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Scott Neal

Scott Neal, CPA, CFP, is the president of D. Scott Neal, Inc., a fee-only financial planning and investment advisory firm with offices in Lexington and Louisville. Reach him at or by calling 1.800.344.9098.

Year End Is the Time for Re-evaluation

The economy appears to be in a whirlwind of uncertainty. Interest rates are up. Even with more rate increases, we believe that it is not likely that the Fed will be successful in getting inflation back to 2%. After a dismal 2022, stocks have rebounded nicely this year despite the moves the Fed has made. According to some estimates, as we go to press the stock market is overvalued by 30+ percent or more.

Here is a checklist of year-end items to consider for tuning up your portfolio.

Consider tax-loss and/or capital gain harvesting.

If you invest in a diversified portfolio, you may have specific investments that have fallen from your purchase price, i.e. you have an unrealized capital loss. Look at individual investments and consider that the red ink spells “opportunity” to harvest those losses and offset capital gains that you might have booked earlier this year. Do it with care.

You may not want to offset a short-term loss (i.e., assets held less than a year) with longterm gains. One can only deduct $3,000 of net capital losses, but you can carryover any unused losses to next year, but $3,000 of net loss can be used to offset ordinary income. Just remember the wash-sale rule says that in order to deduct the loss, you must wait at least 30 days before investing in that same company or buying a substantially identical investment.

Maximize retirement contributions.

Now is the time to make sure that you have taken full advantage of retirement plan contributions for this year. Look at your year-to-date contributions to your retirement accounts i.e. 401(k), 403(b) and IRA. For 2023, an individual may contribute up to $22,500 in their 401(k) and $6,500 into an IRA. If you are over 50, you may add an additional $7,500 for retirement plans, $1,000 for IRA accounts, or $3,500 for Simple IRAs.

Hopefully, you have also taken advantage of the mega-Roth contribution if your employer’s plan permits. Please discuss this maneuver with our tax advisor if you are eligible.

Double-check RMDs.

If you are 72 or over, take care to ensure that you have taken your required minimum distribution for this year. Also, even if you aren’t 72, but have an inherited IRA, you may need to take the RMD on that account. The penalty for failure to distribute required minimum distributions is onerous.

If you are interested in taking a charitable distribution (known as a QCD) and avoid taxes on the distribution, that must be done before you take your RMD.

As you consider your RMD, it is also a good time to look at your tax projection for this year. Consider if the withholding on the RMD can help you avoid an underpayment penalty if you have not had enough withheld or paid in estimates throughout the year.

Update tax projections for 2023 and 2024.

We suggest that you always maintain a rolling 2-year projection of both state and federal income taxes. You may need your advisor to do this for you. Let me explain. Since you have filed your 2022 tax return, and you know most of your year-to-date amounts for 2023, you should use that data to prepare a projection for 2023 and 2024, looking for tax saving opportunities by shifting income and deductions from one year to the other.

Consider the impact of rising interest rates on investments.

While you should always be mindful of your portfolio, the year-end is a great time to reassess where you want to be for the next year. This year it is even more important because we simply don’t know which way the economy is headed and whether the Fed will raise rates, leave them where they are, or even possibly lower them. Should you consider commodities, adding fixed income or daily liquid alternatives to your portfolio? There are some very good opportunities to invest in short-term money-market-type investments that enable you to remain highly liquid while earning a decent return. This is the good news from the Fed’s action. Laddering out 3 month T-bills has also become quite popular.

Every investor should re-evaluate his or her investment goals, risk tolerance, risk capacity, and asset allocation on an ongoing basis. At a minimum, do it once a year to determine whether the portfolio has deviated this year from its target allocation and whether the target set some time ago needs to be altered due to changes in the economy or in each individual circumstance. The great temptation is to let winners continue to grow to the point that they become a concentrated risk. Taking gains for the purpose of risk reduction is usually a good idea.

Now is also the time to look at the liability side of your balance sheet, especially if you have variable rate or high interest rate debt. Remember, it’s okay to carry debt with an interest rate that is less than your portfolio return, but it might make sense to use some of the portfolio to pay off credit cards, home equity, or automobile loans.

Getting in gear now to prepare for what lies ahead creates an environment for growth and stability of your finances. Don’t put this off. Plot your course for 2024!

Scott Neal is president of D. Scott Neal, Inc., a fee-only financial planning and investment advisory firm with offices in Lexington and Louisville. Correspond with him at or by calling 1-800-344-9098.