It's time to begin end-of-year financial planning
It's hard to believe we have entered the financial stretch of 2025. There were so many events and activities I was looking forward to this year -- my wife's family bi-annual trip to Virginia Beach, the guys' weekend mountain biking trip in the Absaroka range in Montana, our exchange daughter from Spain's month-long visit with her boyfriend Xavi, our family trip to Yellowstone with our granddaughter Mia, Ethan starting at Boone Grove High School, the epic trip to Africa with our close friends and the weekend mountain bike festival at Brown County State Park. All these plans that have occupied my daydreams for the past year are now in the rear-view mirror.
My team at Oak Partners has elected to dedicate the next three months to end-of-year client planning. With year-end planning on my mind, I thought as we head into the final quarter of the year, I would assemble a couple reminders of financial planning items to pay attention to while there's still a little time.
First, let's start with taxes. The wrong time to do tax planning is at filing time. The right time is just about now. The start of the fourth quarter is an ideal time to check contributions to qualified plans such as 401(k)s and 403(b)s and make adjustments if possible to maximize tax benefits. For tax year 2025, the 401(k) and 403(b) limit is $23,500, plus an additional $7,500 catch-up contribution for those 50 and older. Also keep in mind: for those making over-50 catch-up contributions, 2025 is the last year those contributions can be made on a pre-tax basis. Starting next year, catch-up contributions will be made on an after-tax or Roth basis. While this may raise tax bills out of the gate next year, I think this new rule opens up some interesting planning possibilities to consider.
While those contributing to IRAs, Roth IRAs or HSAs have until April 15th to finalize contributions, it's not a bad idea to shore up contributions by year end, especially if doing after-tax contributions as part of a "back door" Roth IRA plan. I prefer to split after-tax contributions and subsequent Roth conversions into two tax years if possible -- it just seems cleaner.
Speaking of Roth IRA conversions, with the favorable Federal tax rates currently in place I tend to think everyone should be doing some analysis as to whether an IRA to Roth IRA conversion makes sense. The Roth IRA has become an invaluable planning tool in my practice, and we have been recommending conversions more and more often. Roth IRA conversions must be complete by December 31st.
Moving on to non-retirement investing, understanding year-to-date realized capital gains and losses is critical to tax and portfolio management. Schedule D of the prior year tax return should record any carry-over capital losses which can be used to offset gains harvested in 2025. With strong stock market performance over the past two years, there are likely to be embedded (non-realized) capital gains in most portfolios -- now is a good time to review.
In addition, for those who invest in open-end mutual funds, the fourth quarter is typically when funds declare the capital gains they intend to distribute. These distributions are taxable and are best managed through the same review process. Fund family websites are the best source of this information, and the public website Capgainsvalet.com tracks capital gains announcements for widely owned funds and can even be used to estimate distributions before announcements are made.
The start of the fourth quarter in a strong market year like 2025 is also a great time to check general portfolio allocations and make rebalancing adjustments when appropriate. After the run-up in stocks this year, almost all are skewed toward higher stock exposure than originally designed. Periodic portfolio rebalancing is critical to risk management and improves the likelihood of achieving performance goals over time. Going into the fourth quarter with stock market indexes near all-time highs makes this an ideal time for a portfolio review.
2026 will be here before we know it and will usher in many financial changes related to the Big Beautiful Bill passed earlier this year. For now, however, we are in a unique period before the current tax regime sunsets and financial markets move one way or the other. Spend a little time tidying up the financial house -- it'll likely be time well spent.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stock investing includes risks, including fluctuating prices and loss of principal. No investment strategy can guarantee a profit or preserve against loss. Past performance is not a guarantee of future results. Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Contact Marc at marc.ruiz@oakpartners.com. Securities offered through LPL Financial, member FINRA/SIPC.
