How to Do an End-of-Year Financial Snapshot
Run a 30-minute year-end check on your accounts, taxes, and beneficiaries so January starts with no surprises.
At a Glance
Write down December 31 balances
~18sConfirm your RMD is done if you are 73 or older
~33sWarning
The IRS penalty for missing an RMD is 25 percent of the missed amount. If December 31 falls on a weekend, take the distribution by the prior Friday — many brokerages will not process same-day requests on the 31st.
Make any charitable gifts you planned for the year
~33sQuick Tip
Donor-advised funds at Fidelity Charitable, Schwab Charitable, or Vanguard Charitable let you make one large gift, claim the deduction this year, and parcel it out to charities over the next several years.
Check beneficiaries on every retirement account
~19sGather tax documents in one folder
~18sSchedule the appointment with your tax preparer
~23sYou Did It!
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Every December, financial advisors run the same checklist for clients: account balances, required minimum distributions, charitable gifts, beneficiary updates, and tax planning. You can do the same thing yourself in about 30 minutes. And it can save you hundreds of dollars in taxes plus a great deal of stress in February when tax forms start arriving.
The end-of-year snapshot has five parts. First, write down the closing balance of every account on December 31. Second, confirm your required minimum distribution (RMD) was taken if you are 73 or older — missing it means a 25 percent penalty from the IRS. Third, decide whether to donate to charity by December 31 to capture the deduction on this year's taxes. Fourth, check the beneficiary listed on every retirement account and life insurance policy. Fifth, gather the documents your tax preparer will ask for so January is not a scramble.
The RMD step is the most expensive one to miss. Once you turn 73, the IRS requires you to withdraw a set amount from your traditional IRA and 401k each year. The amount is based on your age and the December 31 balance from the prior year. Most brokerages — Fidelity, Vanguard, Schwab, T. Rowe Price — will calculate the RMD for you and offer to send the money to your checking account. The deadline is December 31. Miss it and the penalty is 25 percent of the amount you should have withdrawn.
Charitable giving has a special rule for seniors. If you are 70 1/2 or older, you can send up to $105,000 directly from your IRA to a charity. This is called a Qualified Charitable Distribution (QCD). The money never shows up as income on your taxes, which can lower your Medicare premium and the taxable share of your Social Security. Tell your IRA custodian "I want to make a QCD" and they will mail a check directly to the charity.
Doing the snapshot before December 31 gives you time to act on what you find. Doing it in January is still useful, but most of the tax-saving moves have to happen before the year ends.
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