It’s that time of year again! Before the busyness of the holiday season fully sets in, take a moment to check in on your financial wellness. This end-of-year checklist will guide you through some important steps to consider as you wrap up 2024 and prepare for a strong start to 2025.
1. Maximize 401(k) Contributions
Your employer-sponsored retirement plan is a powerful tool for long-term financial health. Maximize your contributions as much as possible and take full advantage of any employer match, if available. For 2024, you can contribute $23,000 or $30,500 if you’re over 50. Check with your 401(k) service provider to ensure you’re on track to maximize your contributions by year-end or if additional contributions are needed.
2. Take Your RMD
For those aged 73 and older, the IRS requires an annual minimum distribution, also know Required Minimum Distribution (RMD), from IRAs and 401(k)s. Since these accounts haven’t been taxed, this rule allows the IRS to begin collecting taxes. The RMD amount is based on your account balance and life expectancy. You may distribute more if needed, but you must at least distribute the minimum amount required, otherwise a penalty may be imposed. If you are 73 or older with an IRA, SEP IRA, SIMPLE IRA, or current 401(k) Plan and aren’t sure if you’re in compliance with this rule, contact your CPA or plan sponsor for guidance.
3. Harvest Investment Losses
The end of the year is a good time to review investments for tax-loss harvesting opportunities. If you have non-retirement brokerage accounts with losses, you might be able to use those to reduce your capital gains tax liability. Selling these investments lets you capture losses for tax purposes, which can offset gains and may allow for an additional $3,000 tax deduction. Consult your investment professional and CPA about this strategy to make sure it aligns with your financial goals.
4. Consider Roth Conversions
Another financial strategy to consider are Roth conversions. Depending on the tax implications, you may want to consider converting some or all of your IRA to a Roth IRA. You’ll pay ordinary income taxes on the amount converted now, but future earnings will grow tax-free. Roth conversions must be completed by December 31, so speak with your CPA and investment advisor to determine if this strategy is right for you.
5. Spend Down Flexible Spending Accounts
FSAs are “use-it-or-lose-it” accounts, so make sure you use any remaining funds by year-end on qualified expenses like dental cleanings, eye exams, and prescription refills. If possible, consider transitioning to a Health Savings Account (HSA) instead. HSAs allow balances to roll over year-to-year, offering more long-term benefits than FSAs.
6. Make Charitable Donations
Charitable giving is a meaningful way to support causes you care about and may provide tax benefits if you itemize deductions. For 2024, the standard deduction is $29,200 for married couples and $14,600 for single filers. Charitable donations must be made by December 31 to be deductible for the current tax year. You might also consider a Qualified Charitable Distribution (QCD) directly from your IRA if you are 70.5 or older, which won’t count as taxable income—a valuable strategy especially if you’re subject to RMDs.
7. Consider Gifting
The 2024 annual gifting limit is $18,000 per taxpayer or $36,000 per couple. This allows you to gift up to these amounts to any number of individuals without filing a gift tax return. While exceeding these limits doesn’t result in immediate taxes, it does require documentation for future estate tax purposes.
Gifting within the annual limit is a common strategy for transferring wealth and potentially reducing estate taxes. Keep in mind, estate taxes only apply if your estate exceeds $13,610,000 (single) or $27,220,000 (couple). Ensure any gifts are made by year-end to take full advantage of this opportunity
8. Review Medicare Elections
If you’re covered by Medicare, it’s wise to review your plan choices each year. Whether you have Traditional Medicare with Supplemental Insurance or a Medicare Advantage plan, review changes in these policies to ensure they still align with your needs. Open Enrollment runs from October 15 to December 7, and any changes will be effective January 1, 2025.
9. Prepare for Tax Impact
Schedule a meeting with your CPA or tax advisor for a preliminary tax projection before the end of the year. This can help reduce unwanted surprises when you file taxes. If you handle your taxes independently, the IRS Withholding Calculator is a useful tool to estimate whether you’ll owe or receive a refund. Planning now also provides an opportunity to optimize deductions, such as charitable contributions, before the year closes.
10. Prepare Next Year’s Budget
Starting a new year with a clear budget sets the tone for financial success. Review your spending and ensure you’re allocating funds toward your goals. Be intentional about how you use money in 2025 to stay on track for a prosperous future. Check out our budgeting article, which includes a cash flow spreadsheet, to help you get organized.
Authored by Whelan Financial
Preliminary language, parameters, and edits for this blog were crafted by the Whelan Financial team, with the help of generative AI.
