By Dr. Jim Dahle, WCI Founder
Another 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 out. 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 2023 and hello to 2024, 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
#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, make sure you 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 2023 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 are employed and dealing with an employer 401(k)/403(b)/457(b) or you are self-employed and use an individual 401(k), you needed to make the entire “employee” contribution ($22,500 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. 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 5-8 in Orlando. 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 warm Florida sun.
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 2023 (All the material from WCICON23, plus additional material—57 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 go ahead and 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
Excel XIRR: How to Calculate Your Return
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 2023 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? Comment below!
[This updated post was originally published in 2020.]
Harvest investment losses as appropriate.
Rollover IRA into Roth if this strategy is appropriate.
Shift any income into this year if possible to avoid the tax increases coming next year.
What tax increases? The ones proposed on the campaign trail? Not sure I’d act on those.
If your married filing jointly and maxed out the retirement contribution at $57,000 for the year (I don’t know what the limit is called, I just know its around 57K); can the non-working spouse contribute $6,000 into their own IRA on top of the 57K?
Yes. Totally separate limits.
For those with college age-kids, 529 qualified expenses need to be pulled out in the year they were incurred along with pulling out scholarship money equivalents for those that wish to do that.
I would add contribute to 529s to the year end checklist as well if you’re in a state with a tax break. Might only amount to a $4,000 to $10,000 state deduction, but a buck is a buck especially if you have multiple kids to utilize the deduction on.
Good point. 529s are different from HSAs in that regard.
Jim
Thanks for the excellent posts over the years since you started the blog. I have been an avid reader and you have helped me immensely in my financial journey.
I understand the above post is from TPP [Thanks for compiling end-of-the-year checklist-I just changed my tax deductions, after reading it]. I wanted to add to #3 above, if people are not itemizing this year- IRS has authorized Special $300 tax deduction for cash donations to one’s favorite/preferred charity. [ https://www.irs.gov/newsroom/special-300-tax-deduction-helps-most-people-give-to-charity-this-year-even-if-they-dont-itemize%5D.
Due the CARES act, a $300 cash charitable donation can be made without itemizing.
Nice list! I would add two important things we do around the end of each year:
1. Get your annual free credit reports from the “big three” to review for any problems
2. Prepare for filing taxes by making checklist of needed documents before filing. This seems to get a little more complicated each year and we like to be done as early in the year as possible
Both great points! Get your free credit reports from AnnualCreditReport.com. I actually like to space it out over the year, though- to keep an eye on things- since I don’t want to wait to find out about something all the way at year end. And stagger it out with the spouse.
Best,
PFB
Great article! There are a lot of great opportunities in giving. The Charity Anywhere Foundation, https://www.charityanywhere.org/ based in Utah is a 510C3 non-profit. Their mission statement is: “Giving “ordinary people” the life changing opportunity to provide needed medical care, dental services, and basic shelter to less developed countries while concurrently forever changing the mind and heart of the volunteer for good.” For several years now I have personally been involved with this organization and have seen the incredible difference service can make.
Be Good Do Good. All the best. Greg
1. Consider taking your 401K with you if you changed employers during the year.
2. Continue to contribute to your emergency fund account. The benchmark is 4 to 6 months of living expenses.
3. Summarize your 2020 goals and draft your 2021 goals.
That is a very helpful list. Happy to report that I have completed #9. Regarding #5 I might have misunderstood the post but HSA account contributions can be made up until tax filing and don’t need to be completed during the calendar year.
Excellent point. I’m not sure I actually knew that since it’s always the first account I fund each year, not the last one.
Regarding HSAs, I was under the impression that I had until April 15th to fund it. Am I wrong?
No, you’re right. Thanks for the correction.
When giving money to your kids, can you give them appreciated stock instead of cash so that they can take advantage of their low capital gains tax rate? They could do a tax gain harvest as soon as they receive it to reset the tax basis.
Yes. Bear in mind there are limits on how much tax gain harvesting can be done before it becomes taxable at your rates.
Re: 16 front loading accounts – how do people actually do that? I’m a hospital employee and it seems both are only deductible from paycheck with the HSA automatically spreading out contributions over the year and the 401k likewise having a maximum per paycheck contribution (75% of base). How are people contributing with cash?
Some can do it more than others. It’s easier when you’re self-employed. I simply write checks or do ACH transfers or transfer from the settlement fund for every account we’ve got. I can basically fund everything the first week of the year if I want.
So to further clarify, this is a plan dependent thing, then?
Yes.
Well, I’m very late to comment on this, and not sure if anyone still has this question, BUT:
I’m a hospital employee, and I do this pretty easily, though I’m sure it is a little different hospital to hospital. For the 403b, which is what we have instead of 401k, I essentially did this by accident.
When I started my first job after residency in 2020, I got to November and realized I had made no contributions. I had 4 pay periods left, so I went to HR and asked how I could still make full contribution for the year. I was given a form called a Salary Reduction Agreement, told to write a 1/4 of the max amount as the amount I agreed to have my paycheck reduced each month (could write a dollar amount or a percentage), and I would reach the max that year, which worked great. They also told me I would have to redo it Jan. 1st if I wanted the payment spread out over the year, which I promptly forgot. So in January they continued taking a 1/4 of the full amount out. After 4 payments, it automatically stopped taking money out of my paycheck due to reaching max (although I’d check with HR to make sure this happens at your institution). I decided I liked doing things that way, so I’ve never changed it. But the form is now available on our intranet, so now people here don’t even have to physically go to HR if they don’t want to. I’m willing to bet there is some form of 403b/401k Salary Reduction Agreement form at most hospitals though if you talk to the right person in HR.
Many 401(k)s just let you write a check the first week of January for your entire year’s contribution. That’s what we do. 401(k)s, Roth IRAs, HSA…it all gets maxed out in January. Then we invest in taxable the rest of the year.
Regarding #4 – My Solo 401(k) . net claims in their webinars that both the employee AND employer contributions have a due date of the employers tax return.
They cite IRS Pub 560, the chart on page 3. If you read the chart it does appear that the “employee” contribution for i401(k)s deadline is the tax due date, not end of year.
https://www.irs.gov/pub/irs-pdf/p560.pdf
That has always been somewhat unclear to me. Certainly the employer has a few weeks after the last paycheck of the year to get it in, but I don’t think I’d push it off until March (or September with extension). Otherwise, the employer is basically stealing from the employee because the employer withheld the money but didn’t put it to work.
1) If one does not plan to use the HSA money until retirement for medical expenses, do you still need to save health receipts?
2) By when does one have to put money in the solo401K? I still have to figure out the amount and not sure I will be able to do so by December 31st.
Thanks,
Maha
1. No. But if you don’t have enough expenses to cover withdrawals, you will pay taxes on them.
2. Within a few weeks of the last paycheck of the year. I wouldn’t push it past the end of February personally and I’d try to have it in by the end of the calendar year.
Re: #17: “Pulling money out of 529s equal to receipts and possibly scholarships received”.
Are you allowed to pull money out of 529 plans for scholarships received? Is this a qualified withdrawal? Our 529 is in Missouri.
My son receives just over $16k / semester in scholarships. He received $16k in 2020 and $32k in 2021 that we have not withdrawn from our 529 plan.
Can we withdraw $32k for 2021 without penalty? If so, can we go backwards and withdraw $16k for 2020 (even if it requires filing an amended 2020 return).
Thanks for the help.
After some research, it looks like we could withdraw the amount of his scholarships (at least for 2021) without paying the 10% penalty. However, the withdrawal would be non-qualified and the earnings would be subject to ordinary income tax rates. Earnings account for approximately 62% of the balance of our 529 account. As such, a withdrawal in my name would be tax prohibitive. However, if we made a withdrawal in my son’s name, it would be subject to his ordinary income tax rate, correct?
I think the account owner’s tax rate is what matters. But in many states you can make your son the owner without a problem. Check with your state laws.
God, I love a good checklist. Mmmm. End of the year checklists are so therapeutic for me. I have really taken your recommendations to heart over the years and under the “shared financial goals” tab in our family’s shared e-budget we have the vast majority of these tasks listed out. It is super helpful to be able to turn to each of these goals and mark as “complete!” I find as I prioritize debt reduction, not everyone of these is feasible for me at the moment, but seeing the list keeps me motivated. Further, seeing the list also helps me realize financial opportunities I need to investigate further. Isn’t that another great point of an end of the year checklist? It allows you to see the financial accomplishments you achieved for this fiscal year, and allows you to start to think about goals for the next. Keep it up, always incredibly helpful. As always…
Stay motivated!
TheMotivatedMD.com
Now that congress is delaying passage of any potential new laws that might eliminate the backdoor roth until next year… are we safe to do our backdoor roth contribution in early January??
Easy #10 CME idea:
When I have leftover CME money in December, I call my professional society (for me, ACEP), and I pre-pay for a fractional amount of my future annual membership. So this year, I had something $700 left and I called them and added $694 of membership (i.e. 8 months of membership).
Because of this, currently, I’m paid up through the summer of 2026. Next year, I won’t need to spend anything on my membership and can instead use all of my CME for conferences, computers, etc.
You can also buy the CME qualifying WCI online courses or conference too!
Aside from donor funds (fees!) wish there were a way to make my charities understand that donation was a TEN year not annual or biannual event (so we can itemize rarely but lucratively). Until then it’s nondeductible political donations. Oh well guess we keep the USPS alive and well with all the mail we put directly in recycling.
It’s definitely tough to stay anonymous without a DAF.
Is the backdoor Roth allowed in 2023?
Yes. Although laws can change at any time, including retroactively, I know of no discussion of any change in a law that would affect this. I plan to do mine the first week of January as usual.
The laws have changed and allow some rollover of your FSA money. My plan allows me to roll up to $500 over, although I usually spend it all by November.
I think that ended in 2021. Not sure if a plan can do something different than the IRS allows though.
Great information, as always. But a small point: the solo 401(k) employee contribution deadline, under #4 ‘Employee’ Retirement Plan Contributions, is not correct. In fact, you have until filing time the following April to make both the employee and employer contributions.
Although it’s impossible to find on the IRS website, the 11/23/22 Kitces article on solo 401(k)s confirms that:
PLAN ESTABLISHMENT AND CONTRIBUTION DEADLINES
Solo 401(k) plans must be established by December 31 of the first plan year for which they are effective. For example, in order to make contributions to a solo 401(k) plan for 2022, the plan must be established by December 31, 2022.
The contributions themselves, however, don’t need to be made until the individual tax filing deadline of April 15, or October 15 with a six-month extension.
Good catch. The employee part is a change with Secure Act 2.0. We apparently didn’t get that updated. The employer part you’ve been able to do even before that.
Although not tied to year end, something that should be done yearly is to review estate docs and account beneficiaries, so doesn’t hurt to add it to the list
Spreadsheet
Can we talk about spreadsheet? only spreadsheet mentioned before is portfolio tracker / asset allocation.
What do people use in terms of planning.
We have a spreadsheet with all accounts and fortunately i happen to run 4 companies and its hard to figure out and keep track of what to deduct from where and retirement contributions from each to me and spouse.
Would love to hear spreadsheet ideas.
I’d add two closely related items to this list.
First, take any remaining RMDs from personally owned retirement accounts, or inherited retirement accounts subject to RMDs. Like the author, I’m decades away from RMD age, but for readers who are affected by RMDs it should be a top financial priority. Even though the penalty was recently halved, it’s still large.
Second, for any inherited retirement accounts subject to the ten year rule, some tax planning is in order to see if a distribution makes sense. It can be a complex decision, factoring in your current tax situation, predicted tax situations in future years, need for cash, etc. The usual choices are to withdraw 1/n of the balance (where n is the number of distribution years left), withdraw up to the top of your current bracket, or to defer to future years. Bogleheads has a decent wiki article on the topic:
https://www.bogleheads.org/wiki/Stretch_IRA
Also worth noting: a late-December IRA withdrawal is an excellent opportunity to add some tax-efficient tax withholding to get into the safe harbor for the year.
Oooh, I like that last point.
🙂
To flesh this out for other readers: last year I decided to make about a $50,000 inherited IRA withdrawal. Waited until the second half of December, both so I had the most accurate estimate for my income that year, and to maximize tax-deferred growth. I had an idea early in the year I’d be taking a withdrawal roughly this size (the tax planning reasons were complex), so I set my W-4 withholding to the smallest amount I could legally. Then, at the end of the year, I withheld something like $25,000 federal and $10,000 state from the withdrawal, which put me just over the “90% current year tax due” safe harbor. It improved cash flow throughout the year, and deferring taxes for an average of 6 months at 5-6% interest netted around $700 t-note interest after taxes. Didn’t get rich off it, but not a bad return for a couple hour’s work.
I didn’t play games like this when interest rates were 1-2%.