It’s November and there’s not better time than the present to get your financial house in order. Indeed, we’re in that sweet spot before things begin to wind and just ahead of a busy holiday season.

While preparing a comprehensive financial plan is essential to financial independence mastery, today we’re talking about doing the simple stuff: reviewing and making last-minute retirement savings contributions, fine-tuning your investment portfolio, reviewing your spending plan, and some general housekeeping regarding your equity compensation.

Taking a few minutes to check these items could put you on track to starting 2023 on the right track.

Here are 20 things you can do to organize your finances before the end of the year:

• Rebalance Your Investment Portfolio
• Top Off Your Child’s 529 Account
• Maximize Your IRA Contributions
• Consider a Backdoor Roth Conversion
• Rollover Your Old 401k/403b
• Tax Loss Harvesting
• Review Your Restricted Stock Concentration 
• Review Equity Compensation Tax Withholding
• Review Expiration Dates for ISOs
• Sell ISOs that are Down in Value
• Evaluate Your Expenses and Create a Spending Plan
• Review Your Fixed Income Needs
• Look Over Your Credit Report
• Set a Budget for Holiday Spending
• Review your Employer Benefits Statement
• Spend Down Your Flexible Spending Account
• Review Your Estate Plan
• Update Your Designated Beneficiaries
• Review your Insurance Policies
• Review Your Emergency Savings Need

 

1. Rebalance Your Investment Portfolio

If you still need to do so, now may be a good time to rebalance your investment portfolio. To start, ensure that you’ve appropriately evaluated your risk tolerance and identified a suitable diversified asset allocation strategy that suits your goals, needs, and objectives.

With your long-term strategy in mind, sell investment holdings above your target allocation, and use the proceeds to add to positions where your holdings are underweight. 

Doing so may ensure that you’re not taking more investment risk than you’re already comfortable with while ensuring that your overall portfolio is aligned with your long-term investment goals.

2. Top Off Your Child’s 529 Account

Depending on your circumstances, a 529 account may be an excellent way to save for a child’s college education expenses. If extra cash is available, try topping off your child’s 529 if you still need to maximize contributions for the year.   

While there is no limit for annual contributions, the gift tax exclusion for the year is $16,000 per child ($32,000 for couples).   

3. Maximize Your IRA Contributions

If you’ve maxed out your 401k/403b and still have some cash in savings, consider contributing money to your IRA. Putting money in an IRA allows your money to grow tax-advantaged, potentially boosting the overall value of your account compared to a taxable brokerage account.   

In 2022, your total contribution limit to traditional and Roth IRAs can be at most $6,000 ($7,000 if you’re age 50 or older).  And be mindful of income limits before making contributions.

4. Consider a Backdoor Roth Conversion

If you’ve maxed out your 401k/403b and are otherwise not eligible to contribute to a Roth IRA this year, consider a Backdoor Roth Conversion.   

As you’ll recall, the way a Roth conversion works is that the government gets its share of your money now (compared to being taxed when funds are withdrawn years later), allowing investments in a Roth to grow tax-free. When it’s time to take the funds out of the account, the money comes out tax-free.   

What’s more, a Roth account is not subject to required minimum distributions (RMDs), reducing unnecessary cash distributions in retirement.

5. Rollover Your Old 401k/403b

If you’ve left a job this year, go back and ensure you have a plan for that old 401k or 403b. Generally, you have two options for your money with an old employer retirement savings plan.

First, if your new employer’s plan allows it, you can move the funds from your old retirement plan into your new plan.   

Your second option is to open an IRA with a trusted advisor and transfer the funds over to your individual account. As long as the transfers are custodian-to-custodian, and you avoid holding back funds from the withdrawals, the transfer likely will be treated as a non-taxable event.

6. Tax Loss Harvesting

We’ve experienced arguably one of the most volatile financial markets since the Global Financial Crisis in 2008. As a result, you’re likely holding onto losses in your investment portfolio that could provide you with a tax benefit this year. And that’s where tax loss harvesting comes in.

Tax loss harvesting is the process of offsetting long-term capital losses against gains. This process applies to taxable investment accounts and involves identifying and selling holdings in a loss position to offset gains in other holdings. Before you implement tax loss harvesting in your portfolio, beware of wash-sale rules that could disqualify you from recognizing the benefit of tax loss harvesting.

7. Review Your Restricted Stock Concentration 

Do you have a plan for your restricted stock? It’s quite common for restricted stock recipients to simply allow their vested awards to accumulate in their employer plan’s brokerage account.  

Market volatility this year, particularly in tech-related sectors, is an important reminder of why investment diversification is essential to preserving your wealth for the long term. That’s why you’ll likely want to take a moment to review your company stock holdings and develop a plan to reduce your risk exposure.

8. Review Expiration Dates for ISOs

If you’ve recently left a job where you had ISOs, or are approaching your ten-year anniversary with an employer who has offered this benefit to you, now may be the time to evaluate the expiration date for your stock options.

Review expiration dates for outstanding stock options and deadlines for option exercises. If you’ve left a job in the past year, go back and review your previous benefits and ensure that you’re not leaving money on the table.

9. Sell ISOs that are Down in Value

If you have vested ISOs that have fallen in value this year, now may be an excellent time to exercise those options. Remember, if you plan to hold your company stock for the long term, you may be subject to the Alternative Minimum Tax (AMT) when you exercise your options and don’t immediately sell your holdings.

One way to lower your AMT due is to exercise your options when your ISOs’ fair market value (FMV) declines, narrowing the spread between the FMV and strike price of the option. 

10. Equity Compensation Tax Withholding

Review your withholding rate for equity compensation, such as restricted stock or stock options. If your employer has set your flat withholding rate for supplemental income (equity compensation) at the 22% standard rate, you’ll likely need to come up with cash to pay taxes due this coming April.

Nevertheless, to avoid underpaying taxes next year, you can change your withholding rate by updating your W-4 form through your employer’s HR system.  

11. Evaluate Your Expenses and Create a Spending Plan

With the holiday season just around the corner, now may be a good time to review your spending trends to evaluate whether your spending is aligned with your long-term financial planning goals.   

More specifically, take a close look at your discretionary spending (outside of insurance, mortgage, utilities, etc) and look for areas where your spending may be inconsistent with your overall plan for the year.

12. Review Your Fixed Income Needs

If you’re already Financially Independent and living off of your savings, now may be a good time to review your anticipated spending need for the coming year. This evaluation is crucial given that inflation has run well above its 2% average over the past year.  

This means that your living expenses will likely be higher in the coming year, and so you’ll want to ensure that your current savings distribution is sufficient to meet your lifestyle needs without derailing your retirement plans. 

13. Look Over Your Credit Report

A best practice we recommend around here is reviewing your credit report no fewer than once per year. And there’s no better time than year-end to check your credit report. Pulling your credit report will not affect your credit score, and you can typically download a copy of your credit report for free from either of the three major credit reporting services (Equifax, Experian, and Transunion).  

You want to look for suspicious activity, like a new account that you may not have opened or balances on cards that may have been dormant. If you find inconsistent activity on one or more of your accounts, call the reporting institution (bank, credit card company) to get more information. If you feel that the activity reported is inaccurate, you can file a dispute with each reporting agency to get your report corrected.

Either way, check your credit report to gain some peace of mind that your financial accounts are secure and in good order.

14. Set a Budget for Holiday Spending

With Christmas and the holidays right around the corner, many individuals may be tempted to put all spending on their credit cards and deal with the balances in the new year. More often than not, however, spending blindly might leave you with debt that you have to deal with all of next year.  

That’s why it’s essential that, before heading into your holiday spending routine, you set limits you’re your spending. One way to do so is to list all the people you want to purchase gifts for this year.

Track this list on your phone, in a notepad, or in a spreadsheet. Then, set a budget for each individual. Tally up the total amount you plan to spend this year and ask yourself, “do I feel comfortable spending this much money?” If the answer is no, consider revising your list. Either way, move forward with a spending plan and stick to your budget.  

15. Review your Employer Benefits Statement

The end of the year is typically when most employers offer their annual enrollment period. As you head into this time, consider whether you’ve experienced life changes or anticipate major life changes in the coming year.

Then, take a moment to review your elections and evaluate whether your medical/dental/vision plan, related deductibles, and out-of-pocket expenses are consistent with your current lifestyle.  

You’ll also likely want to review your group insurance benefits. For example, your employer may offer optional life or disability insurance coverages above and beyond the basic plans you may already be enrolled in. 

Many employers offer an opportunity to make last-minute changes in December if you missed your window to change your benefits elections. Either way, review your benefits to understand your coverages for the upcoming year.

16. Spend Down Your Flexible Spending Account

A flexible spending account (FSA) is a limited savings vehicle offered by some employer-sponsored medical plans that allow workers to set aside funds to pay for medical expenses on a pre-tax basis.   

While the tax benefits give you more money towards paying for doctor’s visits or supplies, the downside is that the account is typically a use-it-or-lose-it situation. 

If you have a good chunk of change in your FSA, now may be the time to schedule a visit with a care provider for a check-up, buy a new pair of glasses, or stock up on medical supplies before the money is lost for good.

Here’s one list of FSA Eligible Expenses: https://www.wageworks.com/takecare-mynewfsa/healthcare-fsa-carryover-overview/eligible-expenses/

17. Review Your Estate Plan

Estate plans aren’t just for the mega-rich. They’re relevant to most individuals and, at the basic level, include a Will, Healthcare, and Financial Powers of Attorney.   

At this time of the year, you’ll want to consider putting together your estate plan. Preparing your estate plan can be as simple as answering: 

• where will your assets go should you and your spouse pass unexpectedly and 
• who will be responsible for managing your financial affairs when you’re unable to do so yourself.

If you already have an estate plan, now is an excellent time to look it over. Ask yourself whether you’ve experienced any life changes that may warrant an update to your estate plan.   

At the same time, review your designated agents (executor, powers of attorney) and determine whether the individuals you’ve elected to manage your financial affairs are still appropriate, given your current circumstances.

18. Update Your Designated Beneficiaries

You can designate beneficiaries for your various financial accounts outside of an estate plan. Such designations include elections in your employer-sponsored retirement plan (401k/403b), IRA, and life insurance policies.   

Additionally, titling your bank account with your spouse or partner can help you shorten the estate planning process and simplify financial choices when needed. Take the time to review the beneficiaries of your various financial accounts and make updates where necessary.

19. Review your Insurance Policies

Got a few extra minutes on hand? If so, now may be the time to evaluate your property and casualty premiums and shop around for some savings.   

For example, many firms offer discounts for package policies that include homeowners and auto policies combined at one insurance company. As you shop around, ensure that your coverage limits reflect your assets and lifestyle. While you don’t want to be underinsured, you may be paying for coverage already offered by an existing plan, like your employer’s group policy.

Also, take the time to evaluate other coverages you may have yet to consider. For instance, if you have children, a term life insurance policy could be beneficial to providing your family extra financial protection and peace of mind. An Umbrella Policy can also help you avoid the financial setbacks related to potential lawsuits if someone were to get injured on your property.  

20. Review Your Emergency Savings Need

Do you have money saved for a rainy day? Maybe you do, but do you have enough money saved to cover an unexpected loss of income? 

Whether your furnace goes out or if your car is out of warranty and you have an unexpected expense, ensure that your savings are adequate to cover unexpected expenses.

How much should you have saved? The actual amount likely will vary from household to household, but one rule of thumb we use is having enough money saved to cover six months of living expenses. 

At the very least, use this time to ensure that you have set aside enough money to cover the unexpected as you look ahead into the new year.

Next Steps

Certainly, there are many things to keep you busy heading into the holiday season.  Nevertheless, before things get hectic in the coming weeks, my challenge to you is to identify at least three of the above items to tackle before the holiday hustle distracts you from your financial goals.    You can spend as few as 90 minutes over the coming month working through these items. And yet every little step moves you one step closer to mastering your journey to financial independence.