By Brian Bloxom, ChFEBCSM
With 2025 fast approaching, are your finances in order, or do you have a few loose ends to tie up? At Sentinel Wealth Partners, we know that financial stability isn’t a one-time achievement—it’s an evolving, continuous journey. Building a solid financial foundation, growing your savings, and planning for the future all require thoughtful attention and commitment. To help you stay on track, we’ve put together a comprehensive financial planning guide designed to set you up for success in the coming year. Explore the key steps below to take charge of your financial future today.
Retirement
Maximize Your Retirement Savings
Before the end of the year, aim to max out your retirement contributions. Many employers offer retirement plans like 401(k)s, 403(b)s, and 457s, which allow you to contribute up to $23,000 for 2024 (this limit will increase to $23,500 for 2025).
These contributions are automatically deducted from your paycheck and won’t show up as part of your annual income, so the more you can maximize your contributions during the year, the less taxable income you will have come April 15th. With this strategy, you can defer taxes until your retirement years when you could potentially be in a lower tax bracket.
Keep in mind that the SECURE 2.0 Act will increase catch-up contributions starting in 2025. At that point, participants aged 50 and older have a catch-up limit of $7,500, and individuals who are 60-63 years old will have a special catch-up maximum of $11,250 (50% more than the catch-up contribution for others over 50) to their retirement plan.
Contribute to an IRA
Contributing to a traditional IRA is another strategy to reduce your AGI if your income is within certain limits. By contributing pre-tax funds, you can effectively reduce your current-year tax liability, but you will owe tax on both the contributions and the account growth when you withdraw the funds in retirement. Alternatively, you can contribute to a Roth IRA, where taxes are paid up front but distributions are tax-free at retirement as long as the first contribution was made at least five tax years ago. The 2024 contribution limit for IRAs is $7,000 (the number will remain for 2025) with additional $1,000 catch-up contributions for individuals over the age of 50. Contributions can be made until April 15th, 2025, for the 2024 tax year, but the sooner they are made, the less likely you are to forget.
Understand Your RMDs
At the start of 2023, the rules around required minimum distributions (RMDs) changed, thanks to the SECURE 2.0 Act. If you turn 72 after December 31, 2022, your RMD age will be increased to 73. If you turn 74 after December 31, 2032, your RMD age will be 75. If you are subject to RMDs in 2024, the sooner you understand the rules around your distribution, the better. Depending on what age you are required to start taking distributions (70½, 72, 73, or 75), you could face a 25% – 50% penalty on missed distributions.
If you don’t need your RMD money to live on, consider donating the funds to a worthy cause, which could also lessen your tax burden for the year. To calculate your RMD, use one of the IRS worksheets.
Cash Flow
Assess Your Emergency Fund
Now is the time to confirm you have enough money set aside in your emergency fund or create a plan to build this up over the next year. An adequate emergency fund should cover 3-6 months of necessary living expenses (e.g., mortgage or rent, utilities, groceries, transportation).
With all the stock market uncertainty and recession fears, many experts now suggest maintaining a larger emergency fund, closer to 8-12 months of expenses. If you’re single, or your household only has one source of income, consider saving on the higher end of this scale to make sure you’re covered in the event of a job loss or reduction in income.
However much you save, keep this money in a highly liquid account. It needs to be readily available and easily accessible, but it should also be in an account that offers a competitive interest rate so you don’t lose out on potential growth.
The SECURE 2.0 Act has made saving for emergencies a bit easier. In 2024, participants were allowed to contribute up to $2,500 annually to an “emergency fund” within the 401(k) plan. These contributions can be accessed before retirement and will not be subject to the 10% early withdrawal fee.
Create and Maintain a Budget
The word “budget” seems to have a negative connotation; many people think that if you budget, you’re broke. On the contrary, budgeting actually gives you permission to spend, and is a simple way to keep track of your expenses and be aware of how much you’re actually saving each month. If one of your goals for the new year is to improve your cash flow and make better financial decisions, creating and maintaining a budget is a great place to start.
Risk Management
Contribute to a Health Savings Account
If you’re enrolled in a high-deductible health plan, consider contributing to a health savings account (HSA) before the end of the year. HSAs offer triple tax savings. Contributions are tax-deductible, earnings grow tax-free, and withdrawals are tax-free if used to pay for medical expenses.
The 2024 IRS contribution limits for HSAs are $4,150 for individuals and $8,300 for families ($4,300 and $8,550 for 2025, respectively). If you are 55 or older, you may also be able to make catch-up contributions of $1,000 per year. You have until April 15th for your contributions to count for the previous year’s tax return, but the sooner, the better to ensure you don’t forget.
Review Your Workplace Benefits
The end of the year is a great time to review your workplace benefits and take advantage of any remaining sick days, vacation time, or deductibles before they reset.
Depending on your company, your sick or vacation time might expire at the end of the year. Check with your HR department to learn about any expiration dates. If your sick or vacation time does expire, take advantage of a last-minute vacation or a staycation before the end of the year.
Similarly, if you’ve hit your deductible for the year, now would be a good time to incur additional medical expenses before your deductible resets in 2025. Take the time to get that dental work, blood test, or other medical procedure you’ve been putting off. Dental plans in particular often have a maximum coverage amount. If you haven’t used up the full amount and anticipate any treatments, make an appointment before December 31st.
Use Up Your Flexible Spending Account
Your employer may also offer a healthcare flexible spending account, which allows you to set aside pre-tax money for qualified out-of-pocket medical expenses. The 2024 contribution limit is $3,200; 2024 has a slight increase up to $3,300.
Unlike HSAs, FSAs do not require that you participate in a high-deductible health plan, but they are not as versatile either. For instance, HSAs allow you to carry over any unused funds to the next plan year, whereas FSAs only allow you to carry over up to $640. Generally speaking, if you do not have access to an HSA, then contributing to an FSA is likely a good idea.
Revisit Your Plans and Policies
Your insurance needs may also change as the year goes by, so periodically review your coverages and designated beneficiaries to bring them up to date to reflect your current financial situation. For example, if you paid off debt, you may not need as much life insurance coverage since your family’s liabilities have decreased. You might also want to evaluate your need for other types of insurance, such as long-term care or disability insurance.
Taxes
Donate to Charity
Donating to charity doesn’t have to wait until the holiday season. In fact, charitable gifting is a great tax strategy to incorporate throughout the year.
Annual gifts to qualified charitable organizations may be deemed an eligible itemized deduction and can be a great way to give back at the end of the year while also minimizing your tax bill. With the higher standard deduction, you’ll need to make sure your total itemized deductions for 2024 exceed $14,600 for an individual filer, and $29,200 for married filing jointly. (These numbers will rise in 2025 to $15,000 and $30,000, respectively.) If your deductions fall below this amount, consider doing several years’ worth of giving in one year.
Donor-advised funds are another option that allow you to contribute a lump sum all at once and then distribute those funds to various charities over several years. With this strategy, you can itemize deductions when you make the initial contribution and then take the standard deduction in the following years, allowing you to make the most out of your donation tax-wise.
Invest in a College Savings Plan
If you have children or grandchildren in your life, contributing to a 529 savings plan is an excellent way to jump-start their college savings in the new year.
This type of educational savings plan was created so families can receive tax benefits for saving toward qualified higher-education expenses. After-tax money is invested in a 529 plan where it grows tax-free. When the money is later taken out for qualified expenses, there are no federal taxes due.
In 2024, you can give up to $18,000 per 529 account gift-tax-free ($19,000 for 2025 or $38,000 if gift-splitting with a spouse). There’s also a special election that allows you to give 5 years’ worth of contributions as a lump sum, meaning you could give up to $90,000 entirely gift-tax-free!
What’s more, remaining 529 balances can be rolled into a Roth IRA for the account beneficiary starting in 2024, so you won’t have to worry about losing the funds if your child chooses not to go to college or doesn’t use the full account amount. Keep in mind that the account must be at least 15 years old and the maximum lifetime rollover limit is $35,000. Contributions made in the last 5 years will not be eligible for rollover.
Consider a Roth Conversion
Roth IRAs are an attractive savings vehicle for many reasons, including no required minimum distributions (RMDs), tax-free withdrawals after age 59½, and the ability to pass wealth tax-free to your heirs. Unfortunately, Roth IRAs have income restrictions, and you may not be able to open an account outright if you are above certain limits.
To get around this threshold, consider a Roth conversion. Using this strategy, you will pay tax on money contributed to a traditional IRA, thereby converting it into a Roth. If you have earned less income in 2024, or your traditional IRA balance has taken a hit due to recent market volatility, a Roth conversion may be a great opportunity for your specific situation. Converting to a Roth also allows your money to grow tax-free for as long as you’d like.
Consider Tax-Loss Harvesting
Tax-loss harvesting involves selling investments at a loss in order to offset the gains in your portfolio. By realizing a capital loss, you are able to counterbalance the taxes owed on capital gains. The investments that are sold are usually replaced with similar securities in order to maintain the desired asset allocation and expected return.
Given the continued market volatility throughout 2024, this can be a great way to make the most out of a losing situation by using an investment loss to offset your tax liability. Even though the deadline for this to count toward the 2024 tax year has passed, there will likely be ample opportunity to revisit this strategy in 2025. Talk with your advisor about potentially harvesting your losses and if it makes sense for you.
Investments
Review Your Asset Allocation & Invest With Impact
The beginning of the year is also a great time to review your asset allocation strategy and incorporate ESG and impact investing if desired. Given the ups and downs of the market and increasing levels of inflation over the last year, it’s crucial to evaluate your investments and make sure your portfolio is properly diversified in 2025. It should also be tailored to your specific risk tolerance level, ensuring you earn enough returns to keep up with inflation but you’re not overexposing yourself to risk.
If you are interested in using your funds to support environmental, social, or governmental issues (ESG), you can also consider impact investing as a way to earn returns while also promoting change on causes you care about.
Estate Planning
Review Beneficiary Designations
If you had any major life events happen this year, like the birth of a child, marriage, divorce, or a death in the family, make sure you review your beneficiary designations. There are several assets, including retirement accounts, bank accounts, and life insurance policies, that are distributed based on beneficiary designation and not the terms of the will. If you have an updated will but an outdated beneficiary listed on one of these accounts, there is a chance your assets will not pass according to your wishes.
Review Your Estate Documents
Similarly, it’s important to review your estate planning documents, including your last will and testament, any powers of attorney, living wills, and/or trust documents. The new year is always a good time to take another look at these documents or start drafting them if you don’t already have them in place.
Make the Most of the Annual Gift Tax Exclusion
If you’re looking to reduce your taxable estate, consider making gifts up to the annual exclusion amount. For 2024, individuals can give to each recipient (and to an unlimited number of recipients) up to $18,000 and married couples can give up to $36,000 without triggering gift tax. (These numbers increase in 2025 to $19,000 and $38,000, respectively.) Not only that, but the beneficiary of your gift will not have to report it as income. This is a great way to spread your wealth amongst family and friends.
Your Trusted Partner
Is your financial to-do list feeling like a mountain you can’t climb? You’re not alone—and we’re ready to help. At Sentinel Wealth Partners we guide you in simplifying and streamlining your financial life. With over 25 years of experience, we’re dedicated to refining your financial plan, so you can focus on what matters most.
Ready to take the next step? Reach out to us today by calling our office at 703-832-0164, sending an email to [email protected], or using our online calendar.
About Brian
Brian Bloxom is an Independent Financial Advisor, Chartered Federal Employee Benefits ConsultantSM (ChFEBCSM) and Chartered Retirement Planning Counselor℠, CRPC® professional with 25 years of experience in financial advising. He founded Sentinel Wealth Partners to serve retirees, individuals approaching retirement, and individuals managing complex retirement plans such as company plans or federal benefits plans. His expertise and dedication to helping his clients achieve their goals make him a trusted resource that will help you feel confident in your customized retirement plan. Brian’s mission is to be available to his clients—all the time. He’s here to solve your problems, relieve your anxiety, and give you optimism for retirement. Because ultimately, your retirement should be about well-deserved enjoyment, and not about stress or anxiety. When he’s not working, you can find Brian spending time with his wife, Jessica, and their two sons, Spencer and Preston. He enjoys coaching soccer, serving in his community, golfing, and relaxing at his vacation home at Lake Anna, VA. To learn more about Brian, connect with him on LinkedIn.
Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC. Advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. Sentinel Wealth Partners and Cambridge are not affiliated. Sentinel Wealth Partners is not engaged in the securities business. Cambridge does not offer tax or legal advice.