Unlock Financial Success:
Year-End Planning Tips You Can’t Ignore

As the year draws to a close, it is an ideal time to reflect on your financial plan and make strategic adjustments designed to enhance your financial well-being. Just as you prepare your home for the chilly months ahead, double check the ice scraper in your vehicle still works, or start your snow blower to determine if it still will function properly when called upon, year-end financial planning is about setting the stage for a prosperous new year. It is an opportunity to evaluate strategies such as optimizing your savings, minimizing tax liabilities, and charitably giving. In this article, we will dive into seven effective year-end, financial planning strategies that will not only help you finish the year strong, but also set you up for financial success in 2025.

Maximize Retirement Contributions

One of the most effective ways to bolster your financial future is by maximizing contributions to your retirement accounts today. In 2024, individuals can contribute up to $23,000 to their 401(k)s, with those aged 50 and older able to add an additional $7,500 in catch-up contributions. Similarly, IRAs allow contributions of $7,000, plus an additional $1,000 catch-up contribution for individuals over 50. For those with higher incomes, be mindful of the income thresholds affecting deductibility for traditional IRA contributions. If you exceed these limits, your contributions will be classified as “after-tax,” but you can still make them, and we can assist with the proper paper trail.

Optimize After-Tax Returns

Tax-loss harvesting is a strategic approach to managing capital gains and minimizing tax liabilities. This technique involves selling underperforming investments to realize losses that can offset capital gains from profitable investments. For instance, if you’ve sold stocks at a profit during the year, you can sell other stocks at a loss to counterbalance those gains, thereby reducing your taxable income. If your realized losses exceed your gains, you can use up to $3,000 of those losses to offset ordinary income in the current tax year, with the excess rolling over to offset capital gains in future years. This strategy not only helps in lowering your tax bill, but also allows you to reinvest the proceeds from the sale into more promising opportunities. This strategy requires active management to closely monitor for compliance with IRS rules and to optimize the tax benefits.

Required Minimum Distributions (RMDs)

RMDs are mandatory withdrawals from retirement accounts that individuals must begin taking at age 73 under current law. As the year-end approaches, it’s vital to ensure that you meet these requirements by December 31 to avoid hefty penalties – up to 25% of the amount that should have been withdrawn. RMDs apply to traditional IRAs and most employer-sponsored retirement plans, but do not apply to Roth IRAs/Roth 401(k)s during the account holder’s lifetime. Calculating RMDs involves dividing your account balance by a life expectancy factor determined by IRS tables.

Charitable Giving

Qualified charitable giving not only supports causes you care about but is also an effective strategy for maximizing tax benefits at year-end. By donating appreciated assets instead of cash – such as stocks or mutual funds – you can avoid paying capital gains taxes on those assets while still receiving a charitable deduction based on their fair market value at the time of donation. If you’re considering making significant donations, think about “bunching” them into one year rather than spreading them over multiple years; this can help exceed the standard deduction threshold and maximize itemized deductions for that year. Establishing donor-advised funds is another excellent way to streamline charitable giving while securing immediate tax deductions for future donations. Lastly, if you are age 70½ or older, you can donate up to $105,000 directly from your IRA to qualified charities without incurring federal income tax on the distribution – known as a Qualified Charitable Distribution (QCDs). This strategy not only satisfies your Required Minimum Distribution (RMD), but also helps lower your Adjusted Gross Income (AGI), potentially reducing taxes on Social Security benefits and other income-based tax credits. While QCDs do not qualify for a charitable deduction since they are made directly from an IRA, they provide significant tax benefits by avoiding additional taxable income that could push you into a higher tax bracket. To execute this strategy effectively, ensure that distributions are made directly from your IRA custodian to the charity by December 31.

Roth IRA Conversions

Roth IRA conversions present an opportunity for individuals looking to optimize their retirement savings and tax strategies. Converting a traditional IRA into a Roth IRA allows you to pay taxes on the converted amount now while enjoying tax-free withdrawals in retirement. This strategy is particularly advantageous during years of lower adjusted-gross income (AGI) when you may be in a lower tax bracket than anticipated in future years (such as a year you engage in charitable “bunching” thereby elevating deductions and lowering AGI). Once converted, all future earnings grow tax-free, providing significant long-term benefits. Additionally, Roth IRAs do not have required RMDs during the account holder’s lifetime, allowing for greater flexibility in retirement planning.

Review Insurance Coverage

Reviewing insurance coverage at year-end ensures adequate protection against unforeseen events as personal circumstances change over time. Major life events—such as marriage, having children, or starting a business—often necessitate adjustments in insurance policies like life insurance or liability coverage on homes and vehicles. Regularly assessing these policies (including beneficiary designations) ensures that you’re adequately protected against potential risks while aligning with your current financial situation.

Review your Financial Goals

The end of the year is a good time to review with your advisors other major life changes that might have occurred throughout the current year, or that are expected to occur in the coming year. Review your personal financial statement and confirm that assets and liabilities are titled correctly. Review your beneficiary designations on your retirement accounts and insurance policies and make changes if necessary. If it has been more than a couple years since you’ve met with your legal advisor, it may be time to have your estate plan reviewed and updated.

As you wrap up the year, taking the time to implement these strategies can provide peace of mind as you usher in 2025. Each action you take not only strengthens your financial position but also paves the way for a more secure and fulfilling new year. Remember, the journey toward financial security is a marathon, not a sprint, and every step counts. Embrace the upcoming year with renewed enthusiasm, armed with the tools and knowledge to thrive. Here’s to a prosperous new year filled with opportunities, growth, and meaningful financial milestones!