Last-Minute Year-End Tax Moves to Help Maximize Your Savings
Written by Hazel Secco, CFP®, CDFA®
With the year wrapping up, now’s a great time to pause and assess your finances. There are still a few weeks left to make adjustments that might lower your tax bill or increase your refund for tax season. Even small, proactive steps can make a big difference.
Whether it’s maximizing deductions, adjusting investments, or finding other ways to save on taxes, a bit of planning now can put you in a stronger position come filing time. Here are some last-minute tips to help you keep more of what you’ve earned and start the new year financially strong:
Boost Retirement Contributions
One way to lower your taxable income and invest in your future is by adding to your retirement accounts. In 2024, you can contribute up to $23,000 to your 401(k) (or $30,500 if you’re 50+), and up to $7,000 to an IRA ($8,000 if you’re 50+). These contributions not only lower your taxable income now but also help enhance your financial future.
Consider Tax-Loss Harvesting
If you’ve got investments that didn’t do well, selling them could help offset your capital gains and reduce your taxable income. This strategy can save you money, and a financial advisor can guide you on how to use it effectively.
Max Out Your Health Savings Account (HSA)
If you have a high-deductible health plan, contributing to an HSA is a tax-wise move. HSA contributions are tax-deductible, and any funds you withdraw for qualified medical expenses are tax-free. For 2024, you can contribute up to $4,150 if you’re an individual or $8,300 for families, with an additional $1,000 catch-up if you’re 55+. It’s a smart way to save for healthcare while lowering your taxable income.
Look into a Roth IRA
If this year’s income is lower than usual, you might want to consider converting a traditional IRA to a Roth IRA. Although you’ll pay taxes on the converted amount now, future withdrawals will be tax-free, which is a big advantage. Plus, Roth IRAs don’t require minimum distributions, which adds flexibility for retirement planning. Your financial advisor can guide you through this to ensure it aligns with your goals.
Make Charitable Donations
If you itemize deductions, charitable donations can reduce your tax bill. Contributions can go beyond cash—donated items like clothing or household goods to a 501(c)(3) organization also count, so keep a receipt for claiming fair market value. Donating appreciated stock is another option; you may be able to deduct the full market value without paying capital gains tax, a win-win for you and the charity.
Don’t Miss Your Required Minimum Distribution (RMD)
If you’re 73 or older, don’t forget to take your required minimum distribution (RMD) from traditional retirement accounts (not Roth IRAs) by December 31 to avoid penalties. Starting in 2033, the RMD age will rise to 75, giving more flexibility down the road.
Consider a Donor-Advised Fund
A donor-advised fund (DAF) can help you maximize charitable giving and tax benefits. By making a larger donation to a DAF, you can claim the tax deduction this year, even if you spread out the donations over future years. Since contributions to a DAF are permanent, this strategy lets you “bunch” donations to maximize tax savings while taking the standard deduction in other years.
Contribute to a 529 Plan
For those saving for a child’s or grandchild’s education, a 529 plan contribution before year’s end might lower your state tax bill. While this doesn’t affect federal taxes, many states offer deductions or credits for 529 contributions, even for out-of-state plans.
Prepay College Tuition
If you have a student in college, paying next semester’s tuition before December 31 might qualify you for the American Opportunity Tax Credit, potentially saving you up to $2,500 per student. If you’re the student, you could also benefit from the Lifetime Learning Credit for qualified education expenses, which can further boost your tax savings.
Have a Question? Let’s Talk!
As the year’s end approaches, taking a few thoughtful steps now can help you wrap things up on a high note, even with the holiday rush. If you’d like guidance on these strategies or want to learn more about our services, feel free to schedule a 15-min intro call with us. We would love to hear from you!
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A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you discuss your specific tax issues with a qualified tax advisor.
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.