By Dr. Jim Dahle, WCI FounderAnother year in your financial life has almost come and gone. As has become a tradition at The White Coat Investor, we're unveiling (and updating) an end-of-the-year financial checklist, so that you can take care of everything that needs to be done before the calendar year is over. While every item may not apply to your situation, it's still worth taking a few minutes to make sure you have not forgotten anything you will regret.
Before you say goodbye to 2024 and hello to 2025, make sure to study the list below.
#1 Complete Backdoor Roth IRA Process
It has always been a smart move to complete both the contribution step and the conversion step of the Backdoor Roth IRA within the calendar year. Some like to knock out this task early in the year. But if you are one who has been procrastinating it to the following calendar year or if you simply forgot to do the conversion step, be sure to get it done before year's end.
More information here:
Backdoor Roth IRA Step-by-Step Guide
How I Failed and Then Mastered the Backdoor Roth IRA
#2 Mega Backdoor Roth IRA
The Mega Backdoor Roth IRA is when you make after-tax (not Roth) contributions to your 401(k) and then immediately convert them either within the plan to a Roth 401(k) or by withdrawing them from the plan and converting them directly into a Roth IRA. If this is part of your plan, complete both steps before the end of the year.
More information here:
#3 Roth Conversions
While a Roth conversion of after-tax money is part of both the Backdoor Roth IRA and the Mega Backdoor Roth IRA processes, that's not what I'm talking about here. I'm talking about converting pre-tax money to Roth money, essentially pre-paying the taxes on your retirement savings. This is not always a good idea, but if it is for you and you want to pay the tax bill for it on your 2024 taxes, you need to do the conversion before the end of the year.
More information here:
#4 ‘Employee' Retirement Plan Contributions
It used to be that whether you were employed and dealing with an employer 401(k)/403(b)/457(b) or you were self-employed and used an individual 401(k), you needed to make the entire “employee” contribution ($23,000 for those under 50) by the last paycheck of the year. That's no longer the case after Secure Act 2.0, at least for newly established plans. You can do both employer and employee contributions well into the next year now. But it's still a good idea to do it as soon as possible.
More information here:
Multiple 401(k) Contribution Rules
#5 Max Out 529s, ESAs, ABLEs, and UTMAs
Aside from your retirement accounts and an HSA, all of your other investing accounts require contributions to be made during the calendar year. If you're planning to put more in there this year, get it done. This includes college savings accounts such as 529s and Coverdell Education Savings Accounts (ESAs), an ABLE account for your disabled child, and Uniform Transfer to Minors (UTMA) accounts if you are providing a “20s fund” for your kids like we are. Even though you can contribute to HSAs until Tax Day, the earlier the better.
More information here:
7 Reasons an HSA Should Be Your Favorite Investing Account
Best 529 Plans: Reviews, Rankings, and Ratings
ABLE: A Tax-Protected Investing Account for Your Special Child
How Your Kids Can Lower Your Taxes
#6 Use Up Your Flexible Spending Account (FSA)
Health Savings Account (HSA) balances are carried over from year to year. That is not the case with any money you or your employer have put into a Flexible Spending Account (FSA). You need to use up that money before the end of the year, or you will lose it completely.
More information here:
Optimize Tax Savings from Dependent Care FSA
#7 Get Insurance in Place
This one does not technically have a year-end deadline—the price actually goes up either on your birthday or six months before your birthday. However, if you and/or someone else depend on your income, you need to buy disability +/- term life insurance ASAP. This is so important that I made it Chapters 1 and 2 in The White Coat Investor's Financial Boot Camp.
More information here:
Physician Disability Insurance
#8 Give to Charity
Giving to charity is always a wonderful thing, but if you itemize, it is far better to give on December 31 than on January 1—at least from a tax perspective. If you're not yet sure what charity or charities you want to support, consider contributing to a Donor Advised Fund to get the tax break now and designate the recipient charities later.
More information here:
Tax Benefits of Donating to Charity
#9 Register for WCICON
The annual WCI Conference, aka The Physician Wellness and Financial Literacy Conference, is coming up February 26-March 1 in San Antonio. If you want to attend in person, you should register ASAP. If you are coming, you also need to register for the room block before the hotel releases those rooms for other guests. You can register for the virtual version right up until the day of the conference. Either way, WCICON is a great value, where you can learn about financial literacy, hear from some wonderful speakers, mingle with your fellow physicians, and enjoy some downtime in the Texas hill country.
More information here:
#10 Spend CME Money
Like FSA money, many people have designated CME funds that are use-it-or-lose-it at year's end. Be sure to spend that money on books, computers, courses, or conferences. Remember that WCICON and many WCI courses are eligible for CME including:
- Financial Wellness and Burnout Prevention for Medical Professionals (Fire Your Financial Advisor, plus eight hours of wellness material)
- Continuing Financial Education 2024 (All the material from WCICON24, plus additional material—37 hours of content!)
Even if you are self-employed and don't have a CME fund, courses and conferences that qualify for CME are deductible business expenses.
More information here:
#11 Hit Your Savings Goal
I hope you have a savings goal every year, something like 20% of your gross income toward retirement. How are you doing? Are you behind? If so, put some money toward that goal before the end of the year. If you've already maxed out your retirement accounts, invest it in a taxable account. There is no contribution limit there.
More information here:
6 Reasons to Have a High Early Savings Rate
Safe Savings Rate – How Much Do I Need to Save for Retirement?
7 Ways to Increase Your Savings Rate
#12 Get Free Annual Credit Reports
This one doesn't have to be done at the end of the year, but it's definitely worth doing once a year. Why not now? Just go to AnnualCreditReport.com and download all three reports for you and your spouse. They don't give you a credit score, but it's important to make sure there's nothing on those reports that you either don't recognize or that you had forgotten about.
More information here:
10 Benefits of Keeping Your Credit Score in Good Health
Why My Credit Score Is Higher Than Jim Dahle’s
#13 Accelerate Expenses, Delay Income
There is a general rule in tax planning to accelerate (front-load) your expenses and delay (back-load) your income. Assuming that you aren't changing tax brackets between years and that the tax brackets themselves are not changing in the new year, it makes sense for you personally or for your business to pay as much as you can in the old year and to get paid in the new year. Although the federal income tax system is a “pay-as-you-go” system, this could potentially allow you to delay the payment of taxes by as much as a year. In states that are not pay-as-you-go (like Utah), it would be like getting a 12-month interest-free loan from the state tax commission.
A related technique is the “bunching” of itemized deductions. Some people don't have enough itemized deductions to bother itemizing, but if they bunch two years' worth of deductions into one year, then it makes sense to itemize. So, they itemize every other year, taking the standard deductions in the opposite years. This might mean making charitable contributions (especially if using a Donor Advised Fund (DAF)) on January 1 and December 31 of one year, and then none in the next year. You could possibly do this with property/income tax payments or even medical expenses.
This strategy can also be profitably used in years in which your tax bracket or the tax bracket themselves are changing; just make sure you bunch into the right year (the one when you're in a higher bracket)! Businesses routinely do this as well, preferentially paying accounts due while allowing accounts receivable to pile up a bit. A medical practice might actually do the opposite knowing that bills are more likely to be paid by the insurance company at year's end, while bills at the beginning of the year might be sent primarily to the patients themselves (who are less likely to pay since they have not yet met their deductible).
More information here:
What You Need to Know About Schedule A
#14 Change Withholdings
Do you get huge tax refunds? You probably shouldn't be happy about that. You can adjust your withholdings to minimize how much you are loaning tax-free to the IRS each year. Get your money throughout the year instead of the next April. You can also play games using your withholdings if you make estimated tax payments. All withheld money is treated the same, whether withheld in January or December. That's not the case with quarterly estimated payments.
More information here:
Estimated Taxes and the Safe Harbor Rule
#15 Get Ready for Q4 Estimated Tax Payment
If you are an independent contractor, make sure you have the cash flow to make that fourth-quarter estimated tax payment by January 15.
More information here:
Financial Planning for 1099 Independent Contractors
#16 Get Ready to Front-Load Accounts
OK, this one is for the real money nerds out there. Some of us front-load our accounts—including HSA, Backdoor Roth IRAs, 529s, and even 401(k)s—completely funding them the first week of the year. If you are one of those folks, make sure you are planning for the cash flow to do so. You can't invest the same money into a taxable account on December 20 that will be needed for those contributions.
More information here:
5 Reasons Why I Don’t Regret Lump-Sum Investing in January
#17 Make Sure Tax Paperwork Is Ready
While most of your tax paperwork doesn't start coming in until the last week of January, you can get the parts that you prepare ready now. That might include:
- Pulling money out of 529s equal to receipts and possibly scholarships received
- Storing receipts to justify 529 withdrawals
- Pulling money out of HSA equal to receipts
- Storing receipts to justify HSA withdrawals (especially important to have durable storage if you're doing the “save receipts strategy”)
- Making sure your business or charitable mileage logs are up-to-date
- Gathering documentation for charitable gifts
- Updating contracts and timesheets if your business is paying your kids
It's just a good idea to do all this stuff while it is fresh in your mind rather than next April when you file your taxes (or two years from now when you face an audit).
More information here:
#18 Tax-Loss Harvest
If you invest in a taxable account, you might as well check for tax losses. It's a better habit to check after a big market decline, but December isn't a bad time to compare the basis to the value of your investments. If you have significant losses, why not tax-loss harvest them? You can use up to $3,000 in capital losses every year against your ordinary income and an unlimited amount against your capital gains. There are investors out there (like me) who simply don't pay capital gains taxes, thanks to lots of tax losses saved up over the years.
More information here:
A Step-by-Step Tax-Loss Harvesting Guide
#19 Update Your Spreadsheets
If you use a spreadsheet to track your net worth, your savings rate, or your investment return, get it updated. I measure each of these things once a year as a year-end chore. You might also want to make sure your investing plan is on track by measuring progress toward your goals and making sure it does not need to be rebalanced.
More information here:
Doctor Net Worth: How to Calculate It and What Is the Physician Average Net Worth
Calculate Compound Interest with the Future Value Calculation
Portfolio Rebalancing Spreadsheet/Tool
Whew! You made it. That was a lot of chores. Hopefully, you didn't still have to do all of them. But if you have a bunch, here's a checklist you can print out and use for 2024 and beyond:
What do you think? What else would you put on your end-of-year checklist? How many of these chores have you still not completed?
[This updated post was originally published in 2020.]
Sleep Reset recently announced that their sleep program is now HSA/FSA eligible, in case you are looking for solutions to improve your sleep in the new year
Some additional topics that come to mind for me:
Tax gain harvesting – For those in no/low income years consider selling and immediately repurchasing securities to raise basis. Paying $0 in tax is way better than deferring tax. The 0% LTGC bracket is up to ~$94,00 of taxable income for married couples in 2024. For those 65 and over who have the standard deduction and the “extra old person standard deduction” of $1950 each, a couple could have ~$130,000 of gross income and pay $0 on those gains in the taxable account.
RMDs – General reminder to take them if needed. Specific heads up that 2024 is the last year the IRS won’t penalize those “non-eligible designated beneficiaries” who didn’t take RMDs from inherited IRAs. In 2025, you have to start taking them if required.
SALT cap – Sounds like there is a lot of bipartisan support to eliminate or significantly expand the SALT cap. The suggestion is to encourage people who already hit $10,000 this year to push property tax or state tax payments into 2025 (assuming no penalty for doing so). The idea is that if the SALT cap goes away or goes up next year you can get more value in 2025.
PTET – Speaking of the SALT cap, 35 states have PTET now. Some states require this to be elected each year so small business owners should be checking with their CPA to see if it is necessary to elect again.
Electric vehicles credit – It’s plausible/believable the new conservative executive and legislative branches will look to eliminate the $7500 tax credit as early as next year. The thinking is that by the end of next year this could create a frenzy that may push prices up as dealers see a spike in demand so if a client was considering buying a qualifying car, it could make sense to do that soon, even before the end of 2024.
Depends I guess. I thought about tax gain harvesting for my kids and then realized they were almost surely going to eventually get their UTMA money out at 0% LTCG rates anyway. So probably a lot of hassle for little reward in the end.
I would love to see the SALT cap go away. Utah taxes might be moderate, but I do pay a lot of them for not much deduction, at least up until we started doing the PTET thing a few years ago when they began allowing that.
Is there ever a bad time for docs to buy Teslas? Even if they might soon become known as doctor killers just like Beechcraft Bonanzas. Someone sent me an email the other day showing Teslas were among the least safe cars despite the safety featuers, but both the sender and I agreed that was likely due to the fact that they just get driven fast.
1) What is the difference between UTMA and UGMA?
2) Can one have both?
3) How much can you contribute per year in a UGMA or UTMA for one child?
4) Does the child get the account tax free when they come of age?
Thanks!
Here’s some good info for you:
https://www.whitecoatinvestor.com/utma-and-ugma/
Thanks
It doesn’t say how much one can contribute per year though. Do you happen to know?
Also, can you open more thank one UGMA/UTMA for the same child?
You can contribute millions and millions. But more than $18K will involve gift taxes/returns.
Yes, you can open as many as you want and contribute as much as you want. But gift tax limits are $18K/year. After that a gift tax return and eventually gift taxes will be due. So few contribute more than $18K a year from each spouse.
Jim, thanks for all you do. Would you mind clarifying this point in the quote below. I’ve searched high and low and can’t seem to find this factoid anywhere else (including my accountant who is pretty good).
“It used to be that whether you were employed and dealing with an employer 401(k)/403(b)/457(b) or you were self-employed and used an individual 401(k), you needed to make the entire “employee” contribution ($23,000 for those under 50) by the last paycheck of the year. That’s no longer the case after Secure Act 2.0. You can do both employer and employee contributions well into the next year now.”
Is this an option you can elect with your payroll/HR? Some other means? Any links to the Secure Act 2.0 language?
My wife is on pace to underfund her 2024 401k by several hundred dollars and it’d be great to use January 2025 to catch up. (Unfortunately her employer caps her 401k withholding to 50% of each paycheck so we can’t quite close the gap in December 2024).
Thanks, Jim!
HR has to allow it obviously, but the IRS now does. However, as I go back and read it, I may have overstated it. This is for newly formed plans started after the new year for the prior year.
https://www.whitecoatinvestor.com/secure-act-2-0/
ΔSection 317: Solo 401(k)s Started After the Calendar Year Can Now Get Employee Contributions
I used to recommend that you use a SEP IRA if you don’t get your solo 401(k) established by the end of the year. Now, you can just establish your 401(k) before your tax return date and still make employee contributions to it. No reason now to use the SEP IRA and mess up your Backdoor Roth IRA pro-rata calculation. Starts in 2023 (for 2023 contributions, not 2022 contributions.)
https://www.fidelity.com/learning-center/smart-money/solo-401k-contribution-limits#
Employee contributions are tax-deferred and should be made no later than December 31 (sole proprietors and single member LLCs have until the tax-filing deadline for the year, generally April 15); employer contributions can’t be made any later than the business tax-filing deadline, including extensions.
I’ll correct it.
One more thing, get your health checked! Annual visit to your PCP, dentist and optometrist. Get your free glasses.
Thank you for this comprehensive checklist! It’s a great reminder to start 2024 on the right financial footing. I especially appreciate the tips on tax planning and budgeting—it’s easy to overlook these as the year wraps up. Can’t wait to implement these strategies!