Investment products are not insured by the FDIC, are not deposits, and may lose value.
We hope you have a wonderful holiday season and New Year with your loved ones. Before we get caught up in the end-of-year festivities, we wanted to review some important year-end financial planning tips. Reviewing the list below will ensure you start 2026 on the right financial footing.
General
- Review Financial Plans and Reflect on Savings Goals for 2025. Did you accomplish your savings goals? What life events occurred in 2025 that may change your financial situation? Birth, marriage, career change, house purchase, retirement, etc.
- Plan for 2026 Savings Goals. Are there life events on the horizon or large purchases you are planning in the new year?
- Credit Monitoring. You can check your own credit report without it affecting your score and there are many ways to do this for free. Check your credit at least once a year to review your listed accounts and spot any signs of fraud.
- Insurance. Review your home, auto and any other property insurance and confirm that deductibles and coverage are appropriate for your current financial situation.
Investments
- Review Asset Allocation. Your target portfolio allocation can drift as investments change value over time. Review with your portfolio manager and inform them of any changes to your financial situation. Remember to take into consideration your holdings across all investment accounts.
- Tax Loss Harvesting. If your account had losses this year, now might be the time to offset realized gains. Our investment team will review all accounts for capital gains and losses; speak with your portfolio manager if you have a unique tax situation or large capital gains or losses outside the bank.
- Diversify Concentrations. If any holding in one company or stock is over 10% of your portfolio, it's time to sell. Your portfolio manager will create a strategy to gradually reduce that holding's weight, ensuring the adjustment is managed thoughtfully over time if needed.
- Verify Current Income Needs. If you rely on income from your portfolio, confirm that the expected cash flow and expenses will stay the same for 2026. If not, reach out to your portfolio manager to discuss the change.
Estate Planning and Gifting
- Review and Update Your Estate Plan. If there have been major life events this year, you might need to make updates to your estate plan including your will, beneficiaries, financial power of attorney and healthcare proxy.
- Life Insurance. Life events such as a new baby, house purchase, or divorce may require changes to your life insurance needs and an update to beneficiaries.
- Gift Your Gains. If gifting stock to a charity or nonprofit, you can avoid capital gains on an appreciated asset and gift a higher amount than you may have done in cash.
- Gift to Your Circle. You can gift $19,000 tax free ($38,000 for married couples). Anything above this limit will count against the lifetime gift and estate tax exemption. This limit is per recipient.
- Gift to 529 Plans. 529 Savings Plans are a tax-efficient way to save for higher education expenses. Annual limits for 529 contributions for tax considerations are $19,000 for an individual and $38,000 for a married couple. Recent changes have also expanded how 529 funds can be used, including tuition for private K-12 and apprenticeships, student loans and allowing unused funds to be rolled over to a Roth IRA with a lifetime limit of $35,000.
- Qualified Charitable Distributions (QCD). Every year, you can donate up to $108,000 directly from your IRA to charity if you're 70 1/2 or older. This is not considered taxable income and can count toward fulfilling your Required Minimm Distribution (RMD).
Retirement and Benefits
- Open Enrollment. We are in the middle of open enrollment season. Confirm your choices for next year have been finalized and that choices are appropriate for your upcoming medical needs. For retirees, Medicare open enrollment runs until December 7.
- Review Your Income Tax Withholding. Confirm your withholdings are correct and discuss with a tax professional if your tax situation is more complex. This can also be confirmed around tax season in the spring.
- Maximize Retirement Savings. For 2025, the maximum contribution into your 401(k) is $23,500 ($31,000 if you're 50 or older). You have until December 31st to contribute to your 401(k). For IRAs, the maximum contribution is $7,000 ($8,000 if you're 50 or older). You have until April 15, 2026 to contribute to a 2025 IRA.
- Maximize Your HSA Contributions. HSAs can also be a tool for retirement. If you participate in a High-Deductible Health Plan (HDHP), you are eligible for an HSA. You can contribute $4,300 per year for an individual plan and $8,500 for a family plan. This contribution limit includes employer contributions. Any unused amount can be invested now and can be saved for future needs.
- Required Minimum Distribution (RMD). You are required to take an RMD if you turned 73 this year. If you are taking an RMD for the first time, you have until April 1, 2026 to withdraw. In future years, you'll need to take it before the end of each calendar year. Your IRA administrator will take care of your 2025 distribution. Please contact us if you have any questions about this process.
- Roth Conversion. Talk to a tax professional to see if a Roth conversion may be right for your situation. In traditional IRAs, you are taxed when money is withdrawn while Roth IRA accounts are funded with post-tax dollars. Converting traditional IRAs into a Roth account could be appropriate in years when you have a lower income or high deductions.
Your team at Mechanics Bank is here to help. We wish you a prosperous holiday season and a Happy New Year.
All content contained herein is for informational and educational purposes only and should not be construed as investment or tax advice, or as a solicitation to buy or sell any specific security.
Always consult with your independent attorney or tax advisor before making any tax-related financial decision, or changing or implementing any financial, tax or estate planning strategy. Investment management and trust services are offered by Mechanics Bank Wealth Management.
Mechanics Bank investment products are: Not FDIC Insured. Not Bank Guaranteed. May Lose Value.