Three months seems like a long time, but it flies by, especially when we’re talking about this action-packed fourth quarter. Between now and the end of the year, we’ll have Halloween, the baseball playoffs and World Series, the U.S. general election, a late Thanksgiving, and December will be full of holidays. This means that if you need to make investments and financial plans before the end of the year, it’s best to do it at the beginning of the quarter instead of waiting until the last moment.
As we enter the fourth quarter, we’ve created a checklist of tasks for those saving for retirement (that is, those with at least a few years until retirement) to tackle. In a future column, I’ll share a year-end checklist for those who have already retired.
Tax-deferred retirement account funds
If you’re in the enviable position of being able to contribute the maximum allowable amount to your company’s retirement plan, make sure you’re on track to contribute that amount between now and the end of the year. Contribution limits have increased slightly this year to $23,000 for those under 50, and an additional $7,500 for those 50 and older. If you’re at the right age to make catch-up contributions, remember that you don’t have to wait until your 50th birthday to start making additional contributions. You can make a full catch-up contribution in the year you turn 50. If you’re a true super saver, find out if your company’s retirement plan allows after-tax contributions on top of your traditional baseline or Roth 401(k). contribution. Such contributions tend to exceed contributions to taxable accounts, given the tax consequences, unless liquidity is required.
Performing IRA maintenance
You must make full contributions to your IRA or health savings account for the 2024 tax year by the tax filing deadline of April 15, 2025. But if you have extra funds available now, why not use them for long-term investments?In the meantime, make sure your IRA holdings are on track. A recent research report from Vanguard reveals a surprising number of investors who went to the trouble of putting money into a new IRA or rolling it over from another account, but were unable to invest the money in long-term assets. The percentage has been revealed. Instead, many investors’ assets remained in cash years after the initial contribution or rollover. When reviewing your IRA, make sure you roll over your failing company retirement plan assets, convert your backdoor IRA funds to a Roth, and move your IRA assets from cash to long-term investments. If you’re overwhelmed with options, target date funds are an easy option.
Evaluate asset allocation across your portfolio
The year isn’t over yet, but it’s shaping up to be another good year for U.S. stocks. Year-to-date through early October, prices have risen nearly 20%. Non-U.S. stocks and bonds have performed reasonably well, up 12% and 5%, respectively, but have lagged behind U.S. stocks. This juncture is nothing new. For the better part of 15 years, U.S. stocks have outperformed other asset classes, leading many investors to be overweight in their home market. This means it’s a good time to check your portfolio’s asset allocation using the X-Ray feature available if you keep your portfolio on Morningstar.com. Compare your portfolio’s current asset allocation to your goals. If you’re over 50, you may need to de-risk your portfolio by moving more assets into bonds. If you’re under 50, make sure you own a moderate amount of foreign stocks as well as U.S. stocks. A good benchmark for this allocation decision is a global stock index, which is currently approximately 60% U.S. stocks and 40% non-U.S. stocks. Also, be aware of other risky bets in your portfolio. Examples include concentrated holdings in individual stocks (particularly employer stocks), overweight sectors, and Morningstar style box imbalances. If you decide that a change is appropriate, be careful not to trigger unavoidable taxable capital gains by focusing your rebalancing efforts on tax-sheltered accounts. There, you don’t have to pay taxes even if you reduce your winning positions.
Search around for candidates for tax loss sale
The recent market expansion means that many previously dormant stocks have started to move, so unless you’re extremely unlucky, you’re unlikely to end up with many losing positions in your portfolio. However, individual stock price movements tend to vary from company to company, so individual stock investors have the best chance of identifying positions that are selling below their purchase price. By selling and realizing a loss, you can offset capital gains elsewhere in your portfolio, and if your losses exceed your gains, you can offset up to $3,000 in ordinary income.
Reconfirm your “number”
If you’re still a few years away from retirement, it’s too early to get too excited about retirement planning. Still, it’s wise to start evaluating the feasibility of your plan while you still can. So far, Fidelity has provided some helpful benchmarks for assessing whether retirement is a good fit. The 4% guideline is another quick and dirty rule of thumb for assessing retirement readiness. “Can you live with a starting withdrawal of 4% of your current income?” How does your portfolio balance with all the benefits you receive from Social Security and your pension? Finally, if you want to learn more about preparing for retirement, check out calculators like T. Rowe Price’s Retirement Income Calculator.
Plan to deplete your FSA account
Although flexible spending arrangements are not strictly retirement-related, FSA balances typically need to be depleted by the end of the year, and depending on the plan, a short grace period may extend into the new year. This is in contrast to health savings accounts, which roll over from year to year and have no year-end deadline. So now is a good time to book all of your year-end appointments and purchases that you’ll be spending from your FSA, including dental appointments, vision, glasses/contact lenses, and FSA over-the-counter medications. -eligible. If you have a medical savings account in addition to an FSA, you will be using what is called a purpose-specific FSA. This means that your FSA can only be used for vision or dental expenses.
