7 wise financial moves to consider before year-end

As the year draws to a close, many people are thinking about holiday spending and New Year’s goals. It is also a good moment to give personal finances a final checkup.

Staying on top of savings and investing goals matters throughout the year, and the start of a new year is an ideal point to measure progress and adjust if needed. Current, a consumer fintech banking platform, outlines seven money moves to consider before year-end.

1. Review your 401(k) contribution rate

It is smart to look over your 401(k) withholding before the year ends to make sure you are saving as much as you can comfortably afford and taking full advantage of any employer match. Kristen Kuzma, a wealth manager at Fairway Wealth Management, says this is a worthwhile year-end step for anyone with an employer retirement plan.

Contribution limits change over time, and the right amount for you may depend on your budget. The key goal is to contribute at least enough to receive the full employer match, if one is available. If you expect your income to rise in the next year, this may also be a good time to increase your contribution rate.

2. Check whether you need to spend down FSA money

If you have a flexible spending account through work, your balance often comes with a use-it-or-lose-it rule, so it is important to review the plan details before assuming unused funds will carry over. Some plans do allow exceptions.

If you are unsure what counts as an eligible purchase, the FSA Store can help you see what is covered. Qualified items can include sunscreen, pimple patches and even fitness trackers, so using up a remaining balance can be practical.

3. Look for tax-loss harvesting opportunities

Year-end is typically the time to evaluate your portfolio for tax-loss harvesting. This strategy involves selling investments that have declined in value and using those losses to help offset capital gains from other investments, which may reduce your tax bill.

Caitlin Frederick, partner and director of financial planning at Ullmann Wealth Partners, recommends a late-year portfolio review and notes that selling a losing position does not mean giving up market exposure.

“When selling positions with losses, substitute positions can be purchased to continue participating in the market but with the advantage of the tax loss,” Frederick said.

Because the rules can be complex, especially around substitute positions, it is wise to speak with a tax professional before making changes.

4. Consider a Roth IRA contribution or conversion

If your income qualifies, adding to a Roth IRA may be worth considering, and a Roth conversion generally needs to be completed by year-end to count for the tax year. Retirement saving does not have to depend only on an employer plan. Kuzma recommends that eligible taxpayers look at a Roth individual retirement account.

Roth IRAs offer tax advantages for retirement savings. Eligibility and contribution limits depend on income and age. Higher earners who do not qualify may want to look into a backdoor Roth IRA strategy, Kuzma said.

A backdoor Roth IRA involves making a non-deductible contribution to a traditional IRA and then transferring that money into a Roth IRA.

“It's a silly extra step but has been the acceptable workaround for high earners that want to contribute to a Roth but don't qualify under the income guidelines,” she added.

5. Simplify your bank accounts

If you have more checking and savings accounts than you actively use, consolidating them can make sense. Doing so before the new year can reduce the number of balances you need to watch and give you a clearer picture of your money.

People often end up with extra accounts over time for different reasons, such as moving, graduating college or chasing a better interest rate. Managing too many accounts can become an administrative burden, Frederick said.

“Consider consolidating accounts where possible to enter the new year with a more financially clean and organized balance sheet,” she added.

In some cases, consolidation may mean opening one stronger account and closing several older ones, especially if traditional savings accounts are paying far less than high-yield alternatives.

6. Revisit your budget

The end of the year is a useful time to see whether your budget still fits your income and goals. Take a few minutes to review spending in categories such as dining out, entertainment and transportation, then decide whether any changes are needed. Your spending account activity is a good place to begin.

If your income or expenses are expected to change in the coming year, build those changes into next year’s budget planning.

7. Review your investment strategy

Your investment plan should be checked periodically, and year-end offers a natural time to do it. Make sure your mix of asset classes and funds still matches your goals, and rebalance if it no longer does. Rebalancing means buying and selling to bring your portfolio back to your target allocation.

“Your investment selections should be monitored periodically so if it’s been a while since you’ve last taken a look at the funds you own, how they are performing, and whether your allocation is on track or needs some adjusting, plan to do this before year-end,” Kuzma said.