As we approach the end of 2023, it’s a good time to reflect on your financial situation and make necessary adjustments. Despite the high inflation we’ve experienced this year, your finances may not be as bad as you think. By conducting a year-end review and following the steps below, you can end the year on a strong note and be well-prepared for 2024. Here’s what you need to do:
1. Maximize your retirement contributions: If you can afford it, contribute the maximum amount allowed to your retirement accounts before the year-end deadline. For 401(k) participants, the maximum contribution limit is $20,500 (a $1,000 increase from 2022), and for IRAs (traditional and Roth), the limit is $6,000 in 2023.
Good news for next year: Starting in January 2024, you’ll be able to contribute up to $22,500 to your 401(k) plan, which is nearly a 10% increase. If you’re 50 years or older, you can contribute an additional $7,500, making the maximum contribution $30,000. The contribution limit for traditional and Roth IRAs will also increase to $6,500 in 2023 (a $500 increase).
2. Don’t let flexible spending dollars go to waste: If you have a Flexible Spending Account (FSA), make sure to use up any remaining balance before December 31. Check your employer’s rules regarding the balance, so you don’t lose any funds.
If you don’t have many doctor’s appointments left for the year, you can use your FSA funds for other qualifying healthcare expenses. This includes upgrading your eyeglasses, buying contact lenses, and purchasing FSA-eligible over-the-counter products like first aid supplies, cold medicines, and sunscreen. You can find a complete list of eligible items at the FSA store.
The employee health FSA contribution limit for 2024 will be $3,050, which is a $200 increase from the 2023 limit.
3. Review your tax withholdings: Although Tax Day is still a few months away, it’s a good idea to review your tax withholdings and payments now. If you’ve experienced any major life events in 2023, such as getting married, divorced, or having a child, you may need to adjust your withholding. The IRS provides a Tax Withholding Estimator to help you determine the appropriate amount of income tax to withhold. Additionally, inflation may have an impact on lowering your taxes in 2024.
4. Update your beneficiaries: If you’ve had any significant changes in your life, it’s important to update the beneficiaries listed on your bank accounts, retirement accounts, life insurance policies, and annuities. Take the time to make sure the right people are included and remove anyone who is no longer relevant.
5. Review your financial goals: Regardless of your current financial situation, it’s crucial to be honest with yourself and evaluate where you can improve. Sit down and write out a plan to pay off debt, manage your spending, and consider investing or saving more effectively. It might be helpful to consult a financial professional who can provide guidance and support in achieving your short-term and long-term financial goals.
By following these steps, you can end 2023 on a positive financial note and start the new year with a strong foundation for your financial health.