5 Questions to Ask Your Financial Advisor Before the End of the Year

As the calendar year comes to a close, it’s the perfect time to assess your financial strategies. Many financial opportunities, especially those related to taxes and investments, are time-sensitive and expire at the year’s end. Whether you have a financial advisor or manage your finances independently, this guide will help you stay proactive.
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Here are five key questions to ask your financial advisor—or yourself—before the year ends.

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1. Are There Opportunities to Accelerate or Defer Income?
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Effective tax planning isn’t just about minimizing this year’s tax bill—it’s about reducing your lifetime tax liability.
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When to Accelerate Income
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If you expect to be in a higher tax bracket in the future, consider strategies to realize income now:
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• Roth Conversions:
  • Convert pre-tax funds in 401(k)s or IRAs to Roth accounts.
  • Pay taxes now at a lower rate, and enjoy tax-free withdrawals later.
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• Tax Gain Harvesting:
  • Realize long-term capital gains in taxable accounts while staying within the 0% capital gains tax bracket.
  • Repurchase the investments to reset the cost basis, reducing future taxable gains.
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When to Defer Income
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If you’re currently in a high tax bracket, deferring income can save you taxes:
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• Contribute to pre-tax accounts like 401(k)s, deferred compensation plans, or employee stock ownership plans.
• Postpone selling investments or taking distributions until you’re in a lower tax bracket, such as in retirement.
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Pro Tip: Be mindful of ripple effects on modified adjusted gross income (MAGI), which can impact Social Security taxes and healthcare subsidies.
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2. Can I Minimize My Capital Gains Tax Liability?
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Capital gains taxes can erode investment returns, but with careful planning, you can minimize this liability.
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Strategies to Reduce Capital Gains Taxes
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• Avoid Short-Term Gains:
  • Short-term gains (investments held <1 year) are taxed as ordinary income, often at higher rates.
  • Hold assets for at least a year to qualify for favorable long-term capital gains rates (0%, 15%, or 20%).
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• Tax Loss Harvesting:
  • Sell investments at a loss to offset gains from other investments.
  • Deduct up to $3,000 in losses against ordinary income, and carry over excess losses to future years.
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• Defer Sales to a Future Year:
  • If you anticipate being in a lower tax bracket next year, delay selling investments with significant gains.
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Pro Tip: If you see short-term gains in your portfolio, ask your advisor why. Often, rebalancing or other strategies could avoid unnecessary taxes.
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3. Have I Maxed Out My Tax-Advantaged Accounts?
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Tax-advantaged accounts like 401(k)s, 403(b)s, and IRAs are powerful tools for building wealth and minimizing taxes.
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Contribution Deadlines and Limits
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• Employer-Sponsored Plans (401(k), 403(b), etc.):
  • Deadline: December 31st or your final paycheck of the year.
  • 2024 Limit: $23,000 ($30,500 for those over 50).
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• IRAs (Traditional and Roth):
  • Deadline: Tax filing day of the following year (e.g., April 15, 2025, for 2024 contributions).
  • Limit: $6,500 ($7,500 for those over 50).
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Pre-Tax vs. Roth Contributions
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• Pre-Tax Contributions:
  • Favorable for high earners who expect to be in a lower tax bracket during retirement.
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• Roth Contributions:
  • Better for early-career individuals or those expecting to be in a higher tax bracket later.
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Pro Tip: Consider a mix of pre-tax and Roth contributions to diversify your tax exposure in retirement.
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4. How Can I Prepare for Upcoming Life Events?
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Major life events often require careful financial planning. Use this question to gauge how well your advisor understands your unique circumstances.
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Examples of Life Events to Prepare For
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• Marriage or Divorce:
  • Understand how these changes will affect taxes, insurance, and retirement accounts.
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• Major Purchases (e.g., Home):
  • Plan ahead by saving or setting aside cash to avoid tapping into investments at an inopportune time.
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• Retirement:
  • Develop a withdrawal strategy, plan for healthcare costs, and decide when to claim Social Security.
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Pro Tip: Your advisor should also coordinate with other professionals, like business brokers or estate planners, to align your financial strategies with your goals.
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5. What Should We Have Done Differently This Year?
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Reflection is key to improving your financial strategies. This question encourages an honest assessment of your finances over the past year.
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Areas to Review:
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• Investment Strategy:
  • Did market fluctuations cause stress? If so, consider adjusting your portfolio to better match your risk tolerance.
• Emergency Fund:
  • Were you caught off guard by unexpected expenses? Build a larger cash reserve to avoid future surprises.
• Tax Efficiency:
  • Review missed opportunities, such as underutilized tax-advantaged accounts or overlooked deductions.
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Pro Tip: This question isn’t about critiquing portfolio performance—it’s about ensuring your financial plan evolves with your needs and circumstances.
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Take Control of Your Financial Future
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Whether you work with an advisor or manage your finances independently, these five questions can help ensure you’re making the most of every opportunity before the year ends.
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Next Steps:

1. Review your financial goals and strategies for the year.
2. Ask these questions to identify missed opportunities.
3. Take action before December 31 to maximize tax advantages and savings.
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If you’re considering working with a financial advisor, look for someone who takes a comprehensive approach to your financial health—beyond just your investment portfolio.
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