As the year winds down, it's the perfect time to pause and take a close look at your financial goals. Even if you’ve reached some big milestones, there still could be a few valuable moves you can make before year-end. With IRS deadlines approaching, now’s the moment to make some proactive choices that could leave you with a lighter tax bill and a stronger financial foundation going into the new year. Let’s walk through a few approachable actions to wrap up the year on a high note!
1. Max Out Your Retirement Contributions
One of the most impactful year-end moves? Maxing out your retirement accounts. These accounts, like your 401(k) or IRA, offer a double win—building your future and potentially reducing your 2024 taxable income. If you’re able to contribute more before the year ends, it’s a smart way to cut down on taxes while you’re at it.
This year’s contribution limits are $23,000 for 401(k) plans (with an extra $7,500 if you’re over 50) and $7,000 for IRAs ($8,000 if you’re 50+). Check with your employer or investment provider to see how close you are to these limits and consider bumping up your final contributions to reach them.
Tip: Sit down with your investment counselor for a quick strategy session on where to allocate extra contributions, especially if you’re expecting a year-end bonus. She or he can help you align your retirement savings with your overall financial game plan!
2. Don’t Miss Your Required Minimum Distributions (RMDs)
If you’re over 73, it’s essential to take your required minimum distributions (RMDs) from accounts like traditional IRAs and 401(k)s by year-end. Missing this step can mean steep IRS penalties. And if 2024 is your first time taking RMDs, you have until April 1, 2025, but remember—you’ll have to take two in one year if you wait until 2025, which could bump up your tax bracket.
"...if you’re already planning on donating, consider how charitable gifts can also give you a tax break."
Your counselor can help decide the best way to handle your RMDs, whether it's spreading them out or exploring qualified charitable distributions (QCDs) if you’re charitably inclined. This way, you can meet your RMD requirement and potentially reduce your taxable income.
3. Make Charitable Gifts or Qualified Charitable Distributions (QCDs)
The holiday season is a time of giving, and if you’re already planning on donating, consider how charitable gifts can also give you a tax break. Contributions made by December 31 can lower your 2024 taxable income if you itemize deductions.
If you’re over 70½, a QCD from your IRA can let you donate directly to a charity—up to $105,000 without it impacting your taxable income. Not only can this help fulfill your RMD, but it’s also a way to give back while saving on taxes.
You also have the option to make a one-time distribution of up to $53,000 to fund a charitable gift annuity (CGA) or charitable remainder trust (CRT), providing you both an income stream and a tax-free withdrawal which can go towards meeting your RMD.
Chat with your investment counselor to ensure your donations make the most impact for you and the causes you care about. He or she can guide you on structuring these gifts to benefit both you and your favorite organizations.
4. Make Gifts to Family Members
One effective way to reduce the size of your estate is through gifting to family members. The IRS allows for an annual gift tax exclusion—currently up to $18,000 per individual in 2024—that you can give to as many people as you wish without incurring federal gift taxes. By making annual gifts to family members, you not only transfer wealth but also reduce the potential estate tax your heirs may face later.
These gifts don’t require recipients to pay taxes on what they receive, and by gifting incrementally each year, you can significantly reduce your estate over time without impacting your lifetime gift and estate tax exemption.
"By making annual gifts to family members, you not only transfer wealth but also reduce the potential estate tax your heirs may face later."
Speak with your investment counselor to ensure your gifting strategy aligns with your overall financial goals. Your counselor can help you structure these gifts to maximize tax efficiency and ensure you’re staying within the allowable limits.
5. Consider a Roth Conversion, Backdoor Roth IRA, or 529-to-Roth Transfer
If you’re anticipating a lower tax bracket this year—maybe due to a career shift or life change—a Roth conversion might make sense. This involves moving funds from a traditional IRA to a Roth IRA, where future growth is tax-free. You pay taxes now but potentially avoid higher taxes in the future.
For high earners, a backdoor Roth IRA (where you contribute to a traditional IRA and then convert to a Roth) could be a good workaround for Roth contribution limits. Just be mindful of the tax implications—your counselor can walk you through it to see if it’s the right fit.
As of January 1, 2024, you can use up to $35,000 of unused funds in a 529 college savings account to make tax and penalty-free rollovers to a Roth IRA. This transfer has an annual contribution limit tied to regular IRA contribution limits, allowing for a gradual rollover while still enabling those funds to benefit from tax-free growth. It’s a valuable new flexibility for repurposing leftover 529 savings if education expenses were less than anticipated.
6. Harvest Gains and Losses from Your Investments
If you have underperforming investments, tax-loss harvesting might help balance out gains from other areas, lowering your tax bill. On the flip side, if this has been a year with lower income, it might be smart to use tax-gain harvesting and realize gains while in a lower tax bracket.
Your investment counselor can help you evaluate which strategy best fits your overall financial picture and execute any necessary transactions.
7. Make Use of Your FSA Funds
Do you have a Flexible Spending Account (FSA)? These accounts are usually “use-it-or-lose-it,” so if you have remaining funds, now’s the time to use them. Some plans have a grace period but double-check the rules specific to yours.
"It’s a valuable new flexibility for repurposing leftover 529 savings if education expenses were less than anticipated."
Consider using these funds on health supplies, medical expenses, or dependent care. If you’re not sure what’s eligible, your counselor can help clarify and plan a quick spending strategy for you.
8. Reflect on Your Financial Goals and Schedule a Year-End Review
Taking a moment to look back at the progress you've made this year can be empowering. Are there areas where you met or exceeded your goals, and others where you'd like to make a fresh start? Reviewing your goals—whether it’s planning for retirement, a big purchase, or an education fund—keeps your financial life aligned with where you are today.
This time of year, sitting down with your investment counselor to discuss your goals and any new strategies is a proactive step that can keep you on track as life changes and set you up to enter the new year feeling confident and prepared. A quick check-in can help ensure your tax strategy, investments, and goals align for a successful start to 2025.
For Clifford Swan clients, please also refer to your year-end reminders for more details on these strategies and other tasks for closing out the year.
Download Article: Wrap up 2024 on a High Note: Year-end Checklist to Boost Your Wealth and Lower Your Tax Bill
The above information is for educational purposes and should not be considered a recommendation or investment advice. Investing in securities can result in loss of capital. Past performance is no guarantee of future performance.
