Personal Finance Year End Check List

Personal Finance Year End Check List

In this issue:

• Latest in Retirement Savings & Personal Finance
• Personal Finance Year End Check List
• Tools & Tips: 12% Tax Bracket Is the Sweet Spot for Roth IRA Conversion
• Market Overview

Latest in Retirement Savings & Personal Finance

Record High 401(k) Savings

 Fidelity’s latest quarterly retirement plan analysis reveals that the average 401(k) balance reached an all-time high of about 140K dollars. Interestingly, a separate report from Vanguard shows that younger generations are more ready for retirement savings. Forty seven percent of Gen Z and 42 percent of millennials are on track for retirement. These surpass Gen X at 41 percent and boomers at 40 percent.

Retirement Savings Still Lacking

Unfortunately, the same Vanguard report also indicated big challenges for the majority of people. Only 46 percent of households hold any retirement savings and 42 percent of full time workers lack plan access. Forty four percent of those who are eligible do not participate, and 50 percent miss employer matches, especially those ages 35 to 44 whose median savings is about 45K dollars.

Holiday Spending Projections Down 10%

 Deloitte’s December survey forecast about 1,595 dollars in average spend, the lowest in years most likely due to inflation and general caution. Seventy nine percent have less than 1,000 dollars budgeted and 47 percent expect to take on debt. Black Friday BNPL, Buy Now Pay Later, went over 1B dollars and 95 percent of those sales were financed, with about two thirds still unpaid after 30 days. So even though Thanksgiving holiday sales were up a bit, consumers are still strained.

Ramsey’s Top 5 Career Fields of Millionaires

A Dave Ramsey study shows that the top five career fields of the millionaires in the largest study were as follows. Number 1 was engineer, number 2 was accountant, number 3 was teacher, number 4 was business professional, and number 5 was lawyer. Dave Ramsey also said that medical doctor did not even make the top five.

It is surprising to see that teachers make the top five list of most millionaires.

Personal Finance Year End Check List

As 2025 is ending, we are providing a year end checklist that we believe could add more to the last quarter checklist in our previous newsletter. This one has more detailed info for each item.

Estimated Tax for Irregular Income

Irregular income, such as a large Roth conversion, big capital gains, or a one time pension payout, can create a tax shortfall or a so called underpayment penalty.

You will need to review this type of income now and see whether you can still remedy or reduce any underpayment penalty. This is especially true this year as the stock market has delivered double digit gains. Some people who happened to invest more in tech stocks can even have much higher capital gains.

If you have not made any estimated tax payments or just made too little, you might still be able to rescue this by making a large one time estimated tax payment before the Q4 estimated tax deadline, which is January 15, 2026. This is especially true if you want to utilize the safe harbor rules as follows.

• If, by the end of the year (including your Q4 estimated payment by the January 15 ,2026 due date), your total withholding + estimates ≥ 100% (or 110%) of last year’s tax, you are generally protected from the underpayment penalty under the prior‑year safe harbor. 
• But to be safe, plan to file Form 2210 or let good software (like Turbotax, H&R Block or TaxAct) handle it so it explicitly applies the safe harbor and doesn’t compute a quarter‑by‑quarter penalty that ignores it.

Don’t Forfeit Your FSA

Check your flexible spending account, FSA, if you have one. See if there is any balance left. FSA is use it or lose it, so you had better try to spend down the balance if there is anything remaining.

The list of eligible expenses is actually wider than most people remember. Prescription eyeglasses, dental work, hearing aids, a whole range of over the counter items. Things we tend to postpone because they do not feel urgent. But if you have been putting any of them off, this is usually the time to handle it, before the money simply vanishes back into the plan.

Solo 401(k) or SEP IRA Contributions

Many sole proprietors or even part time contractors usually put off their retirement account contributions until the very end. This is understandable as their income is uneven and hard to predict.

You will need to establish your solo 401(k) plan by December 31, 2025. Furthermore, the employee contribution deadline is also December 31, 2025. But the employer contribution deadline is as follows.

• Sole Proprietor/Single-Member LLC: April 15, 2026
• S-Corp/Partnership: March 15, 2026
• C-Corp: April 15, 2026

Roth Conversion Tax Bracket

Roth conversion needs to be done by December 31, 2025, unlike the contribution deadlines. Furthermore, you will need to watch out for your tax liability and estimate. It is believed that the 12 percent tax bracket is the sweet spot. So if your overall income can be kept lower than this bracket, that would be the best. See more details in the following section.

Also, watch out for whether you would reach the IRMAA threshold. See the following.

IRMAA Difference

For retirees with Medicare, you need to watch out for your IRMAA income threshold. IRMAA, Income Related Monthly Adjustment Amount, is the extra surcharge high income retirees pay on Medicare Parts B and D. It is calculated from your tax return that is two years old. So whatever you reported in 2023 will decide your 2025 Medicare premiums. And your 2025 income will feed into your 2027 premiums.

IRMAA Income Threshold

For single filers, IRMAA starts at 106,000 dollars of income. For married filing jointly, the level is 212,000 dollars. Anything above these amounts will move you into higher premium brackets.

$1 Income Difference

If you are close to an IRMAA threshold, small year end decisions can tip you over without you noticing. Imagine your income is sitting at 105,999 dollars as a single filer in 2023. Then you realize one extra dollar of capital gain. Or maybe your Roth conversion runs one dollar higher than planned. Now you cross the 106,000 dollar line. For 2025 premiums, that single dollar would move you into the first IRMAA bracket. The extra cost is roughly 800 to 900 dollars a year for Part B and another 200 to 300 dollars for Part D. So something like one thousand dollars total, only because the number came in one dollar higher. This is why people pay attention when December gets close.

Tools & Tips: 12% Tax Bracket Is the Sweet Spot for Roth IRA Conversion

When you explore the possibility of a Roth IRA conversion, it is said that the 12 percent tax bracket is the sweet spot for most retirees and for people who have relatively low income but enough IRA assets to convert. Here is why.

So you can see that the next tax bracket is 22 percent, almost doubling the 12 percent. If you can control your income plus your planned Roth conversion amount to stay within the 12 percent tax bracket range, you would be able to save the most in federal tax. Of course, you can do a reverse calculation to reach the maximum amount that would not breach the upper bound of the tax bracket. Refer to this thread for more interesting discussion.

Market Overview

Stocks mostly stayed flat last week. Investors are waiting for the Federal Reserve’s interest rate decision on Wednesday. It is widely expected that the Fed will cut the interest rate. As it stands right now, there have been negative undercurrents such as a rising unemployment rate and a relatively stubborn high inflation rate, though below 3 percent but still above the Fed’s expected 2 percent. We will see whether or not a year end Santa Claus rally will materialize.

The following table shows the major asset price returns and their trend scores, as of last Friday:

More detailed returns and trend scores can be found on MyPlanIQ.com Market Overview.