The end of the year often brings financial checklists like holiday budgets, tax planning, and charitable contributions. One important task is to review your tax-deferred accounts. December offers a natural opportunity to make sure contributions, withdrawals, and beneficiary information are aligned with your retirement and financial strategy.
What Are Tax-Deferred Accounts?
Tax-deferred accounts allow you to delay paying taxes on contributions and investment growth until money is withdrawn. Common examples include traditional IRAs, 401(k) plans, and certain annuities. These accounts can play an important role in building retirement income, but they also come with rules that make regular review essential.
Why December Matters
There are several reasons December is a key time to review your tax-deferred accounts:
- Contribution Deadlines: Some accounts, like employer-sponsored retirement plans, have contribution deadlines at year-end. Checking now can help confirm you contributed what you intended.
- Required Minimum Distributions (RMDs): For those above a certain age, December 31 is the deadline for taking RMDs from many tax-deferred accounts. Missing this deadline can result in significant penalties.
- Beneficiary Updates: Life changes such as marriage, divorce, or the birth of a child may require updates to account beneficiaries. December is a good time to confirm designations are accurate.
- Planning for Next Year: Reviewing accounts before the year ends helps identify adjustments for the following year, such as changing contribution levels or rebalancing investments.
How Reviewing Fits Into Your Broader Strategy
Reviewing tax-deferred accounts is not just about compliance. It also connects to your broader retirement plan. Contribution levels affect future income, distribution timing impacts taxes, and beneficiary designations guide wealth transfer. By making adjustments in December, you set the stage for a smoother start to the new year.
Common Missteps to Avoid
A frequent oversight is assuming contributions are on track without checking. Another is forgetting to take required minimum distributions on time. Some families also overlook updating beneficiaries after major life events, which can lead to unintended consequences. A December review can help catch these details before deadlines pass.
The Role of Tax Planning
Tax considerations are closely tied to tax-deferred accounts. For example, higher distributions in one year could increase taxable income, while strategic withdrawals may help spread income across multiple years.
Collaborating With Professionals
Because reviewing tax-deferred accounts involves rules, deadlines, and tax considerations, many families find value in working with financial advisors or tax professionals. These conversations can highlight opportunities, identify potential oversights, and connect account management to your long-term retirement strategy. The focus is education and clarity, not quick fixes.
Taking the First Step
Start by gathering account statements, confirming contributions, and reviewing required distributions. Then check beneficiary designations to make sure they reflect your wishes. These small steps provide a strong foundation for your retirement income strategy.
Consider a Year-End Review
Reviewing tax-deferred accounts in December helps align your retirement plan with contribution limits, distribution rules, and family priorities. By making time before year-end, you create more clarity for the year ahead.
At Rise Private Wealth, we guide families through year-end account reviews and explain how these steps fit into broader retirement planning. Contact us today to discuss reviewing tax-deferred accounts and how it may support your long-term goals.
