2025 Year End Planning #158

 In this episode, Josh Nelson breaks down the key year-end planning steps you should be thinking about now. He also shares intentional strategies to help you pause, reflect, and make smart financial moves before the calendar turns. Tune in for practical ideas you can put to work right away. 

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Transcript

Wiser Financial Advisor – Year End Tax Planning Strategies 2025

Hi Everyone, and welcome to the Wiser Financial Advisor podcast, where we get real, we get honest, and we get clear about the financial world and your money. This is your host, Josh Nelson, Certified Financial Planner, founder and CEO of Keystone Financial Services. Let the financial fun begin! 

Today, we're going to be talking about year-end planning, and I'm giving you some time on purpose. That's why we don’t run this episode at the very end of the year, because there are some smart moves you should be thinking about as we get close. 

Here at Keystone Financial Services, we are an independent fiduciary. We're fee-only and staffed with Certified Financial Planners (CFPs). I know that's a mouthful, but you want to make sure all of that is in place when you're choosing who it is you're working with. There are some good reasons for that. We have other episodes, but basically when you're thinking about who you want to work with and how to make sure that their interests are aligned with yours, remember that a CFP is the gold standard in the financial industry, and your advisor should be truly a fiduciary, meaning they are not being driven by selling products or following dictates from their company. It's important to look at exactly how they're compensated, what they're going to do for you, and make sure they have to put your best interests first. That's what a true fiduciary is. With regard to the Wiser Financial Advisor Podcast, we are here to seek wisdom. We're all doing that here, and I've been doing this for 26 years now as a financial advisor and financial planner. There are lots of terms that are used, by the way, for people like me. So it's important to ask questions to understand how it is that they work. 

Let's talk about 2025 year-end planning. There are several areas. This year is going to get away from us soon. We're going to get into the holidays, things get crazy, and all of a sudden it's January 1st. That's why we're talking about it now. There are some moves and things to at least be thinking about as we get close to the end of the year. Part of having a financial plan in place is to recognize that your plan is going to change over time as the industry changes, the market changes, and the economy and political stuff changes. There are also life changes; things are going to change with you regardless of what's happening with the rest of the world. Financial planning is a process, and working with a trusted advisor is the best way to do that. 

So, let's get into it. Number one is about reviewing your investment portfolio. This time of year is a perfect time to be doing that, looking at how your investments have performed. If you're a client of ours, we've already done that, right? You’ve probably had a review not that long ago, but certainly we are open at any point in time if you want to review your performance, fees and anything relevant to activity throughout the year. The end of the year is a good time to look at investment performance, but also to look at how much risk you're taking with your investments. 

All of our clients have a risk number, and that's how we measure exactly what our risk budget is as far as managing any individual portfolio. We're trying to make our clients as much money as we possibly can, based on the risk budget or the risk number they've given us. So for example, if somebody has a 75 risk number, that means they're kind of like a 75 mile an hour interstate speed type portfolio. An investor like that is going to be mostly in stock type investments versus somebody with a risk score of 50, which means invested more on the conservative end of things. They still have stocks, but there will probably be a lot of fixed income things that are less volatile in the portfolio. So, it's important to look at that for what's right for you and what you're comfortable with. 

My two cents, of course, is looking at time frame. How much time do you really have until you need to touch the money? And for most of us, even if you're retired right now, the reality is your time frame probably is long for most of your money. In fact, much of it might just be inherited by kids or grandkids or other people that you care about. It could be many years down the road. Even if you're already 80, 90 or beyond, you still might have a long time-horizon for your money. Along with that, we consider the fact that when it comes to inflation protection, you've got to have some growth in your portfolio or you're going to have a really hard time keeping up with inflation over time. Having all of your money in cash, bonds, things like that is going to make it tough to outpace inflation over time. So, we need a good mix of stocks in there. Stocks and real estate typically are the best asset classes, at least historically. I know there are other things like crypto and gold that we could discuss as well, as far as alternative investments, but typically stocks and real estate are going to be making most people's portfolios have at least the potential, right? We can't say guarantee, but those investments have the potential to outpace inflation. 

We want to check your asset allocation. That's our fancy jargon for what the mix is between stocks, bonds, and other investments to make sure your risk number still fits for you. Think of it as a turbulence factor. When you're in an airplane, you're going to have turbulence someplace on the flight and it's not comfortable, nobody likes it, but it is going to be part of the experience. The same applies to that risk number you choose. What's the balance for being able to tolerate discomfort when there's turbulence in the air while also balancing the fact that, hey, “I've got to get some kind of rate of return here. I've got to make some money.”

If your risk number is too low, say a one on a scale of 1 to 100, that means you're pretty much just parking your cash in the bank, maybe in a money market, something like that, which involves low interest, low earnings, no inflation protection. On the opposite end of the spectrum, If you're at 99 or 100, that means you're all in on one thing. You have all your eggs in one basket, like having it all in one stock, having it all in Bitcoin, something like that. You'd have to go way out there on the fringes, and that's not a good idea either. It's important to diversify and have a risk number that fits for you. We have a great tool for that, to help you. In a few minutes, you answer some questions to assess what your risk number might be. 

If you're a client of ours, we will rebalance your portfolio automatically. We always look at portfolios at least quarterly, or more depending on market factors as they arise, to make sure there's nothing out of whack. This isn't just replacing holdings. Talking broadly, if you had a bunch of money in stocks and bonds, well, if the stock market went crazy and maybe the bond market didn't do a whole lot, that means you’ll get more percentage of stocks in your portfolio. We want to make sure we're rebalancing and being disciplined, right? Take some money off the table, put it back into bonds, and that type of an allocation. Again, we will rebalance for you if you're a client. 

Harvesting tax losses is also something to be looking at toward the end of the year, especially if you've had some things in your portfolio that haven't done so well. Maybe you've got a stock you bought that turned out to be a real dog, right? Or maybe it was a company stock you owned from years and years ago, and you held it forever, and then all of a sudden, things crash because something changed with the company, so now it's at a tax loss. One way you can make lemonade out of the situation, would be to take a look and say, “Well, there's a loss here, and I've had all these other gains in my portfolio. Why not sell that stock? Maybe I can claim that loss to offset gains.” 

Something to be aware of is the wash sale rule, meaning that you can't buy the same or a substantially identical security within 30 days either direction, either before or after you sell. Wash sale rules might disqualify you from being able to claim those losses, so clearly this is an area where you want to make sure you're talking to a qualified professional tax advisor to make sure you understand the rules. We do tax loss harvesting for our clients. That means we are looking for opportunities in taxable investment accounts towards the end of the year. We also look for opportunities to work with stocks or other holdings that haven't done so well. Especially if it's a good year like this year, it's important to look at that, to make sure to ask, if we've got a bunch of gains, whether there are opportunities to offset some of that and maybe redistribute the funds. 

Also think about capital gains distributions. If you own traditional mutual funds in a taxable account, that sometimes will give you a tax surprise at the end of the year, an unpleasant tax surprise, because currently, with a traditional mutual fund, if that fund had a realized capital gain within the fund, even if you didn't do anything, even if it was just internal to that mutual fund, they have to distribute that out in the form of a special dividend towards the end of the year. So, even if it just got reinvested and you didn't see the money, you could get a surprise and wonder how the hell did that happen. I've seen legislation that would help with this, and hopefully we'll see some legislation passed that would correct some of that for people who aren't selling their investments, so you don't get hit with those phantom gains. Again, if you work with a Certified Financial Planner, a great team will help you review all of this and make sure your investments are all set up through the end of the year and going into the new year. 

Next, maximize your tax-advantaged accounts. Sometimes there are a lot of rules around this, so it's important to understand them. Work with a qualified professional on 401Ks, 403Bs. If you are an employee of a company that offers some type of retirement plan or tax-advantaged plan, it's probably called a 401K or a 403B or a 457 or a thrift savings plan. There are many terms, but it usually means there's some type of a tax advantage. If you're an employee, almost always the way it works is that you have to get those contributions in during the calendar year to get the tax advantage maximized for the year. The limit for this last year was $23,500 for normal circumstances. There are catch-up contributions available if you're 50 or older, and there might be an opportunity since you probably have a couple of pay periods left in the year, that if you haven't maxed out yet, take a look at that and adjust your payroll contributions. Good rule of thumb, as always, is that we want to have somewhere between 15% to 20% of our pay going into funds building up for the future and for retirement. Fifteen to 20% of pay is a good benchmark and certainly taking advantage of any opportunities like matching funds that your employer would give you. 

When it comes to IRAs, you have until the tax filing deadline, which is April 15th for most people, to get those contributions in. It's smart to look at that and plan ahead. A lot of people make what is called a prior year contribution, meaning that they might wait until April and then make a 2025 contribution. That's up to you. You have a season between January 1st and April 15th when you can choose which year you're making the contributions for. If you are making traditional or Roth IRA contributions, be aware of that and the timing. Same thing for health savings account. Typically, you will have the ability to make a prior year contribution. It may be part of your employer plan, so be aware of that. If it's a payroll deduction, you would need to get that taken care of so you get those contributions made by the end of the year. 

Don't forget about flexible spending accounts, which I think are kind of funny because flexible spending accounts are anything but flexible. They are use it or lose it plans, meaning that they're very inflexible. We actually had a client who said, ” I'm going to get LASIK this year, so I'm going to max out my flexible spending account with my employer and then I'll have the money by the end of the year to get the surgery done.” She made that election, which you can't change. Once you make the election, you're locked in for the year. Turns out that when she went in for the eye exam, she wasn't a candidate because of  the shape of her eyes. They said, “We can't do it.” Then she had to figure out how to get to Walgreens and somehow find things to buy, or she was just going to lose that money. So, be aware of that. Flexible spending accounts sometimes aren't the best, simply because you are locked in, and even for something you're pretty sure you're going to do, sometimes it doesn't pan out. So make sure you're using that money up because it does go away at the end of the year. Clearly, you don't want to lose that money. 

All right, let's move on to charitable giving strategies. Those definitely need to happen by the end of the year if you're going to do it. One of those is donating appreciated securities instead of cash. You can certainly just give cash. If you give cash, that means it's after-tax funds that have gone through your payroll and you've paid taxes on it. But if you have appreciated securities or property, you could donate a piece of land or donate stocks that have gone way up in value. It could be cryptocurrency, doesn't have to just be a stock. Be aware that if you donate those directly to a charity, it's important that it's a 501C3 charity. Most charities that you think about, a church or things like that, would qualify, but you do want to verify. By donating gains directly, you might avoid paying capital gains taxes as well as potentially gain a tax deduction for the tax year that you're putting that in. Those do need to happen by the end of December. Make sure you have plenty of time, especially if it needs to go through a custodian like Fidelity or Charles Schwab, which are the two custodians we use. Make sure you give us or whoever you're working with plenty of runway for those donations to get done by the end of the year. 

Regarding qualified charitable distributions and required minimum distributions of retirement accounts, you might not have to start taking money out until you are 73 or 75, depending on what year you were born. But if you're over 70 and a half, you could take money out and donate it to qualified charitable contributions. There are limits, so be aware of that, but you could take money out of traditional IRAs and make those contributions directly from the IRA to a charity. I say directly, because that's important. It has to go directly from the IRA to a charity to be able to have that move tax-free. Otherwise, you get taxed on it, withholding and all that stuff. By donating to a qualified charity, you can potentially minimize some of those funds that you would have been taxed on, or that your spouse or your kids would have been taxed on someday. You can take that money off the table and get it to the charity. And the charity doesn't care; they're still going to get the money and they don't pay taxes anyway. 

Donor advised funds are a charity in and of themselves, meaning that you can set an account up with, say, Fidelity Charitable or Schwab Charitable, and that will allow you to start donating either cash, securities, land, crypto, anything that you want to, into that fund. Typically, if it's done correctly, you would avoid capital gains taxes and get a potential deduction for that year. For example, you might say something like, “You know what, I've got a tax problem this year, and I was planning on giving to the Boys and Girls Club.” Let's say that you were planning on giving them $100,000 over the next 10 years. Let's also say that you've got a bunch of stock that's gone way up in value. You could throw all that stock into the charitable donor advised fund, all at once, all this year, and now you've got a $100,000 donation sitting there. It can still grow, and you can still direct some of the investments. It is permanent, by the way. Once you put it in, you can't get it back. But that way, you could divvy that money out, just like you were planning. over the 10 years to Boys and Girls Club. They still get their $100,000, but you have potentially, (and I say potentially because you have to verify that with your tax advisor and your own circumstances) can write all of that off in one year. That could be significant, especially if this may be your highest income year and you're planning on being in lower brackets later on.

 That's a lot about taxes, but that's something we're thinking about right now, especially when there are deadlines. After January 1st comes around, it might not be something you can do at that point. 

A couple of other things: I mentioned required minimum distributions. Again, if you're a client of ours, we check this for you. Be aware that you are required under current rules, if you're age 73 or older, to take minimum distributions out of pre-tax retirement accounts each year to avoid penalties. Make sure that gets done. We double check that for all of our client accounts to make sure that gets taken care of. Also, don't forget beneficiary IRAs. If you are a beneficiary of an IRA or inherited IRA, those require distributions as well, typically over a 10-year period from the person's death. You definitely don't want to miss that distribution or you just end up losing a bunch of money. Roth conversions are also something that need to be done by year end, so make sure you've got plenty of time if you're going to do that. I always recommend that clients decide and move forward on it by early December, just to give the custodians, again, Fidelity, Schwab, whoever you're working with, plenty of time to get that processed in time, because it needs to be done in the calendar year. 

Finally, with regard to just income, think about spending, think about cash flow. It's always good to have a plan. It doesn't have to be granular with every penny planned out, but have some idea of what you're spending and of what things are coming up. This may be an opportunity to update your goals with things you have coming up. Maybe it's travel, maybe it's gifting, maybe it's some adventures you want to do. Be thinking about what those things might cost and what the timing might be for those expenses, not just the monthly stuff, but some of those lump expenses, like a new vehicle or a gift or something like that. Be mindful of what 2026 might be looking like for you, as well as wrapping up 2025. 

You might want to think about an estate and insurance review, just because it's a good thing to keep in mind. A good cadence for reviewing estate documents is about every five years to review not only your official estate documents, like any wills, trusts, powers of attorney, things like that, but also reviewing your beneficiary designations because that's important too. Of course, work with your estate attorney to make sure you're getting good legal advice on that front, but also work with your fiduciary, your Certified Financial Planner, because that typically is the quarterback position. That's the person who has the context of where all your stuff is and what your circumstances are. And of course, if you've had any major life changes, that's a reason to not wait five years. If you have a a marriage, divorce, a new child, a death in the family, it’s a good opportunity to go back and review those documents, look at what they actually say and see if anything needs to be adjusted. 

Finally, as we wrap up, as we set goals and intentions for the new year, remember that 2026 is going to come a lot faster than we think. So be thinking about this year, what went well, what you were happy about, not just financially, but what made you happy with how you spent your time and energy. Think about what you’d like to do differently next year. And of course, put the layer of your finances on that, which is something you can partner with us about. We get to know our clients, not just financially, but in all the life circumstances and goals and dreams.  

Simon Sinek wrote a book called Start with Why. I think it's really important to think about the why behind all of this stuff. The resource that we can't ever get back is time. So be mindful about that as you're planning for this next year and keep us updated on your plan and how we can partner with you. A clear financial plan brings peace of mind. That's why we do this, right? We make a plan and engage in a planning process because for most of our clients, the feedback they give us is that they're really happy they've got us to work with, and they've got a check-in process. They know we have a lot of experience and financial technology, and that we're putting together all of the details. That way, our clients don't need to think about their money a whole lot in between meetings with us. They don't think about their plans a whole lot just because they know they've got a great partner helping them walk down that path. f that's something you are interested in talking with us about, if you're not a client, certainly reach out. Otherwise, thank you for your business. Thank you for your time. End of year is going to be busy and it's going to come fast. So let us know well in advance if there's anything you need from us, anything that we can help you with. Let us know as soon as possible. Otherwise, have a wonderful week and God bless. 

We love feedback and we'd love it if you would pass it on to me directly at josh@keystonefinancial.com . Also, please stay plugged in with us, get updates on episodes, and help us promote the podcast by rating us five stars and subscribing to us at Apple Podcasts, Spotify, or your favorite podcast service. 

The opinions voiced in the Wiser Financial Advisor show with host Josh Nelson are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine what may be appropriate for you, consult with your attorney, accountant, financial or tax advisor prior to investing. Investment advisory services offered through Keystone Financial Services, an SEC registered investment advisor.