As the year draws to a close, it’s the perfect time to reflect on your financial achievements and chart a path to even greater success. Consider this your end-of-year financial planning nudge—a friendly reminder that the ultimate key to maximizing your financial future lies in taking proactive steps today.
This comprehensive checklist covers essential topics like Roth conversions, tax planning, budgeting, and planning for significant purchases.
Roth Conversions: Optimizing Your Retirement Strategy
Roth conversions involve transferring funds from a traditional IRA or 401(k) to a Roth IRA, which offers potential long-term tax benefits. To evaluate if a Roth conversion is right for you, follow these steps:
- Consider your expected tax bracket in retirement compared to your current bracket.
- Calculate the potential tax savings from converting to a Roth IRA.
- Investigate possible tax consequences when making the conversion.
- Review your available funds to cover the taxes associated with conversion.
Keep an eye on tax strategies such as the “filling up the tax bracket” method to minimize your tax burden. If your income is lower than normal this year and you are in a lower tax bracket, this might be a good year to make a Roth conversion and take advantage of being in a lower tax bracket.
Remember, it’s always a good idea to consult with a financial professional before executing a Roth conversion.
Tax Planning: Minimizing Your Tax Liabilities
The end of the year is a crucial time to review your tax situation and identify opportunities for reducing your tax liabilities. Key aspects like deductions, credits, and exemptions should inform your tax strategies.
To maximize tax savings, consider making charitable contributions or increasing retirement contributions. If your itemized deductions are not much more than the standard deduction, you may want to group deductions into alternating years by using a Donor Advised Fund for charitable contributions or paying property taxes early.
It’s worth seeking professional tax advice or using reputable tax software to ensure accuracy and optimize your tax strategy.
Review Your Spending and Update Your Budget: Building a Strong Financial Foundation
Regularly examining your spending habits and budget is vital for financial success. Review your expenses from the past year to identify potential savings. Cost saving strategies may include renegotiating bills or reducing discretionary spending. Thanks to inflation, many of our usual expenses have increased, making it a good idea to review our spending needs.
Create a realistic and effective budget for the upcoming year by setting attainable financial goals and allocating funds accordingly. To simplify the process, consider using budgeting tools or apps such as YNAB or PocketGuard to track your spending and progress towards your goals.
Plan for Big Purchases in the Year Ahead: Achieving Financial Goals
Setting financial goals for the coming year will serve as a roadmap for your success. Rather than putting things on a credit card, make a plan for the big expenses in the coming year and start putting money away now.
Plan for significant expenses—such as a new home, vehicle, or education—by setting saving goals, creating a budget, and researching all available options in the market. Comparing loan rates, promotions, or seasonal price fluctuations will help you make informed purchasing decisions that align with your financial goals.
Taking the time to work through this end-of-year financial checklist will set the stage for long-term financial success. From optimizing your retirement strategy with Roth conversions to revamping your household budget—you’ll be well on your way to financial prosperity. Don’t hesitate to take the necessary action and implement these recommendations to give yourself a head start in the upcoming year.
Looking for an expert to help you perform your end-of-year review or plan your finances for the upcoming year? Reach out to us! We’re here to help.
Schedule a free consultation, and together we’ll help you develop an effective financial plan for your future. Contact us at 859-291-9879 or email@example.com today!
Also, be sure to tune in to The Lawyer Millionaire Podcast, where we discuss topics like this and more! Or grab your copy of Darren’s book, The Lawyer Millionaire, available now from the American Bar Association.
Darren Wurz is a fee-based financial advisor and co-owner of Wurz Financial Services, where he operates the Northern Kentucky/Cincinnati office. He is a CERTIFIED FINANCIAL PLANNER™ professional and has a master’s degree in financial planning from Golden Gate University. Darren specializes in serving the unique financial planning needs of attorneys and law firm owners. He is the host of The Lawyer Millionaire Podcast and author of The Lawyer Millionaire: The Complete Guide for Attorneys on Maximizing Wealth, Minimizing Taxes, and Retiring with Confidence, published by the American Bar Association.
Darren is a member of the American Bar Association and the Financial Planning Association. He is also active in his local community as a member of the Northern Kentucky Bar Association, Cincinnati Bar Association, Covington Business Council, and Northern Kentucky Chamber of Commerce. To learn more about Darren, connect with him on LinkedIn.
- Roth IRA Conversions: https://www.investopedia.com/roth-ira-conversion-rules-4770480
- Best Budgeting Apps: https://www.getrichslowly.org/best-budgeting-apps/
- Smart Tax Planning: https://www.cnbc.com/2023/04/27/how-to-reduce-your-2023-tax-bill-or-boost-your-refund.html