Kerry Milligan’s mother is notorious for “gifting” an experience, like a family vacation, to her children and grandchildren at the end of the year. Her goal is to use the funds to create memories with her grandchildren that will be a big part of her legacy. While it hasn’t always been apparent to the younger recipients that this was an end-of-year financial strategy, it certainly is. In years when Mrs. Milligan isn’t in need of her Required Minimum Distribution (RMD) for living expenses, she “pays it forward” by creating an experience to share with her family.
This is only one “use” for RMDs and only one year-end financial strategy to be aware of—keep reading to find out why the end of the year is the perfect time to take a step back and review your financial plans to help ensure you're on track with your goals. Whether you’re focused on maximizing tax savings or optimizing wealth management strategies, here are some crucial end-of-year financial tips that can help you enter the New Year with confidence.
Consider Tax-Loss Harvesting. If you’ve experienced any investment losses this year, you may be able to offset gains by selling underperforming assets. This strategy, known as tax-loss harvesting, allows you to offset capital gains with losses, reducing your tax burden. If your losses exceed your gains, you can also use up to $3,000 to offset ordinary income, with the excess carrying over to future years.[1]
Keep in mind that tax-loss harvesting has specific rules, such as the "wash sale rule," which disallows claiming a loss if you repurchase the same security within 30 days.
Review Withholdings. Reviewing your tax withholdings at year-end helps ensure that you are neither underpaying nor overpaying taxes throughout the year, which can help you avoid unpleasant surprises come tax season and better manage your cash flow. Be sure to account for life changes, as major life events such as marriage, divorce, new child, new job, buying a home, etc. can significantly impact your tax liability.
Maximize Tax-Deferred Contributions. One of the easiest ways to reduce your taxable income is by maximizing your contributions to tax-deferred accounts such as 401(k)s, IRAs, and Health Savings Accounts (HSAs). For 2024, the contribution limits for 401(k)s are $23,000 ($30,500 for those aged 50 and older) and $7,000 for IRAs ($8,000 for those aged 50 and older).[2] By contributing the maximum allowable amount, you not only reduce your tax bill but also boost your retirement savings.
Review Charitable Contributions. Charitable donations can provide both personal satisfaction and tax savings. If you itemize deductions, consider making additional donations before year-end to maximize your deductions for 2024. Keep detailed records of all donations, and ensure that the organization is a qualified charity to receive tax-deductible donations.
For larger donations, you might also consider using a Donor-Advised Fund (DAF). A DAF allows you to donate now, receive a tax deduction, and distribute the funds to charities over time.
Review Your Required Minimum Distributions (RMDs). If you’re 73 or older, you must take Required Minimum Distributions (RMDs) from your retirement accounts, such as IRAs and 401(k)s. Missing an RMD can result in a hefty penalty of 50% of the amount not withdrawn, so make sure you take the necessary distributions before December 31.[3]
If you don’t need the RMD for living expenses, consider reinvesting it in a taxable account, contributing to an education fund, or gifting it to charity through a Qualified Charitable Distribution (QCD), which can satisfy your RMD without increasing your taxable income.
Review Your Health Insurance and FSA Balances. If you have a Flexible Spending Account (FSA), remember that many of these accounts follow the “use it or lose it” rule, meaning you need to spend any remaining balance before year-end. Review your FSA to help ensure you’re using those funds for eligible medical expenses.
Also, open enrollment periods typically occur toward the end of the year, making this the perfect time to review your health insurance coverage for 2025. Compare plans and choose the best option for your needs and budget.
Plan for Estate and Gift Tax Exemptions. The federal estate and gift tax exemption for 2024 is $13.92 million per individual, but it’s set to decrease in 2026 unless new legislation is passed. Now is an excellent time to review your estate plan, especially if you're considering gifting assets to family members. You can give up to $18,000 per recipient in 2024 without affecting your lifetime estate tax exemption.[4]
Consider Roth IRA Conversions. If you expect to be in a higher tax bracket in the future, a Roth IRA conversion could be a smart move. Converting some or all of your traditional IRA to a Roth IRA allows you to pay taxes now at potentially lower rates, while enjoying tax-free withdrawals in retirement. This strategy can also reduce future RMD obligations; however, remember there are income limits that you need to make sure you are under.
Before making a conversion, consult with your tax advisor at Strojny Financial Services to help ensure it aligns with your long-term financial plan and to avoid bumping yourself into a higher tax bracket this year.
Defer Income and Accelerate Deductions. If you expect to be in a lower tax bracket next year, consider deferring some income to 2025. For example, if you're self-employed, you might delay invoicing clients until January. Conversely, if you expect to be in a higher tax bracket, it may make sense to accelerate deductions, such as paying next year’s property taxes or making additional charitable contributions before the year ends.
The end of the year offers a valuable opportunity to fine-tune your financial plan and optimize your tax and wealth management strategies. By taking these proactive steps, you can not only minimize your tax liabilities but also set yourself up for financial success in the years to come. Be sure to consult with your financial advisor at Strojny Financial Services to tailor these strategies to your specific needs and goals.
[1] Irs.gov
[2] Irs.gov
[3] Irs.gov
[4] Irs.gov