The Ultimate Year-End Financial Planning Checklist for High Earners

With 2024 on the horizon, this 2023 year-end financial planning checklist can help ensure your finances stay on track with your goals and ambitions.

In the world of financial planning, the time between the back-to-school rush and the frenzy of the holidays often presents a final opportunity to tie up loose ends, meet tax planning deadlines, and pave the way for a prosperous new year. For high earners, this period can be crucial for proactively lowering your tax bill and making smart moves to set yourself up for success in the year ahead.

Fortunately, there’s still plenty of time to end 2023 on a high note. With this year-end financial planning checklist, you can make the most of your hard-earned wealth and ring in 2024 with confidence.

Here’s Your 2023 Year-End Financial Planning Checklist:

#1: Estimate Your 2023 Income

The first item on your 2023 year-end financial planning checklist is to estimate your 2023 income. Whether you’re a W-2 employee or work for yourself, taking stock of your year-to-date earnings can help you set realistic expectations for the 2023 tax year.

As you review this year’s wages, be sure to include income from other sources, such as bonuses, side hustles, and investments, as well. This exercise can help you identify potential tax planning opportunities based on your overall income level. It may also reveal extra sources of cash to allocate to your longer-term financial goals.

#2: Review Your Employee Benefits Selections

As companies update their offerings, your employee benefits may change and broaden. In addition, your personal needs may change over time.

That’s why the next item on your year-end financial planning checklist is to review and update your employee benefits selections. Also, don’t forget to check for new offerings that could be more advantageous.

Open enrollment season, which typically takes place in November and lasts for two to four weeks, can be an ideal time to cross this off your list. The exact timing depends on your employer, so be sure to consult your HR department to avoid missing this crucial window for adjustments.

To ensure you’re making the most of your compensation plan, here are our tips for maximizing your employee benefits.

#3: Consider Your Equity Compensation Options

If you have stock options, restricted stock, or other types of equity compensation, year-end can be an opportune time to assess the current state of your holdings, plan for the future, and make informed decisions. As you review your equity strategy, consider the following:

• Vesting Schedules & Expiration Dates. Reviewing your vesting schedules at year-end can help you anticipate when you might receive shares or when you can exercise options in the upcoming year. In addition, be sure to take note of expiration dates, so you don’t inadvertently let valuable options expire unexercised.
• Tax Implications. Stock options and RSUs generally have tax implications when they vest or when you sell your shares. If you received or sold company equity this year, SageMint Wealth can help you understand the potential tax consequences and craft a strategy to minimize your potential burden.
• Employment Plans. If you’re considering a job change or if there are potential mergers or buyouts on the horizon, it’s crucial to understand how these events might impact your equity compensation, so you can develop an exit strategy if necessary.
• Diversification. While holding company stock can provide substantial upside potential, beware of concentration risk. A year-end review can reveal if you’re too heavily invested in company stock and need to diversify your exposure.
• Financial Goals. Life events, like getting married, having a child, or purchasing a house, can impact your financial strategy. Reviewing your equity compensation at year-end can ensure that your strategy aligns with your current life situation and goals.

If your 2023 year-end financial planning checklist includes equity compensation, consider consulting with SageMint Wealth or a tax advisor with expertise in this area. Working with a financial professional can help you capitalize on opportunities and avoid costly mistakes.

#4: Maximize Tax-Deferred Account Contributions

Maxing out your tax-deferred account contributions isn’t just an important step toward financial independence; it can also be a valuable tax planning strategy at year-end. In 2023, you can contribute up to $22,500 to a 401(k) plan ($30,000 if you’re aged 50 or above) and $6,500 to an individual retirement account ($7,500 for those 50 and above).

In addition, if you have a qualifying high deductible health plans, you may be eligible to contribute to a health savings account (HSA). HSAs offer triple tax savings, as contributions, capital gains, and withdrawals are all tax-free if you use your funds for eligible healthcare expenses. In 2023, individuals can contribute up to $3,850 to an HSA, while families can contribute up to $7,750.

#5: Make Charitable Donations

As of 2023, taxpayers who itemize deductions can give up to 60% of their Adjusted Gross Income (AGI) to public charities, including donor-advised funds, and deduct the amount donated on this year’s tax return. You can also deduct up to 30% of your AGI for donations of non-cash assets.

Furthermore, you can carry over charitable contributions that exceed these limits in up to five subsequent tax years. As a result, charitable giving isn’t just altruistic; it can be a powerful tax planning opportunity for high earners.

If your year-end financial planning checklist includes charitable giving, consider which methods might accomplish your philanthropic and financial planning goals most efficiently. In many cases, a donor-advised fund (DAF) can offer valuable tax benefits while providing a convenient way to support the causes most important to you.

A DAF allows you to front-load a large donation, which you can deduct in the current tax year. Then, you can request that the DAF distribute the funds over time, giving you a longer runway to research and choose your charities.

You can also donate non-cash assets like appreciated stock to a DAF and avoid paying the capital gains tax. Moreover, you can take an immediate deduction for the full value of the donation (subject to IRS limits). For high earners with equity compensation, this can be a tax-savvy way to diversify your portfolio without triggering an unpleasant tax bill.

#6: Look for Additional Year-End Tax Planning Opportunities

Maxing out retirement contributions and making charitable donations are two common methods for reducing taxable income. However, the world of tax planning offers various strategies that may be advantageous depending on your individual circumstances and goals. Examples include:

• Roth Conversion. If you anticipate being in a higher tax bracket in retirement, you might consider converting a traditional IRA to a Roth IRA. You’ll pay taxes on the conversion amount now, but future withdrawals in retirement will be tax-free.
• 529 Plan Contributions. If you have young children, consider contributing to a 529 plan for education savings. Contributions grow tax-free, and withdrawals for qualified education expenses are also tax-free. Some states even offer state tax deductions or credits for contributions (however, California currently isn’t one of them).
• Real Estate Investments. Investing in real estate can provide tax deductions related to mortgage interest, property taxes, and depreciation. There are also strategies such as a 1031 exchange, which can defer capital gains taxes on the sale of a property if you reinvest the proceeds in another property.

Keep in mind these strategies may not be appropriate for everyone. Be sure to consult a financial professional, who can identify tax planning opportunities tailored to your unique needs and objectives.

#7: Reassess Your Insurance Needs

The next item on your year-end financial planning checklist involves a comprehensive review of your insurance coverage and needs. Insurance can be an important component of a financial plan, helping to protect your assets in the event of a setback.

Over the course of a year, many aspects of your life can change, from family structure to property acquisitions. These changes may require you to add new policies or update your coverage accordingly.

In addition, your asset protection needs often evolve as your net worth increases. Having the right insurance coverage can help shield your growing wealth from events that could jeopardize your financial future.

#8: Consider Paying Down High-Interest Debt

With interest rates above normal, eliminating certain debts before year-end may be beneficial. Since higher rates tend to mean higher borrowing costs, paying off high-interest balances early can significantly reduce your total interest expense.

If you have credit card debt, prioritize paying down these balances first. Since credit cards often have variable APRs, rising interest rates can make the cost of carrying a balance particularly burdensome. This may also be true for student loan debt and mortgages with variable interest rates.

On the other hand, if you’ve locked in a low interest rate on a car loan or mortgage, paying off these balances may not be a priority before year-end. If you have competing financial goals, your free cash flow may be better used elsewhere.

#9: Review Beneficiary Designations

As you work through your year-end financial planning checklist, don’t forget to review your account beneficiary designations. Since these designations override your will, it’s essential to ensure they’re accurate and current.

The following types of accounts typically have beneficiary designations:

• Retirement accounts, including IRAs, 401(k)s, and other retirement savings plans.
• Life insurance policies that pay a death benefit.
• Transfer on Death (TOD) accounts for certain investment accounts.
• Payable on Death (POD) accounts for bank accounts such as savings or CDs.

Proactively reviewing your designations each year ensures your assets are distributed according to your intentions. This isn’t just important for keeping your estate plan up to date but can also provide peace of mind and security for you and your loved ones.

#10: Set Financial Goals for the New Year

The final item on your 2023 year-end financial planning checklist is to review your financial goals and set new intentions for the new year.

Setting and reviewing financial goals is an ongoing process, vital for ensuring you remain on track toward your financial and life aspirations. Year-end provides a perfect opportunity to reflect on past achievements, acknowledge your financial progress, and recalibrate for the year to come.

With clear objectives and a strategic approach, you can pave the way for a prosperous year ahead. Here are our tips for setting effective financial goals for the new year.

The Value of Expert Guidance

The end of the year is an ideal time for reflection, reassessment, and strategic planning. By prioritizing the items on your year-end financial planning checklist, you can ensure you’re managing and directing your hard-earned wealth in the most efficient ways possible.

As you review your financial progress and set intentions for the year ahead, consider the value of working with an experienced advisor like SageMint Wealth. Our team of experts can help you craft a comprehensive financial plan that reflects your unique values and goals, guiding you along the path to financial independence.

Contact us to begin your financial planning journey and secure your future.