With the end of the calendar year comes a few tax deadlines, as well as some opportunities to lighten the burden and prepare for next year. It’s also a great time to handle some important items on your financial to-do list.
Here are a few suggestions for a year-end money checkup:
Tax loss harvesting. This is a surprisingly underutilized tool for managing capital gains taxes in taxable investment accounts. Capital losses (selling stocks or other assets for less than you paid for them) can be used to offset realized gains from other sales during the year.
Sometimes it’s best to throw in the towel on a stock pick that didn’t pan out and live to fight another day. But if you are convinced that this turkey will someday fly, you can sell today to capture the loss and buy it back after at least 30 days. The IRS will disallow the loss if you repurchase a security within that window that is “substantially identical,” for example, selling the Vanguard S&P 500 exchange-traded fund and buying the State Street version. You could, however, sell the S&P 500 and immediately buy a similar but not identical fund like a Russell 1000 index exchange-traded fund if you don’t wish to remain uninvested for a month. Loss harvesting is a best practice throughout the year even if you have no realized gains, since you can offset up to $3,000 per year in ordinary income and carry over the losses until you need them.
Maximize retirement plan contributions. Limits on employee retirement plan contributions are adjusted upward each year for inflation. For 2024, participants in a 401(k) or 403(b) are allowed to defer up to $23,000 from their salary, either as a deductible pre-tax contribution or after-tax Roth deferral. And if you are age 50 or older, you can stuff in an additional $7,500 “catch-up” contribution. These limits apply to salary deferral notwithstanding any employer matching contributions. Participants in a 457 plan are limited to $23,000 including matching contributions plus catch-up contributions governed by their specific plans. In any event, taking full advantage of contribution limits is smart if you are able to do so.