As we approach the final weeks of 2024, there is still time for investors to make important year-end financial adjustments to position for a strong financial finish to 2024. Our annual year-end action items provide ideas and reminders to make the most of your financial plan.
Remember that your advisor, tax preparer, 401(k) plan administrator, and other financial experts will need time to fulfill your requests before December 31, so you’ll need to allow ample time for your team to take action on these items.
1. Maximize Retirement Account Contributions
Whether looking for additional tax savings or trying to maximize retirement savings, start with your workplace retirement account. Contribution limits increased in 2024, so if you have not already adjusted your deferrals, take advantage of the December paychecks to make additional contributions. Those 50 and older are eligible for catch up contributions. Remember, 401(k), 403(b), and SIMPLE IRA contributions can only be made through payroll.
*Indicates a change from 2024 to 2025.
There is opportunity to contribute to your 2024 savings after the New Year. 2024 Traditional and Roth IRA contributions are allowed until the federal tax filing deadline on April 15, 2025.
2. Health Savings Account (HSA)
If your workplace has a high deductible healthcare plan, an HSA is a smart way to save taxes and prepare for future medical expenses. HSAs provide a triple tax-advantaged benefit in which contributions are pre-tax, growth is tax deferred, and the distribution is tax free if used for qualifying medical expenses. The limits in 2024 are:
- Individuals - $4,150
- Families - $8,300
3. Complete Annual Required Minimum Distributions (RMD)
Those age 73 and older must take a RMD from pre-tax retirement accounts no later than December 31st. This includes traditional, SEP, and SIMPLE IRAs as well as 401(k), 403(b), 457(b), and profit-sharing plans. This calculation is based on your age and account balance as of December 31st of the previous year.
If you have multiple retirement accounts, the RMD must be calculated for each account. An advantage to traditional, SEP, and SIMPLE IRAs is that the RMD for each account can be aggregated and distributed from the account of your choice. However, qualified plans (including 401(k), 403(b), and 457 plans) require that the RMD be taken from each individual account.
There are a few notable exceptions:
- Roth IRAs do not require an RMD, since distributions are not taxable.
- For non-business owners still working at age 73 and beyond, RMDs are not required from your workplace retirement account if you are still actively employed. (*RMD will still be required from your IRA accounts.)
4. Consider Tax Loss Harvesting
Tax loss harvesting is a strategy that involves selling an investment that has declined in value from its original purchase price and using the tax loss to offset gains on other investments. After two strong years of stock market returns, positions with losses are getting harder to find. If your portfolio does have losses, consider selling them to offset gains from portfolio rebalancing. Additionally, individual taxpayers can deduct up to $3,000 in net losses against income per calendar year. Losses exceeding $3,000 can be carried forward and used to offset future capital gains.
5. Think About a Roth IRA Conversion
A Roth IRA conversion involves moving assets from a retirement plan -- including a Traditional IRA or a qualified employer-sponsored retirement plan, like a 401(k), 403(b), or governmental 457(b) account -- into your Roth IRA account. Although a Roth IRA conversion will be taxable as income for the year, the growth of converted shares will be free from future taxation. Unlike annual Roth IRA contributions, which are limited to $7,000 per year for Americans under the age of 50 and $8,000 for those 50 and older, there is no limit to the amount that can be converted.
6. Rethinking 529 Contributions
Funded by after-tax contributions, 529s are designed to allow tax-deferred growth and tax-free withdrawals for qualified educational expenses. This includes college, K-12 education and even trade schools. Annual gift limits have increased in 2024 to $18,000 per person ($36,000 per couple).
Starting in 2024, unused 529 balances can be converted into a Roth IRA for the beneficiary providing another great option for excess funds.* This may help to alleviate the concern of saving too much in the account. To qualify, the 529 must have been in existence for at least 15 years.
*Subject to a lifetime limit of $35,000.
7. Make Charitable Contributions and Qualified Charitable Distributions
Charitable contributions can help reduce your overall tax burden for 2024, provided that you make donations before December 31st. To receive the tax benefit of your donation, you must exceed the standard deduction which is currently $14,600 for single filers and married persons filing separately, $21,900 for a head of household, and $29,200 for a married couple filing jointly.
While there are many ways to donate to your favorite charities, here are a few strategies you may want to consider before the end of the year:
- “Bunching” your donations. Bunching involves making two years of contributions in the same year and using the standard deduction the following year.
- Gifting low basis stock. By providing a direct gift of appreciated stock, you can receive a deduction for the full value while avoiding capital gains that would come with the sale of the stock.
- Qualified Charitable Distributions (QCD). This strategy enables you to donate up to $105,000 tax-free when the funds are disbursed directly from an IRA account to a qualified non-profit organization.
8. Review Your Beneficiaries
Retirement accounts such as IRAs, 401(k)s, and annuities each have their own beneficiary designations, which often receive little attention after the account is initially established. It’s important to review your beneficiaries annually to ensure that your wealth will be transferred to the proper beneficiaries in the event of your death. It is especially important to review and update beneficiary information following major life events, including births, deaths, marriages, and divorces.
Looking ahead to 2025:
- 401(k) contribution limits will be $23,500 with a $7,500 catch up for those age 50+
- New catch-up contribution limits of $11,250 go into effect for those age 60-63
- Gift limits increase to $19,000 ($38,000 per couple)
- In October, the IRS announced tax relief for Georgia individuals and businesses affected by Hurricane Helene, allowing impacted taxpayers an extension until May 1, 2025 to file federal individual and business tax returns and to make tax payments. Affected taxpayers with returns and payments with due dates postponed until Feb. 3, 2025 due to Hurricane Debby in Georgia also have until May 1, 2025 to file a return and to make tax payments.
At The Fiduciary Group, our team is here to keep your financial plan on track. We want to make year-end planning as easy as possible and to help position you for success in the New Year and beyond. If you need help with year-end financial planning, please reach out to us for assistance.