Financial Year-End To-Do List
Somehow, New Year’s Eve is only three weeks away! As the year comes to a close, we want to make sure those year-end to-dos are ticked off before the clock strikes midnight on December 31st.
Take Your Required Minimum Distribution (RMD)
If you’re required to take your IRS Required Minimum Distributions (RMDs), you will want to act before the end of the year to avoid paying a 25% penalty. If you are over the age of 73, the IRS requires you to take RMDs from retirement accounts, such as traditional IRAs and qualified retirement accounts from a former employer.
- If you inherited an IRA from a non-spouse who was of RMD age, you are required to take an RMD from that account.
- If you have more than one IRA, you must calculate the RMD for each IRA separately each year. You may aggregate your RMD amounts for all your IRAs and withdraw the total from one IRA or a portion from each of your IRAs.
- If you have IRAs and defined contribution plans (401k, 403b, profit-sharing plan, etc.), you must take the distribution from each one of the plans.
Fully Fund Your Company’s Retirement Plan
You have until December 31 to fully fund your company retirement plan. The 2024 contribution limits are $23,000 for those under age 50 and $30,500 for those who are age 50 and above. If you are a super saver and your company plan offers the opportunity to make after-tax 401(k) contributions, that can be a great opportunity to save even more in that 401(k).
For employees making contributions to SIMPLE IRA plans, the contributions must be made by December 31st and can be no more than $16,000. Employers must make matching contributions or nonelective contributions by the due date (including extensions) of their federal income tax return for the year.
Note: The deadline for 2024 Traditional IRAs and ROTH IRAs contributions is later—the tax filing deadline of April 15th, 2025. For SEP IRAs, the deadline is the employer’s tax filing deadline, including extensions.
Tax-Loss Harvesting
Tax-loss harvesting is the timely selling of securities at a loss to offset the amount of capital gains tax owed from selling profitable assets. If you hold positions that have lost money, these can be sold by December 31st to recognize a tax loss.
If your capital losses exceed your capital gains, you can claim excess loss of the lesser of $3,000 ($1,500 if married filing separately). If you have a greater net capital loss than that, you can carry the loss forward to later years.
Charitable Giving Tax Benefits Before December 31st
- Charitable tax deductions: For charitable donations made by December 31, 2024, you can deduct up to 60% of your 2024 adjusted gross income (AGI) for cash gifts made to a qualifying charity (which excludes private foundations and supporting organizations).
- Qualified charitable distributions (QCDs): If you’re 70½ or older, you can take up to $105,000 annually from your traditional IRA to donate directly to a qualified charity without paying taxes—the QCD is simply excluded from your taxable income. This can help you meet your RMD requirement and reap the tax benefits.
- Donating Appreciated Securities: Donating appreciated securities gives the donor a deduction for the full fair market value and does not recognize gain on the appreciation.
- Donor-Advised Fund: A donor-advised fund works like a “charitable IRA.” The donor contributes cash or appreciated securities to the fund and receives an immediate charitable deduction equal to the fair market value of the contribution. The fund can invest the proceeds, which can earn income on a tax-free basis.
Roth IRA Conversions
In a Roth IRA conversion, you can roll funds from a pretax retirement account, like a traditional IRA, into a Roth, thus avoiding income taxes on the distributions in retirement. You will owe taxes on the money you convert, but you will be able to take tax-free withdrawals from the Roth IRA in the future.
Converting a traditional IRA or funds from a SEP IRA or SIMPLE plan to a Roth IRA can be a good choice if you expect to be in a higher tax bracket in your retirement years. Roth conversions will impact the taxes in the year they are made, so if you are looking to do a 2024 Roth conversion, you will need to do so before December 31st.
Note: Each client is different, and more detailed tax considerations need to be taken into account, such as impacts on Social Security taxability, surtaxes, and state income taxes.
Contribute to 529
A 529 is a tax-advantaged college savings account that may provide an opportunity for immediate tax savings if you live in one of the 30 states or more offering a full, or partial, deduction for your contributions to the home-state 529 plan. Most states require you to invest in the in-state plan to receive the deduction for your contributions.
For the tax advantage, the contribution must be made in the same year that the benefit will be used, so the contribution must be made by December 31st. However, plans administered in Georgia, Indiana, Mississippi, Oklahoma, South Carolina, and Wisconsin allow you to contribute until April 15 of the following year. Iowa allows for contributions through April 30, 2025.
Spend Any Remaining FSA Funds
If you have employer-sponsored benefits, you may have access to a flexible spending account (FSA). FSAs allow you to contribute pre-tax money—up to a certain amount—to an account that can be used to pay for eligible out-of-pocket health care expenses or eligible dependent care services, such as childcare.
However, FSA funds typically are “use it or lose it,” meaning they generally do not roll over into the next calendar year. To avoid losing any unspent funds, make a plan to use the money before the year is up.
The countdown is on to 2025, so if you need to check off any to-dos, now is the time to get those taken care of!
Don’t get stuck between a rock and a hard place looking to get your year end to-dos done before time is up!