(5 minutes to read)

Happy New Year! Welcome to 2024.

This is a great time of year because whatever your vision and plans, you’ve got a whole year in front of you to get everything you want or need to do done. And—a special bonus—2024 is a leap year, so we get an extra day to make it all happen.

To get your financial year off to a good start, take a look at this list of money maneuvers you can get rolling with right away. Not all of these will apply to you, but the ones that do could be especially important in your situation.

1. Move that cash.

In case you missed last month’s article, Cash Management Is Back, it’s still a great time to move your cash reserves to an account where they can earn higher interest. Brokerage account money market funds are paying over 5% interest per year right now. Online banks are offering similarly high rates on high-yield savings accounts and CD-like products. CD stands for certificate of deposit, and a true CD has restrictions on when you can take your money out. Be sure you understand the restrictions on the product you select. Brokerage account money market funds offer daily liquidity, meaning you can take your money out whenever you like.

2. Set your tax withholdings.

When tax time arrives in a couple of months, you’ll find out whether you paid enough tax during the year or whether you still owe tax with your tax returns (federal and state). To make sure you’re not surprised in 2025, try setting your paycheck tax withholdings at the beginning of this year to make sure enough tax is withheld. If you have outside income from investments, rental real estate, or a business, it might be useful to have full tax projection to understand whether you also will need to make estimated tax payments during the year.

3. Exercise your ISOs.

If you have vested or early exercisable incentive stock options (ISOs) in a publicly traded company, early in the year is the best time to consider exercising your options. That’s because exercise of ISOs creates income under the alternative minimum tax (AMT) system, possibly a lot of income. By exercising early in the year, you have the maximum time to decide whether to sell the shares if the stock price drops later in the year. In the worst-case scenario when the stock drops sharply after you exercise, you can avoid AMT by selling the shares before year-end. The trick doesn’t work if you’re in a startup that still hasn’t had a liquidity event, but you may still want to exercise your options early in the year if there isn’t too much AMT to pay. This lets you get the clock started on long-term gains tax treatment and possibly qualified small business stock (QSBS) tax treatment, which can mean no federal tax and possibly no state tax in some states when you sell the shares.

4. Increase 401(k)/Mega Backdoor Roth contributions.

The employee maximum allowable 401(k) contribution amount is going up to $23,000 for 2024 from $22,500 for 2023. That means you may need to bump up the amount you’re contributing from your paycheck to max out your 401(k) contribution this year. The catch-up contribution limit for people over age 50 remains at $7,500 for 2024. If you have extra income this year after maxing out your regular and catch-up 401(k) contributions, and your company’s 401(k) plan allows it, you can consider contributing additional after-tax money to your 401(k) and converting it to Roth 401(k). Remember Roth contributions are valuable because the money grows tax-free, and you never have to pay tax on the money when you take it out of the 401(k) plan. This strategy is known fondly as Mega Backdoor Roth, and it can be very effective if you have spare cash flow.

5. Reduce your concentrated stock position.

Here’s the question with concentrated stock positions: If you had a pile of cash equal to the value of the amount you own in a single stock, would you invest all the cash into that one stock? Probably not, especially if your concentrated stock position was more than half of your net worth, even if it was as low as 10% or 25% of it. You’d probably think it wasn’t prudent—and you’d be right. But because of a long list of behavioral biases we all have (overconfidence, familiarity, comfort with the status quo, and loyalty), you think nothing about continuing to hold the stock. It’s like a magic spell the stock has on you. Break the spell by selling a little bit of the stock early in the year and see how it feels. If it feels okay, go ahead and make a plan to move more of your stock to the relative safety of a broadly diversified portfolio over a specific time frame, whether that be 12 months or three to five years. Your money will keep growing once it’s diversified, and it will do so without the risk of disappearing.

6. Rebalance your investments.

After last year’s run-up in stock prices while bonds were mostly unchanged, you may be holding more than you intend in stocks versus bonds, leaving your portfolio out of balance. You can “rebalance” your portfolio by selling stocks and buying bonds to restore your investment mix to your target allocation. If you sell stock that’s at a gain in a taxable account, you may incur capital gains tax on the sales, but you may not need to pay the tax until April 2025, depending on your particular tax situation. If that’s the case, rebalancing early in the year allows you to delay paying the tax for as long as possible.

7. Review your expenses.

After your holiday spending binge, think about a new year’s financial diet. Look through your monthly credit card statements for the past few months and see if there are recurring expenses for products or services you don’t need or want any more. There are always one or two, and every little bit helps build your net worth. If you cut those expenses now, you’ll save that money for the whole year, starting now.

8. Update your financial plan.

The new year is also a great time to update your full financial plan to check whether you’re still on track to reach your financial goals, such as retiring, changing careers, starting a business, buying a first home, or buying a vacation home. With the new year comes new possibilities. Financial planning scenarios can help you figure out direction and understand the boundaries of your situation as you pursue new opportunities. Knowing where you stand financially can give you confidence to move forward in both your career and personal life.

As we move into the new year, get off to a good start with these money maneuvers that can become part of your intentional strategy for the year ahead. With disciplined and incremental steps, you can build net worth, increase financial stability, and move closer to your financial and personal goals over the next 12 months.

Parkworth Wealth Management provides holistic wealth management services including financial planning, RSU and stock option planning, investment management, tax planning, and others, on a fee-only basis and as a fiduciary, acting in clients’ best interests. If you want help getting your new year off to a good start, schedule a complimentary consultation.