Written by Alex Seleznev, MBA, CFP®, CFA | Jan 8, 2025
I hope you enjoyed the holiday season. It always amazes me how quickly time flies! We were just focusing on year-end planning and now it's time to think about the next year.
Year 2025 is expected to be eventful as many anticipate the impact of new administration policies. I will certainly comment on that in the future, but for now, let’s focus on what we can do to start the year on the right foot.
Below are our top seven financial ideas that you can implement now:
1.) Review your asset allocation and make sure it matches your goals
I’m not just referring to rebalancing your portfolio. While that’s important, you also need to ensure your overall mix between stocks and bonds is still appropriate for you.
After two years of above-average investment returns in 2023 and 2024, many portfolios have likely increased significantly in value.
Depending on your financial goals and objectives, this may be a good time to adjust your mix toward a more conservative and/or income-oriented portfolio.
2.) Make sure your portfolio is retirement-ready
This idea, of course, applies to those who are close to or transitioning into retirement. If you are 7 to 10 years away from needing funds from your portfolio, this point is not likely to be of high importance to you yet. The sequence of returns risk is one of the biggest issues for soon-to-be or young retirees.
- What would happen to your retirement plan if the markets perform unusually poorly in the first few years of your retirement?
- What protection mechanisms do you have in place to manage this risk?
- Exactly how are you going to draw from your portfolio in retirement?
You need to address this and many other questions to ensure your portfolio is retirement-ready. Again, I believe this is particularly important for those close to retirement, especially after two years of significant market returns.
3.) Contribute to your IRA account
There is no reason to wait until the end of the year if you have enough cash to make the contribution now.
The amount remains at $7,000 for 2025 or $8,000 for those aged 50 or older.
Keep in mind that you need to have earned income to make the contribution and would qualify if you have sufficient joint income (e.g., if only one spouse continues to work).
4.) Make your 529 college savings plan contribution
As I mentioned earlier, there’s no reason to wait until later in the year.
By contributing earlier, you allow more time for your contributions to grow.
Remember that you can also deduct your contribution from your state income taxes, provided you contribute to a state-specific college savings plan.
5.) Adjust your 401(k), 403(b) or TSP contributions
The maximum amount for 2025 increased to $23,500 from $23,000.
The catch-up amount remains unchanged at $7,500, meaning the total is now $31,000 for those aged 50 or older.
Under SECURE Act 2.0, those aged 60, 61, 62, and 63 have a higher catch-up amount of $11,250 instead of $7,500.
So, if you are in this age range, your maximum contribution can be as high as $34,750 in 2025.
6.) Review your 2024 income and adjust your tax payments
If you sold any property at a gain, generated a significant amount of capital gains, or had more income than originally anticipated last year, you still have time to make additional tax payments (due 1/15/2025).
The idea is to eliminate any penalties when you file your tax return in April. This is never a pleasant surprise.
7.) Be prepared for market turbulence in 2025
I’m not trying to predict the future as I follow Yogi Berra’s famous suggestion: “It is difficult to make predictions, especially about the future.”
When the markets are at such a high point, there’s a possibility that many, or even most, positive outcomes have already been priced in.
Under these circumstances, even seemingly minor updates that don’t support investors’ thinking can move the markets in the opposite direction.
You need to be prepared - first of all, emotionally - to take advantage of market conditions if this happens.