13 Nov 2024 7 Smart Year-End Money Moves
When I realized I was writing this week’s Friday Brief, I was tempted to rewrite the song “12 Days of Christmas” with a financial planning twist. But then I remembered that there are only a few weeks left in 2024, and decided it would probably be more helpful to share our annual list of key financial moves to consider before the year wraps up. It’s certainly not as entertaining as 🎵twelve stocks a-rising🎵 but here goes…
Check Your Workplace Retirement Plan Contributions
Now is a great time to review your 401(k), 403(b), or other retirement plan contributions to ensure you’re on track to meet your savings goal. For 2024, the contribution limit for these plans is $23,000 if you’re under 50. If you’re 50 or older, you can take advantage of a $7,500 catch-up contribution, bringing your total limit to $30,500.
Looking ahead to 2025, the contribution limit will increase to $23,500. While the $7,500 catch-up contribution for those 50 and older will remain the same, The Secure Act 2.0 introduces a new “Super Catch-Up” for participants ages 60 to 63. Those in that age range can save an additional amount on top of the regular 50+ catch-up contribution, allowing for even more retirement savings. If you’re in this age group, be sure to take advantage of these new opportunities to maximize your savings.
Take Your Required Minimum Distribution (RMD)
Under the SECURE Act 2.0, the penalty for missed Required Minimum Distributions (RMDs) has been reduced to 25%, with a further reduction to 10% if corrected promptly, offering some relief compared to previous rules. Despite this, RMD rules remain complex. In 2024, if you are 73 or older and have a traditional IRA, 401(k) (unless still employed and less than a 5% owner of the company), or 403(b), be sure to take your RMDs by the deadline to avoid these penalties.
For inherited IRAs, be mindful of the new 10-year rule for non-spousal beneficiaries. If you inherited an IRA in 2020 or later, you may be required to fully distribute the account within 10 years of the original owner’s death. The tax impact of this rule can be substantial, especially for larger IRAs, so it’s wise to create a distribution strategy to minimize taxes over this period. Given these changes, consulting a financial professional can be invaluable in navigating RMD requirements and inherited IRA rules, helping ensure compliance and optimize tax efficiency.
Review Your Charitable Giving Strategy
If charitable giving is part of your plan, consider these tax-smart strategies:
Donate Appreciated Shares of Stock Instead of Cash: Donating appreciated shares of stock—those you’ve held for more than a year—can be a powerful strategy for charitable giving. By donating the stock directly to a qualified charity or your donor advised fund you can avoid paying capital gains taxes on the appreciated value, and you’ll still receive a tax deduction for the full market value of the shares. You can then use the cash you would have normally given to repuchase the same or similar stock shares but at a higher cost basis. This approach allows you to minimize your current and future tax bill while providing a meaningful contribution to the causes you care about.
Qualified Charitable Distributions (QCDs): For individuals aged 70½ and older, a Qualified Charitable Distribution (QCD) offers a tax-efficient way to give to charity directly from your IRA. With a QCD, you can donate up to $100,000 annually from your traditional IRA to a qualified charity without having to pay income tax on the distribution. This is particularly beneficial because the donation counts toward your Required Minimum Distribution (RMD) for the year, potentially reducing your taxable income and lowering your overall tax liability. This strategy not only helps you meet your charitable and financial goals but also provides significant tax advantages, making it an attractive option for those over 70½ who are looking to give back while minimizing their tax burden.
Harvest Some Losses (or Gains)
Tax-loss harvesting involves selling a security in a taxable (non-retirement) account that has incurred a loss. By realizing the loss, you can offset taxes on current or future year realized capital gains or reduce your ordinary income by up to $3,000. After the sale, the sold security is typically replaced with a similar one, allowing you to maintain your asset allocation and expected returns while still benefiting from the tax advantage. Alternatively, if you’re in a lower tax bracket, you might consider “harvesting” gains instead to benefit from the 0% capital gains rate. Tax-loss and gain-harvesting strategies are complex, so consult with a CPA or advisor to make sure these moves suit your financial goals.
Contribute to a traditional, Roth, or SEP IRA
In 2024, IRA contribution limits allow individuals under 50 to contribute up to $7,000 to a traditional or Roth IRA, while those aged 50 and older can contribute up to $8,000, including a $1,000 catch-up contribution. Roth IRA contributions are not tax-deductible but offer the advantage of tax-free withdrawals in retirement, making them especially valuable if you expect to be in a higher tax bracket later. Traditional IRAs, on the other hand, provide an immediate tax deduction, reducing taxable income for the contribution year. Income limits apply to Roth IRA eligibility, and the deductibility of traditional IRA contributions depends on both income and whether you participate in an employer-sponsored retirement plan. Be sure to check IRS rules and income thresholds to confirm eligibility and tax benefits.
For self-employed individuals or small business owners, a SEP IRA may be an excellent choice, with 2024 contributions limited to the lesser of 25% of compensation or $66,000—offering significant tax-deferred saving potential.
Unlike other items with a December 31 deadline, IRA contributions can be made up until the 2024 tax filing deadline or the extension date. Choosing the right IRA based on your income, age, tax bracket, and retirement goals can help you maximize tax-advantaged growth opportunities aligned with your financial plan.
Use Your Flexible Spending Account (FSA)
Since FSAs are generally “use it or lose it,” it’s essential to check whether your employer allows carryover options. If not, consider spending down any remaining balance on eligible expenses, such as medical, dental, or vision care. This way, you can maximize your benefits and avoid forfeiting unused funds at year-end.
Contribute to Your Health Savings Account (HSA)
If you’re enrolled in a high-deductible health plan (HDHP), a Health Savings Account (HSA) provides three key tax advantages: contributions are tax-deductible, any investment growth within the account is tax-free, and withdrawals for qualified medical expenses are also tax-free. For 2024, the HSA contribution limits are $4,150 for individuals and $8,300 for families, with an additional $1,000 catch-up contribution allowed for those aged 55 and older.
Unlike Flexible Spending Accounts (FSAs), HSA funds roll over every year, so you won’t lose unused amounts. This makes HSAs a unique tool not only for managing healthcare costs but also for retirement planning. Over time, HSA funds can be invested, allowing for tax-free growth that can cover healthcare costs in retirement, where expenses often increase. For those seeking a tax-efficient way to save for future healthcare needs, an HSA can be a valuable addition to their financial plan.
Don’t worry—I’ll keep working on my album of personal finance covers of hit songs! Meanwhile, if you’d like some guidance on which of these financial moves could have the greatest impact on your financial situation this year, don’t hesitate to get in touch.
Already a Beacon client? We’re here to help you navigate these opportunities. Not yet a client? Contact us, and we’d be happy to walk you through the process.
