An End-of-Year Investing Checklist

As the year draws to a close, this is a good time to take stock of your portfolios and plan your investment moves for the new year.

2024 ended up being one of the strongest years in recent memory as inflation moderated and opportunities in artificial intelligence (AI) reawakened the animal spirits. That's good. It's certainly easier to make portfolio moves when you're sitting on gains and you're not under pressure from a falling market.

But this is exactly why you should act today, while the market is calm and the outlook generally rosy.

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So, let's jump into it. Here's an end-of-year investing checklist to help you finish the year strong and start the next one on the right foot.

Review your 401(k) contributions

Not every year looks like 2024. You generally shouldn't expect the S&P 500 to generate a total return (price change plus dividends) over 20% in a calendar year given that its long-term average annual gain is closer to 10%.

But there is one way you can consistently earn returns well in excess of 20% ... and do so within your company 401(k) plan.

Let's say you're in the 22% marginal tax bracket (for 2024, that's single taxpayers earning $47,151 to $100,525, or married filing jointly taxpayers earning $94,301 to $201,050). You earn a 22% "return" on every dollar you put into your 401(k) based on the tax break. Your employer might also offer matching contributions to your retirement plan, in which case you could potentially be earning even more.

Of course, tax deductions and matching aren't "returns," technically speaking, and you'll eventually have to pay taxes once you start taking distributions. But a dollar in taxes deferred for years or possibly decades is as good as a dollar earned.

So, if you can swing it, try to boost your contribution for your last paycheck or two of 2024. The maximum you can contribute this year is $23,000, or $30,500 if you're 50 or older.

It's also in your best interest to keep your contribution level high going into 2025. It's a lot easier to hit that $23,000 to $30,500 savings bogey if you start early considering it gets divided over a larger number of paychecks. The longer you wait, the harder it is to max out your account contributions.

So, your first end-of-year checklist item is to start with the low-hanging fruit: Review your 401(k) contributions and boost them if at all possible.

Sell underperforming stocks, consider QCDs

Given the market's performance this year, you might not have a lot of losses to harvest. But if you have a few investments that didn't quite work out and are currently in the red, you can sell them to realize the loss and offset gains in other parts of your portfolio. This can help lower your taxable income for the year and reduce your capital gains tax liability. Just remember to avoid the wash sale rule, which prohibits you from repurchasing the same or substantially identical security within 30 days.

If you're 73 or older, you may be forced to take required minimum distributions (RMDs) from your IRA or 401(k) plan. Unfortunately, this can leave you with a large tax bill, particularly if you're still working or have income from other sources.

If you don't need your RMD to cover your basic living expenses, consider using them to make a qualified charitable distribution (QCD). A QCD allows you to donate up to $105,000 per year directly from your IRA to a qualified charity without having to pay income taxes on the distribution.

If you're planning to donate to charity anyway, a QCD is the smartest and most tax-efficient way to do it because it never shows up as income on your tax return. It bypasses it all together and goes straight to the charity. And every dollar you save in taxes is an extra dollar to donate to a cause you care about.

Rebalance your portfolio

Rebalancing your portfolio is critically important in managing your risk. This is especially true after a year like 2024 where you might find that some stocks have ballooned to become overweight positions. Or perhaps your portfolio is heavy in stocks relative to bonds, real estate or other asset classes.

Use this as an opportunity to sell off some of these oversized positions and reallocate funds into bonds, cash or other under-allocated assets.

The end of the year is also a great time to assess whether your risk tolerance has changed. If you're nearing retirement or a major life event, consider shifting a portion of your assets into more stable investments, like bonds or dividend-paying stocks.

As you're likely to be with family this time of year, use this time to review your estate plan. Life changes such as marriage, divorce, the birth of a child, or changes in financial circumstances may require revisions.

You should also take a moment to check that the beneficiaries on your retirement accounts, life insurance policies and other investment accounts are still accurate. You wouldn't want for your spouse or new child or grandchild to be disinherited because you forgot to update the paperwork … and you certainly wouldn't want your ex-husband or ex-wife to end up with your life's savings.

None of these moves are particularly difficult or time-consuming. But all have the potential to really make or break your retirement. So, grab a cup of coffee, sit down and take a few minutes to take charge of your financial future.

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