be a little bit mindful of those. They’re pretty high compared to the average salary. But just to give you an indication for Roth contributions. If you’re single, you have to make modified adjusted gross income has to be $138,000 or below in this tax year. If you’re married filing jointly, then $218,000 or below. And as long as you make less than that, then you can make maximum contributions to a Roth IRA. How much can you make, what’s the maximum contribution to the Roth IRAs? Well, this year $6,500. Or if you are 50 years old or older, you can contribute another $1,000 for a total of $7,500. For those of you who are covered by a company sponsored retirement plan, you can make raw deductible IRA contributions, or what we call traditional IRA contributions. There are also income limitations. I won’t go through them right now. We get low to number heavy. And then when we kind of lose sight of the big picture. But just know, in addition to 401 K contributions, you can also make Roth or traditional IRA deductible contributions if you qualify – if your income is below the federal limits.

Make Charitable Donations

So what else can we do before year end? Well, we obviously we’ve got to make those charitable contributions. Any donations must be made before December 31 to take advantage of the tax deduction and ensure that you get a tax receipt. For any donation, remember, and it must be a qualified organization, that typically a 501C3, in order for you to write it off. It has to be a formal qualified charitable organization to count as a potential deduction. Get a receipt. Also, I think I’m a little gray on this, but I think you just have to write the check before January 1. It can happen on December 31. I do not think it has to clear your account by December 31. For regular charitable donations, I will say if you make charitable donations from directly from your IRA, little bit different set of circumstances, but regardless. Why chance it? Get those checks in the mail now, or go to the website, do it online. Happens in a couple of days, put on your credit card, boom, you’ve got to get those charitable contributions in now before year end.

Use Flexible Spending Account Funds

Okay, how about using up your flexible savings account, dollar Flexible Spending Account dollars, those are those special medical accounts? Well, they’ve morphed into more than just medical accounts. You can use them for childcare, and some other ancillary expenses as well. But flexible spending accounts are use it or lose it. So you find if you’ve got funds in them, now’s the time to spend them down. I don’t see too many of these much anymore because of the restrictions around it. Use it or lose it. People tend to underfund them quite a bit, which makes sense because they don’t want to overfund them and lose the money. But there are tax considerations. You get tax benefits for contributions to the flexible spending account. If you’ve got money in it, check it. Spend it before the year is up.

Consider Tax Loss Harvesting

Something else we’d like to do from a planning standpoint before the year is over, from an investment standpoint. And I talked a little bit about this last show. It’s tax loss harvesting. It has to do with investments and selling investments in what we would call a regular taxable brokerage account. So that’s not your IRAs, it’s not your 401 K, it’s not your 403 B or TSP, but regular taxable brokerage account. And what you do, if you want to tax loss harvest, is if you have investments inside of that brokerage account, stocks, bonds, mutual funds, ETFs, that are in a loss position, that they are worth less than what you paid for them, then you can sell them, and that locks in the loss. And then you can use that loss at some point either this tax year or at some point in the future to offset future gains. And you can also write off up to $3,000 of loss against ordinary income. And then so you lock in that you sell the investments lock in the loss. Now, ordinarily, we don’t we don’t like to let the tax tail wag the dog. While yes, this is a potential strategy, you want to get back into your investments as soon as possible. And you can’t get back into the same investment that you just sold until 30 days, or else the whole tax loss gets negated. So you’ve got to wait at least 31 days before you can buy the same investment. Or, what we do when we do this on occasion, we find a very similar styled investment we sell one day, usually by the similarly styled investment the next day or the day after. And so there’s only a day or two out of market, because a lot can happen in 30 days from an investment standpoint. Look what happened in November. If you’re paying attention to your investment accounts, S&P 500 and other ancillary indices were up almost 10% in just one month of November. So if you do tax loss harvesting, be careful about it and make sure you get back into your investments as soon as possible.

Automate Your Savings

All right, here’s one of my favorite year end things to do and this this isn’t really just year end for 2023, this is something that is going to set you up for 2024 and beyond. Really for the rest of your working career. And that is to automate your savings. We do it with our company retirement plans, the 401Ks, the 403B’s, the TSP, right? Because we set it up through human resources. It happens through payroll deduction, that is automated savings, sort of kind of like forced savings once you take that initial initiative. So you automate that savings. And once you start it, you get into the habit of it, you get used to the new spending level, the new disposable income that you have. You forget about it. It doesn’t feel painful, you get used to it. And at the same time, you are regularly putting money away in investments for long term purposes, and they slowly build over time. Well, you can do it with other types of vehicles as well. Most everybody has direct deposit today. So it’s just an offshoot of that. Take some of your direct deposit that goes into the bank. Well, first of all, if you can, do it through your employer. Some employers will allow that. They will allow you to have, say, a direct payroll deduction out of your paycheck to Vanguard to already buy a mutual fund that you have sitting up there or T Rowe Price or some other major American funds, major investment, mutual fund companies, some companies will let you do it through payroll deduction. But if yours doesn’t, then set it up through your bank. Okay. From your bank, set up $100 a month to transfer to your Fidelity brokerage account. And once the money gets there, make sure that you have added to your existing mutual fund holdings. But automate the process. The more you can automate your financial life, the more likely you are to stick to a plan, and ultimately get to long term goals. So take the time to automate. It’ll pay off in the long run. It’ll help make your life simpler, easier. And the more simple and easy you can arrange your finances. the better off you’re going to be. The more likely you’re going to save money long term, the less likely you are to stop or quit or deviate.

Tonight we’re talking about smart financial planning moves to make before year end. Number 1, we have already talked about this, reviewing your financial goals. See how far you have come this year. Make any adjustments to set yourself up for next year. Number 2, maximize those retirement contributions, whether it’s your company sponsored retirement plan, your TSP your 403B or 401K or an IRA, or Roth IRA. Make sure you try to max fund those retirement contributions that will set you up for success long term. Number 3, make those charitable contributions before the end of the year. Ideally, make sure that check clears your account before December 31 to make sure there is no doubt that you made the charitable contribution in this calendar year. Number 4, use up those Flexible Spending Account dollars, if you’ve still got them. They’re going to be gone if you don’t use them by December 31. Number 5, tax loss harvesting for those of you who are a little bit more sophisticated in the ways of investing and in trading. You can maybe book some losses, write them off on your taxes either this year and or into future years. But make sure you get invested quickly back into the market. Rebalance that portfolio, if necessary. Use that opportunity to rebalance the portfolio if necessary. But potential tax loss harvesting before year end. Number 6, automate savings wherever you can. You do it with your company retirement plan, you do the 401k.

Do it and other aspects of your financial life automate your bills. I mean, if you’re still doing paper bills and rent checks, boy, you’re burning up a lot of time that you don’t have to. Set it up to automatically come out of your checking account. Now keep a hawk’s eye on that checking account, like daily or every other day, to make sure that you have enough money in there and that the charges that are coming through are justifiable and appropriate. But automate your bill paying. Why are you spending your time wasting money writing checks, paying bills, sending them in the mail, going to the post office, getting stamps? Do all this electronically now. Make your life a lot easier.

End Of Year Adjustments & Review

Create Or Adjust Your Budget

Alright, here’s one that no one’s going to do. But I’m going to say it anyway. Create or adjust your budget. Budget should evolve as your life does. And so whether you have a change in income or expenses, now’s the time to make necessary adjustments. How’d you do this year? Do you even know? Did you set a budget? No, you didn’t. I know you didn’t. But you could set one up for next year. You could try just a global budget, you know, the big stuff, how much you’re going to start with savings. Just do this, just budget your savings. I am going to save $25,000 next year. Make it an even $2,000 bucks a month, $24,000 a year next year.

I’m going to save that much. I’m going to spend the rest. Okay, that’s a start of a budget. And all good financial planning budgets start with savings first. You do not save last. You will never save if you tried to save what is left over because there will never be anything left over. You have to commit to savings first, and then you spend second. And if you just do that, from a budgetary standpoint, and you can stick to it, you will be successful over time. Your assets will grow over time. And by saving I also mean kind of like investing. You know, and that’s not just parking in the bank account, have that emergency fund. But after that, you’ve got to go to long term growth assets. And that means equity stocks, investments ETFs mutual funds. So commit to dollar amount that you’re going to set aside. Those long range investments and try to stick to it and then give yourself the permission to spend everything else. And that way you don’t stress about it. Now you save enough I don’t know. That’s where deep detailed analytical financial planning analysis comes into play, which is our specialty. But getting started in that direction will set you up for success. So create, or adjust your budget, or just commit to a savings plan for next year. And that’ll get you pointed in the right direction.

Review Your Insurance Coverage

All right, here’s another one. Review your insurance coverage. Life changes. So do an insurance review: health, life, auto, home, insurance policies to make sure you’re still getting the right type of coverage. And then, obviously, maybe make time to shop around different insurance companies, insurance plans, different insurance coverages. I will say that one of the biggest mistakes we see amongst our new clients when they’re coming in to see us from an insurance standpoint is if they have done a decent job of their financial planning to date and typically most people, by the time they come to us they have ample emergency fund reserves. And so if you have an ample emergency fund, you can afford to have higher deductibles on your insurance plans. That means your health plan, you can take a high deductible health plan. When it comes to your automobile, you can have a higher than traditional what the insurance company recommends, deductible there. Your homeowners, you can bump that up too, instead of like $1,000, bump it up to $10,000. By doing that, yes, you accept the risk on the low end. So if there is a claim, then you will pay more out of pocket for those first dollars the low end of the claim, but you’ll be protected on the high end. And so, accept more risks that you can afford to take because you already have your ample emergency fund. That means that you can increase those deductibles, which will cause your insurance premiums to be lower or you shift the insurance coverage up higher. So you protect more on the high end against the catastrophic, which is much more economical to ensure than insuring those first dollar type of losses. So, reviewing insurance coverages and review your deductibles see if they can be raised.

Check Your Credit Report

Here’s another one I like this doesn’t have to be just at year end, but since we’re talking about it, check your credit report. Everyone should be checking their credit report at least once a year. Now’s a good time as any. Go to You get free credit reports at that website. There are a lot of important postures out there. That’s why I’m saying annual credit over and over. So you can get a copy of your credit report from the three major credit bureaus: TransUnion, Experian, and Equifax at annual credit Or if you want to be really engaged, you stagger a free credit report every four months so that you’re getting one of those free credit reports every four months. And then hence just a new one of that from that company every year. So it’s a way to keep really close eyes on your credit report. See what’s out there on you, see if there’s any mischief going on.

Rebalance Your Portfolio

All right, and then the last thing I’m going to bring up about smart financial planning moves to make before year end, rebalance that portfolio. If you haven’t done it yet, this year, now’s a good time to take a look at it. If your allocation has gotten out of whack. Now’s the time to sell some of those winners and buy some of those underperformers what sell the good ones buy low. Yes, that’s exactly how it works sell high, buy low sell the ones that have been outperforming probably us large cap and by some underperformers probably International and that will rebound your portfolio all the time we have for today.

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