Episode 115: Five Financial Moves to Consider Before Year-End

Transcript

Hello everyone, and welcome to the Balanced Wealth Podcast. My name is Jarrett Topel.

Well, as hard as it is to believe, we are already approaching the end of 2026.

And while most people are starting to think about the holidays, family gatherings, and perhaps some travel, this is also a very important time of year when it comes to financial planning. There are certain financial decisions that need to be made before December 31, and once the calendar turns to January, some of those opportunities are gone.

So today, I want to spend a few minutes discussing five financial moves that may be worth considering before the end of the year.

First off, take a look at your taxes before the year is over. One of the biggest mistakes people make is waiting until April, when they prepare their tax returns, to start thinking about taxes. By then, there may not be much you can do. Instead, October and November are excellent times to sit down with your tax advisor and get a pretty good estimate of what your taxable income is going to look like for 2026.

For example, perhaps you have had an unusually high-income year. Maybe you sold a property, realized some capital gains, or received a large bonus.

On the other hand, perhaps your income is unusually low this year, particularly if you recently retired or are taking some time off from work. Both situations can create planning opportunities. The important thing is to understand where you stand before December 31, while you still have time to make some decisions.

Second, consider whether a Roth conversion makes sense. This is especially important for those who have recently retired but have not yet started taking social security or required minimum distributions from their retirement accounts. A Roth conversion involves moving money from a traditional IRA into a Roth IRA. Generally, you pay income taxes on the amount converted today, but that money can then potentially grow tax-free, and qualified withdrawals in the future are also tax-free.

Now, why would anyone voluntarily pay taxes sooner than they have to? Well, sometimes it actually makes sense. For example, imagine someone who retires at age 65 and does not plan to begin collecting Social Security until age 70. During those years, between retirement and starting social security, their taxable income might be considerably lower than it was while they were working, and lower than it will be when they start to take social security in the future. That could create an opportunity to convert some traditional IRA dollars into a Roth IRA at a relatively favorable tax rate. And doing so could potentially reduce their future required minimum distributions and overall lifetime tax burden.

Of course, Roth conversions are not right for everyone. They can affect Medicare premiums and other tax considerations, so this is definitely something to coordinate with your tax advisor. But remember, if you want a Roth conversion to count for 2026, it generally needs to be completed by December 31.

Third, if you are managing your own investment portfolio, review your investments for any potential tax-loss harvesting opportunities. Nobody likes losing money on an investment. But sometimes an investment loss can actually create a tax benefit. Tax-loss harvesting involves selling an investment that has declined in value to realize a capital loss. That loss may then be used to offset realized capital gains elsewhere in your portfolio. And depending on your circumstances, you may also be able to use some of those losses to offset ordinary income, with unused losses carried forward into future years.

Now, I want to emphasize something here. We would never suggest selling an investment simply to generate a tax deduction if doing so does not make sense from an overall investment perspective.

But if you have investments that have declined in value, or perhaps some individual stocks that no longer fit your strategy, it may be worth taking a closer look. Just be mindful of the wash-sale rules, which can disallow a loss if you purchase the same or a substantially identical security within the applicable period, which is usually 30 days before or after the sale of the position you are selling for a loss.

Fourth, make sure you have taken care of your retirement contributions and required distributions. If you are still working, take a look at how much you have contributed to your 401(k) this year. For 2026, the standard employee contribution limit is $24,500, with additional catch-up contribution opportunities for those age 50 and over. If you are eligible and have not contributed as much as you would like, you may still have time to increase your contributions through your remaining paychecks. For those already retired, the focus may be on required minimum distributions, commonly referred to as RMDs.

If you are subject to an RMD this year, make sure you have satisfied that requirement. Most annual RMDs must be completed by December 31, although there are special rules for your first required distribution.

And remember, if you are charitably inclined and at least age 70 and a half, a qualified charitable distribution directly from your IRA to an eligible charity may be a particularly tax-efficient way to give. There are some important rules involved, but this is another area worth reviewing with your tax-advisor before the year ends.

And finally, take a step back and review your overall financial plan. This one may actually be the most important. It is very easy to get caught up in what the stock market is doing, where interest rates are headed, or what the Federal Reserve might do next. But ultimately, the purpose of investing is not simply to beat an index or predict the next market move. It is to help you accomplish the things that are important in your life.

So, as we approach the end of the year, ask yourself a few questions. Has anything changed in your financial situation? Are you getting closer to retirement? Have your spending needs changed? Are you holding more cash than you really need? And perhaps most importantly, does your investment portfolio still reflect your goals, your time horizon, and your comfort level with risk? A portfolio that made perfect sense 5 or 10 years ago may not necessarily be the right portfolio for you today. And sometimes the most valuable financial planning decision is not making a dramatic change at all. It is simply reviewing everything and confirming that you are still on the right track.

So, there you have it. Five financial moves worth considering before December 31.

Review your taxes, evaluate potential Roth conversions, look for tax-loss harvesting opportunities, make sure your retirement contributions and distributions are in order, and revisit your overall financial plan.

Not every one of these strategies will apply to everyone. And certainly, none of them should be implemented without considering your individual circumstances. But the key takeaway is simple: A little planning before the end of the year can make a meaningful difference in your financial future, and give you a little more peace of mind along the way.