How to Handle a Financial Windfall Before December 31  

A financial windfall can come in many forms. It might be a bonus from work, an inheritance, or the sale of a property. Whatever the source, receiving a financial windfall all at once can feel exciting and a little overwhelming. 

When a windfall arrives late in the year, timing starts to matter. The decisions you make in the next few months can influence how much of that money is available after taxes, and how well it fits into the rest of your financial life. 

This article highlights practical steps to consider before December 31. Taking time to pause, plan, and coordinate can help you integrate a windfall into your overall strategy, rather than treat it as a one-off event. 

Pause Before Making Big Decisions 

A sudden windfall often comes with the urge to take immediate action, whether spending, investing, or gifting. While the excitement is real, a short pause can help you make choices with more clarity and purpose. 

Windfalls can trigger strong emotions, which sometimes lead to quick decisions that don’t fully align with your long-term goals. Even just a few weeks spent reflecting on your financial picture can shift how you approach the money. 

During that pause, consider immediate needs, what can wait, and whether a financial professional’s guidance might be helpful before taking any big steps. 

Understand the Tax Impact 

Windfalls often affect your taxable income, and different sources (bonuses, stock sales, property transactions, inheritances) can come with different tax implications. 

Looking at how the money impacts your income and tax bracket helps you get ahead of potential surprises. Many people choose to set aside a portion of the windfall for taxes, while others adjust their withholdings or make estimated payments. 

Reviewing your situation with a tax professional can help you understand how much of the windfall is truly available after taxes and give you more confidence before making financial moves. 

Pay Down High-Interest Debt (If Applicable) 

A windfall offers a chance to review high-interest debt like credit cards or personal loans. Reducing or paying off some of this debt can significantly lower your monthly obligations and total interest over time. 

This doesn’t mean putting the entire windfall toward debt. Some people choose to pay down the highest-interest balances while reserving part of the funds for other goals. Others aim to eliminate specific accounts entirely for peace of mind. 

The right choice depends on your overall financial strategy. This video guide on paying off debt vs. investing can help you weigh both sides before deciding. 

Strengthen Your Financial Foundation 

Before jumping into bigger investments, a windfall can help shore up your foundation. This often includes building or replenishing an emergency fund to cover several months of essential expenses. 

Once that buffer is in place, consider longer-term accounts like health savings accounts (HSAs), IRAs, or increasing workplace retirement plan contributions. These accounts come with tax advantages and annual contribution deadlines, making year-end a good time to revisit them. 

While foundational steps may not be flashy, they help you build financial resilience, which in turn gives you more freedom with how you use the remaining windfall. 

Plan for Longer-Term Goals 

With immediate needs addressed, a windfall can support larger ambitions, like retirement, a home purchase, or education funding. Rather than making fast decisions, take time to identify your top priorities for the next few years. 

When you’re clear on what the money is meant to do, it becomes easier to determine how much to keep accessible and how much to invest for longer-term growth. For those saving for education, this might include a 529 plan. 

Tying the windfall to specific goals gives it direction so it doesn’t just sit unused or get chipped away without intention. 

Consider Charitable Giving Before Year-End 

A windfall can also be an opportunity to make a meaningful impact. Many people set aside a portion for charitable giving, especially before December 31, when it may count toward the current tax year. 

For one-time gifts, direct donations may be best. For larger gifts or a longer-term giving strategy, a donor-advised fund might be worth considering. It allows you to make the contribution now and decide on the recipients later. 

If you’re exploring year-end giving strategies, this guide to charitable giving in retirement outlines different options and tax considerations. Giving in this way can tie your financial decisions to your values and make the windfall feel even more purposeful. 

Talk With a Financial Professional 

Windfalls often affect more than one part of your financial life. Decisions around taxes, investing, and estate planning may all be interconnected. A coordinated approach (even just one year-end meeting) can help you make sure that your actions are aligned. 

Advisors, CPAs, and estate attorneys can each provide perspective. When their insights are combined, it becomes easier to understand the full picture and make more confident decisions. 

If you’re unsure where to start, connect with a financial professional on our team to talk through your situation and options before year-end.

Final Thoughts 

Receiving a windfall brings opportunities and choices. A thoughtful approach can help you make decisions that reflect your values, goals, and priorities. You don’t have to have all the answers at once. 

If you’d like a place to start, download the Smart Year-End Financial Moves Checklist. It covers key areas to review before December 31 and helps prepare you for an informed conversation with a financial professional. 

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This blog expresses the author’s views as of the date indicated, are subject to change without notice, and may not be updated.  The information contained within is believed to be from reliable sources.  However, its accurateness, completeness, and the opinions based thereon by the author are not guaranteed – no responsibility is assumed for omissions or errors.  This blog aims to expose you to ideas and financial vehicles that may help you work towards your financial goals. No promises or guarantees are made that you will accomplish such goals.   

Past performance is no guarantee of future results, and any expected returns or hypothetical projections may not reflect actual future performance or outcomes. All investments involve risk and may lose money. Nothing in this document should be construed as investment, tax, financial, accounting, or legal advice. Each prospective investor must evaluate and investigate any investments considered or any investment strategies or recommendations described herein (including the risks and merits thereof), seek professional advice for their particular circumstances, and inform themselves about the tax or other consequences of any investments or services considered.    

Investment advisory services are offered through Liberty Wealth Management, LLC (“LWM”), DBA Liberty Group, an SEC-registered investment adviser.  For additional information on LWM or its investment professionals, please visit www.adviserinfo.sec.gov  or contact us directly at 411 30^th Street, 2^nd Floor, Oakland, CA  94609, T: 510-658-1880, F: 510-658-1886,  www.libertygroupllc.com. Registration with the U.S. Securities and Exchange Commission or any state securities authority does not imply a certain level of skill or training.  

References  

New York Life. (n.d.) What is a Financial Windfall? https://www.newyorklife.com/articles/what-is-a-financial-windfall