Now is the time to make strategic end-of-year tax moves that could significantly impact your financial outcome for the year. While many deadlines fall on December 31, there’s still an opportunity to optimize your tax situation and secure meaningful savings. Taking action now can set you up for success when tax season rolls around. Here are some smart year-end tax strategies to consider.
1. Maximize Health Savings Account (HSA) Contributions
For those with high-deductible health plans, Health Savings Accounts (HSAs) offer unbeatable tax advantages. Contributions are tax-deductible, growth within the account is tax-free, and withdrawals for qualified medical expenses are also tax-free.
In 2024, you can contribute up to:
- $4,150 for individuals
- $8,300 for families
- An additional $1,000 if you’re 55 or older
If you haven’t reached your limit, now is the time to contribute. Even better, funds roll over year after year, can be invested, and act as a long-term tax-free resource for future medical expenses.
2. Max Out Retirement Contributions
Saving for retirement is one of the best ways to lower your taxable income and build long-term wealth. For 2024, the contribution limits are:
- 401(k): $23,000 (or $30,500 if you’re 50 or older)
- IRAs: $7,000 (or $8,000 if you’re 50 or older)
Max out these accounts if possible. Contributions to traditional IRAs can reduce your taxable income, provided they are made by the tax-filing deadline in April 2025. This is also a great time to check your year-to-date 401(k) contributions to ensure you’re on track.
3. Consider a Roth IRA Conversion
A Roth IRA conversion involves transferring funds from a traditional IRA, SIMPLE IRA, or SEP IRA into a Roth IRA. While you’ll pay taxes on the converted amount now, the growth and withdrawals will be tax-free in the future.
This strategy is particularly advantageous if you’re in a lower tax bracket this year. The key is to convert just enough to fully utilize your lower tax rate without pushing yourself into a higher bracket. Roth IRAs also have no required minimum distributions (RMDs), giving you more flexibility in retirement.
4. Gift Money and Other Assets
Gifting is a wonderful way to transfer wealth to loved ones while reducing potential estate taxes. In 2024, you can gift up to $18,000 per person ($36,000 if married) without impacting your lifetime gift tax exemption.
You can also consider setting up a trust or gifting appreciated assets like stocks, which can help your heirs avoid capital gains taxes. The end of the year is the perfect time to implement these strategies to maximize their tax benefits.
5. Take Your Required Minimum Distribution (RMD)
If you’re 73 or older, you’re required to take RMDs from most retirement accounts, such as traditional IRAs and 401(k)s. Missing your RMD can result in hefty penalties of up to 25% of the required amount not withdrawn.
If you don’t need the income, consider a Qualified Charitable Distribution (QCD). You can transfer up to $100,000 directly to a qualified charity tax-free, which counts toward your RMD while reducing your taxable income.
6. Contribute to a 529 Education Plan
529 plans are an excellent way to save for education while enjoying tax benefits. You can make up to five years’ worth of gift-tax exemptions in one year, contributing up to:
- $85,000 per beneficiary ($170,000 if married).
By front-loading your contributions, you maximize the plan’s growth potential and avoid incurring gift taxes. This is a particularly effective strategy for grandparents and parents planning to fund college expenses.
Why Act Now?
The window for these opportunities is closing fast, and once 2024 is over, many of these tax benefits will be out of reach. Taking action now ensures you won’t miss out on valuable savings and allows you to start the new year with a clearer financial picture.
Final Thoughts
End-of-year tax planning is a crucial step in optimizing your financial health. Whether you’re maximizing retirement contributions, taking RMDs, or leveraging gifting strategies, every move counts. Acting with urgency can help reduce your tax liability and pave the way for financial success in 2025.
If you have questions or need help implementing these strategies, reach out today. The clock is ticking, but there’s still time to make 2024 a tax-savvy year!
