Smart Money Moves To Consider Before Year End
December has a way of sneaking up on us, doesn’t it? One minute you’re planning summer vacations, and the next you’re panic-buying holiday gifts while realizing you haven’t looked at your retirement account since February. If the thought of year-end money management makes you want to hide under a blanket with a cup of cocoa, you’re not alone. But here’s the good news: understanding your money moves and options for closing out 2025 can help you make informed decisions about your financial future.
Why Year-End Money Decisions Matter More Than Ever
The final weeks of December offer unique opportunities for money moves that simply don’t exist at other times of the year. Many tax-related deadlines fall on December 31st, and certain contribution limits reset with the calendar year. Understanding these time-sensitive opportunities can help you make more informed choices about your financial situation.
According to the Internal Revenue Service, millions of Americans miss out on tax-advantaged money moves simply because they’re unaware of the deadlines or don’t understand how these tools work.[1] While everyone else is focused on finding the perfect present for Aunt Linda, you could be learning about strategies that might benefit your long-term financial health. And trust us, Future You will appreciate the time you spent getting educated far more than Aunt Linda will appreciate another scented candle.
Understanding Retirement Account Contribution Limits
One of the most common year-end considerations involves retirement account contributions. For 2025, the IRS has set the 401(k) contribution limit at $23,500 for employee contributions.[2] Those aged 50 and older can make catch-up contributions of an additional $7,500, bringing their total to $31,000. Additionally, those aged 60-63 are eligible for an enhanced catch-up contribution of $11,250 (instead of $7,500), allowing them to contribute up to $34,750 total if their plan permits.[3] These contributions can reduce taxable income while potentially building long-term savings; though whether this strategy makes sense depends entirely on individual circumstances.
Traditional IRA contributions also deserve consideration, though the rules get more complex depending on income levels and whether you’re covered by an employer retirement plan. The IRS provides detailed guidance on eligibility requirements and deduction limitations on their website.[4] Some people find it helpful to make these contributions in December rather than waiting until the April tax deadline, though others may prefer to wait and see how their tax situation develops.
Roth conversions represent another area worth understanding. Converting traditional IRA funds to a Roth IRA means paying taxes on the converted amount in the current year, but qualified withdrawals in retirement come out tax-free. The IRS explains that the decision to convert involves weighing current tax rates against projected future rates and is a calculation that varies significantly based on individual circumstances.[5]
The Concept of Tax-Loss Harvesting Explained
Tax-loss harvesting is a money moves strategy that some people use to potentially reduce their tax liability. The concept involves selling securities that have declined in value to offset capital gains from other sales. According to research from major institutions, this approach can be particularly relevant in volatile market years.[6]
The mechanics work like this: realized losses can offset realized gains dollar-for-dollar. If losses exceed gains, up to $3,000 can potentially be deducted against ordinary income, with additional losses carried forward to future years according to IRS rules.[7] However, the wash-sale rule adds complexity. You can’t purchase substantially identical securities within 30 days before or after the sale, or the loss becomes disallowed for current tax purposes.[8]
Whether tax-loss harvesting makes sense depends on numerous factors including your current tax bracket, the size of your gains and losses, your overall asset allocation goals, and transaction costs. A tax professional or licensed advisor can help evaluate whether this strategy aligns with your specific situation.
Charitable Giving and Tax Considerations
The final weeks of the year see a surge in charitable contributions, and understanding the tax implications can help donors make informed decisions. For taxpayers who itemize deductions, charitable donations to qualified organizations may be deductible, though recent changes to standard deduction amounts mean fewer taxpayers itemize than in previous years.[9]
The concept of “bunching” charitable contributions has gained attention in recent years as one of the money moves. This involves concentrating multiple years of giving into a single tax year to exceed the standard deduction threshold. Donor-advised funds can facilitate this strategy by allowing donors to take an immediate tax deduction while distributing the funds to charities over time. The National Philanthropic Trust reports that donor-advised funds have grown significantly as more people learn about this option.[10]
For individuals over 70½ with traditional IRAs, qualified charitable distributions (QCDs) offer another option worth understanding. These allow direct transfers from IRAs to qualified charities, potentially satisfying required minimum distributions without increasing taxable income. The IRS permits up to $108,000 in QCDs for 2025.[11]
Use-It-Or-Lose-It Accounts Require Attention
Healthcare flexible spending accounts (FSAs) and dependent care FSAs often operate on a use-it-or-lose-it basis, though some employers offer grace periods or limited carryover options. The Healthcare.gov website emphasizes the importance of understanding your specific plan’s rules, as these can vary significantly between employers.[12]
Common qualifying expenses for healthcare FSAs include prescription medications, certain over-the-counter items, dental and vision care, and various medical supplies. The IRS publishes a comprehensive list of qualified medical expenses in Publication 502.[13] For dependent care FSAs, eligible expenses typically include daycare, preschool, and before/after school programs that enable parents to work.
Setting a calendar reminder each December to review FSA balances has helped many people avoid forfeiting unused funds and is one of the smart money moves. This isn’t about encouraging unnecessary spending; it’s about using funds that have already been set aside for their intended purpose.
Portfolio Rebalancing Concepts
Many educators discuss rebalancing as a disciplined approach to maintaining desired asset allocations. The concept involves selling portions of holdings that have grown beyond their target allocation and using the proceeds to purchase underweighted positions.[14]
Vanguard research suggests that rebalancing helps maintain a consistent risk profile over time, though the study also notes that there’s no single “right” rebalancing frequency. The approach depends on individual tolerance for drift and transaction costs.[15] Some people rebalance annually during the year-end review period, while others use different triggers or frequencies.
The intersection of rebalancing with tax-loss harvesting can create opportunities for coordinated strategies, though the complexity increases significantly. This is an area where professional guidance becomes particularly valuable, as the interaction between portfolio management and tax implications requires careful analysis.
The Importance of Beneficiary Designation Reviews
Life changes with marriages, divorces, births and deaths; yet beneficiary designations often remain unchanged for years or even decades. According to estate planning attorneys, outdated beneficiary designations cause numerous problems because these designations supersede instructions in wills.[16]
Retirement accounts, life insurance policies, and transfer-on-death accounts all pass directly to named beneficiaries. Taking time to review these designations ensures they reflect current wishes. This review should include both primary and contingent beneficiaries across all accounts.
Beyond beneficiary designations, year-end provides a natural opportunity to review estate documents including wills, powers of attorney, and healthcare directives. The American Bar Association recommends reviewing these documents whenever significant life changes occur, and at minimum every three to five years.[17]
Insurance Coverage Assessment
Year-end reviews often include evaluating whether current insurance coverage still matches current needs. Major life events such as marriage, children, home purchases, significant income changes can substantially alter appropriate coverage levels. We suggest reviewing all policies annually to ensure adequate protection.
Beyond coverage amounts, comparing rates periodically makes sense. The insurance market remains competitive, and rates can vary significantly between providers for similar coverage. Even when satisfied with current coverage, obtaining quotes provides useful information and potential leverage for rate negotiations.
Setting the Stage for 2026
Reflecting on the past year’s financial decisions provides valuable insights for the year ahead. What worked well? What would you do differently? This reflection process helps identify patterns and areas for improvement.
Many people find value in setting specific, measurable goals for the upcoming year. Research in behavioral economics suggests that written goals with defined timelines increase the likelihood of achievement.[18] Whether these goals involve saving targets, debt reduction, or other objectives, the act of articulating them creates accountability.
The Value of Professional Guidance
The money moves, strategies and concepts discussed here represent just a fraction of the considerations that might be relevant to year-end decision making. The tax code contains thousands of pages, and individual circumstances vary tremendously. What represents a smart move for one person could be inappropriate or even counterproductive for another.
This is precisely why working with appropriately licensed professionals; whether tax advisors, CPAs, financial advisors or, attorneys; can provide significant value. These professionals can evaluate your specific situation, identify relevant strategies, help navigate complex regulations, and coordinate approaches across different areas of your financial life to see if these money moves are relevant for your situation.
The cost of professional guidance often pales in comparison to the cost of mistakes or missed opportunities. More importantly, working with qualified professionals provides peace of mind that decisions are being made with full consideration of your unique circumstances.
Taking Action While Time Remains
December waits for no one, and many of these money moves come with hard deadlines. The difference between optimization and missed opportunities often comes down to taking action before December 31st at 11:59 PM.
If this information feels overwhelming, that’s a completely normal reaction. Personal finance involves numerous interconnected decisions, each with its own set of considerations and trade-offs. The good news is that you don’t have to navigate these money moves alone.
Your financial future deserves thoughtful consideration and informed decision-making. The concepts outlined here represent genuine opportunities to learn about strategies that might strengthen your financial position; but only after careful evaluation of your specific circumstances by qualified professionals.
Ready to explore whether any of these year-end money moves and strategies might be relevant to your situation? Don’t let another year end with questions and uncertainty. Reach out to discuss your unique circumstances with someone who can provide personalized guidance tailored to your specific needs and goals.
References:
[1] Internal Revenue Service. “Tax Benefits for Education: Information Center.
[2] Internal Revenue Service. “401(k) limit increases to $23,500 for 2025.” 2024.
[4] Internal Revenue Service. “2025 IRA Contribution and Deduction Limits.
[5] Internal Revenue Service. “Roth IRA Conversions.
[7] Internal Revenue Service. “Topic No. 409 Capital Gains and Losses.
[8] Internal Revenue Service. “Publication 550: Investment Income and Expenses.
[10] National Philanthropic Trust. “2024 Donor-Advised Fund Report.
[11] Internal Revenue Service. “Charitable contribution deductions.” 2024.
[12] Healthcare.gov. “Using a Flexible Spending Account (FSA).
[13] Internal Revenue Service. “Publication 502: Medical and Dental Expenses.
[14] Bogleheads Wiki. “Rebalancing.
[15] Vanguard Research. “Best practices for portfolio rebalancing.” 2022.
[17] American Bar Association. “Estate Planning FAQs.
Important Disclaimer: The information provided in this article is for educational purposes only and should not be considered personalized advice. Everyone’s financial situation is unique, and what works for one person may not be appropriate for another. Before making any significant financial decisions, consult with appropriately licensed professionals including tax advisors, certified public accountants, or fiduciary advisors who can evaluate your specific circumstances.