A Q4 Checklist for Retirement Savers

Three months seems like a long period of time, but it can speed past in the blink of an eye, especially if you’re talking about this action-packed fourth quarter. Between now and year-end, we’ll be packing in Halloween, the baseball playoffs and World Series, a U.S. general election, a late Thanksgiving, and a December full of year-end holidays. This means if you need to tend to your investment and financial plan before year-end, it’s best to hit it early in the quarter rather than wait until the last minute.

As the fourth quarter kicks off, I’ve prepared a checklist of jobs that retirement savers (that is, those who are at least a few years from retirement) should try to tackle. In a future column, I’ll share a year-end checklist for people who are already retired.

Fund Tax-Deferred Retirement Accounts

If you’re in the enviable position of being able to put the maximum allowable amount into a company retirement plan, check to make sure that you’re on track to do so between now and year-end. Contribution limits have increased a bit this year, to $23,000 for people under age 50 with an additional $7,500 in catch-up contributions available for people who are over age 50. If you’re in the right age ballpark to make catch-up contributions, remember that you don’t have to wait until your 50th birthday to start contributing extra; you can make the full catch-up contribution for the year in which you turn 50. If you’re a true supersaver, investigate whether your company retirement plan allows you to make aftertax contributions on top of the baseline traditional or Roth 401(k) contributions. Such contributions tend to beat taxable-account contributions, factoring in the tax effects, provided you don’t need the liquidity.

Perform IRA Maintenance

You have until the tax-filing deadline, April 15, 2025, to make the full IRA or health savings account contributions for the 2024 tax year. But if you have additional funds available now, why not get the money working for you in long-term investments? While you’re at it, make sure your IRA holdings are in shipshape. A recent research report from Vanguard revealed that a startling share of investors who had gone to the trouble of putting new money into an IRA or rolled funds over from another account never got the money invested in long-term assets. Instead, many investors’ assets were sitting in cash years after the initial contribution or rollover. As you review your IRAs, make sure that you’ve rolled over straggler company retirement plan assets, converted backdoor IRA funds to Roth, and yes, moved your IRA assets out of cash and into long-term investments. If you’re feeling stymied by choice overload, a target-date fund is a straightforward option.

Assess Your Total Portfolio’s Asset Allocation

The year isn’t over yet, but it’s shaping up to be another good one for US stocks; they’ve gained nearly 20% for the year to date through early October. Non-US stocks and bonds have performed respectably, with gains of 12% and 5%, respectively, but they’ve been no match for US equities. This bifurcation is nothing new: US stocks have been trumping other asset classes for the better part of 15 years, leading many investors to be overweight in their home market. That means it’s a good time to check up on your portfolio’s asset allocation using our X-Ray functionality, which is available if you have a portfolio stored on Morningstar.com. Compare your portfolio’s current asset allocation to your target. If you’re over 50, you may need to derisk your portfolio by moving more assets into bonds. If you’re under 50, check to see whether you’re holding a healthy dose of foreign stocks as well as US stocks. A good benchmark for this allocation decision is a total world stock index, which is currently about 60% US and 40% non-US. Also, keep an eye out for other risky bets in your portfolio: concentrated individual stock holdings (especially employer stock), outsize sector weightings, or Morningstar Style Box imbalances, for example. If you determine that changes are in order, take care to avoid triggering unavoidable taxable capital gains by concentrating rebalancing activities in tax-sheltered accounts, where you won’t owe taxes if you trim winning positions.

Scout Around for Tax-Loss Sale Candidates

The recent market broadening means that many heretofore sleepy stocks have gotten into the action, so unless you’re extremely unlucky, you’re not likely to have a lot of losing positions in your portfolio. But because individual stock-price movements tend to be so company-specific, individual stock investors are the most likely to be able to identify positions that are selling below their purchase prices. By selling and realizing the loss, you’re able to offset capital gains elsewhere in your portfolio or, if your losses exceed your gains, offset up to $3,000 in ordinary income.

Revisit Your ‘Number’

If you’re still several or more years from retirement, it’s premature to get too in the weeds with retirement planning. Nonetheless, it’s wise to start assessing your plan’s viability while you can still do something about it. Fidelity has some helpful benchmarks for gauging the adequacy of your retirement nest egg thus far, and the 4% guideline is another quick-and-dirty rule of thumb for assessing retirement readiness: Could you live on a starting withdrawal of 4% of your current portfolio balance, combined with whatever benefits you’ll receive from Social Security or a pension? Finally, for even more detail on your retirement readiness, look to a calculator such as T. Rowe Price’s Retirement Income Calculator.

Get a Plan to Exhaust FSA Accounts

Flexible spending arrangements aren’t technically retirement-related, but balances in FSAs must typically be exhausted by year-end, with perhaps a short grace period extending into the new year, depending on your plan. That stands in contrast with health savings accounts, which roll over from year to year and don’t carry a year-end deadline. Thus, it’s a good time to book all of those year-end appointments and/or plan purchases where you’ll spend from your FSA: dental appointments, eye doctors and glasses/contact lenses, and over-the-counter medications that are FSA-eligible. If you’re also covered by a health savings account as well as an FSA, you have a so-called limited-purpose FSA. That means you can only use your FSA for vision or dental expenses.