Nine essential end-of-year financial strategies

By Devon Pearson, CFA

As the year draws to a close, it’s an opportune time to take stock of your financial situation and implement strategies that can help you minimize taxes, optimize your investments, and set yourself up for a successful year ahead. Whether you’re a seasoned investor or just starting out, these end-of-year financial strategies can bolster your returns and make a significant difference in your financial well-being.

Harness the power of tax loss harvesting

One of the most effective year-end strategies is tax loss harvesting. This involves selling investments that have incurred a loss in order to offset realized capital gains from earlier in the year. By doing so, you can reduce your taxable income and potentially carry forward excess losses to future tax years. Tax loss harvesting isn’t limited to stocks; it can be applied to bonds and other asset classes as well. Review your portfolio for underperforming assets and consider cutting those losses before December 31st to take advantage of this tax-saving opportunity.

Evaluate your overall tax picture

While investment-related strategies can help reduce taxable income, don’t overlook broader tax planning opportunities. As the year draws to a close, review your income and deductions to identify ways to manage your tax liability more effectively.

If you expect to move into a higher tax bracket next year, consider accelerating deductions, such as charitable donations or property tax payments, or deferring income where possible. Conversely, if your income will fall next year, delaying deductions may make more sense.

Check that your estimated tax payments are on track to avoid underpayment penalties, and revisit any state and local tax (SALT) implications, particularly if you’ve experienced changes in homeownership, income, or business activity during the year. These adjustments can make a meaningful difference when it’s time to file.

Rebalance your portfolio and address concentration risks

Market volatility and fluctuations throughout the year can leave your portfolio out of alignment with your ideal asset allocation. Year-end is an ideal time to rebalance your investments to ensure you maintain a diversified mix that aligns with your risk tolerance and financial goals. Pay close attention to concentrated positions, particularly in high-performing sectors like technology—overexposure to a handful of stocks can increase your risk, so consider trimming these positions and reallocating to other areas. Rebalancing helps manage risk and may enhance long-term returns.

Optimize charitable giving with appreciated securities

Charitable giving is not only a meaningful way to support causes you care about, but it can also provide significant tax benefits. While tax-deductible contributions are always an option, you can also consider gifting highly appreciated securities. By doing so, you avoid paying capital gains tax on the appreciation and receive a charitable deduction for the full market value of the asset. This strategy can be utilized to reduce concentrated positions in your portfolio while supporting your favorite charities. It’s a win-win approach that can maximize both your impact and your tax savings.

Review and maximize retirement and health savings contributions

Review all retirement accounts, including 401(k)s, traditional IRAs, and Roth IRAs, to ensure you’re contributing up to the annual limits. Boosting your retirement savings before year-end can help lower taxable income and strengthen your long-term financial security. Even modest increases in retirement contributions can compound significantly over time.

If you expect to be in a higher tax bracket in the future, consider a Roth IRA conversion before year-end to lock in today’s lower tax rates. Your financial advisor can help evaluate whether this strategy fits your situation.

You also shouldn’t ignore Flexible Spending Accounts (FSAs), which often operate on a “use-it-or-lose-it” basis. Spend remaining balances on eligible healthcare or childcare expenses before December 31, or check if your plan allows a limited carryover into the new year.

Many tax-advantaged accounts like 401(k)s, IRAs, and Health Savings Accounts (HSAs) have annual contribution limits. Don’t overlook the importance of maximizing contributions to these accounts, as unused opportunities can’t be carried over to the next year. Make sure you’re maximizing your contributions and taking advantage of any employer matching programs. Even small increases in your contributions can have a sizable impact on your long-term financial security.

Conduct a comprehensive account review

Year-end is a natural checkpoint to review your financial accounts. Make sure your beneficiary designations are up to date, review account fees and terms of service updates, and confirm that your investment choices align with your current goals.

Review your credit score and credit reports to ensure accuracy and identify opportunities to improve borrowing power. A healthy credit profile can lower future borrowing costs and enhance overall financial flexibility.

While reviewing your benefits and savings, revisit your life insurance coverage. Ensure your policy still reflects your family’s current needs, especially if your income or dependents have changed during the year. Staying proactive can help you avoid surprises and ensure your accounts are working as hard as possible for you.

Refresh your estate and legacy plans

Year-end is also an ideal time to review your estate and legacy planning documents. Confirm that your wills, trusts, and powers of attorney accurately reflect your current circumstances and intentions. Changes in marital status, dependents, or asset ownership can all affect how your estate is managed.

Ensure that the titling of accounts and property aligns with your broader estate plan and that your beneficiary designations on retirement accounts and insurance policies remain up to date.

If you’re considering intergenerational wealth transfers, explore the tax advantages of lifetime gifting. The annual gift tax exclusion allows you to transfer a certain amount per recipient each year without incurring gift tax—an effective way to reduce estate size while supporting loved ones. Consulting your financial advisor or estate attorney can help ensure these strategies fit your long-term goals.

Plan ahead for the new year

While the focus at year-end is on wrapping up the current year and tying up loose ends, it’s also a great time to look ahead. Consider any major life changes on the horizon, such as a new home, education expenses, or changes in income, and adjust your financial plan accordingly. Assessing your goals against your progress and aligning your investment strategy with your anticipated needs can help you start the new year with confidence.

Don’t miss the December 31st deadline

As the year-end closing approaches, take time to finalise contributions, charitable gifts, and investment adjustments before December 31 to ensure all actions count toward this tax year.

Many year-end financial strategies require action before December 31 to be effective. Now is the time to consult with your financial advisor and assess your investments, taxes, and contributions to maximize your wealth today and set a strong foundation for the future. Nixon Peabody Trust Company offers personalized advisory services to help you navigate these important decisions with confidence. Let us help you start the new year on the right financial footing.

Devon Pearson, CFA
Portfolio Manager
+1 617.345.6027
dpearson@nixonpeabody.com