As 2024 winds down, now is the time to ensure your financial house is in order. A strategic year-end financial review can help you maximize tax savings, strengthen your retirement accounts, and prepare for a successful 2025. Follow this year-end financial checklist to close the year with confidence and set yourself up for long-term success.
1. Maximize Retirement Contributions
- 401(k): Ensure you’ve contributed up to the 2024 limit of $23,000 (or $30,500 if you’re 50 or older). Many employers allow you to make catch-up contributions via payroll before December 31.
- IRA Contributions: Traditional and Roth IRA contributions for 2024 can be made until the tax filing deadline in April 2025. The limits are $7,000 (or $8,000 if 50+). Contributing to a traditional IRA may reduce your taxable income.
2. Review Health Savings Account (HSA) Contributions
If you’re enrolled in a high-deductible health plan, contribute the maximum amount to your HSA:
- $4,150 for individuals
- $8,300 for families
- An additional $1,000 if you’re 55 or older
Unused HSA funds roll over year to year and grow tax-free, making them a valuable retirement savings tool.
3. Use Up Flexible Spending Account (FSA) Funds
Unlike HSAs, FSAs often have a “use-it-or-lose-it” rule, though some plans allow a small carryover or grace period. Check your balance and plan to spend funds on eligible medical, dental, or vision expenses before the deadline.
4. Review Your Tax Withholding and Payments
Avoid surprises come tax season by reviewing your withholdings and estimated tax payments.
- If you’ve underpaid taxes, consider making an estimated tax payment before January 15, 2025, to avoid penalties.
- Check your Form W-4 to ensure it reflects your current financial situation.
5. Harvest Tax Losses
If you have investments that have declined in value, consider selling them to offset capital gains and reduce your taxable income. This strategy, known as tax-loss harvesting, can be particularly useful for high earners.
6. Consider Charitable Contributions
Donating to qualified charities is a great way to support causes you care about while reducing your tax bill.
- If you itemize, you can deduct the full value of cash donations.
- Consider donating appreciated assets, like stocks, to avoid capital gains taxes while receiving a full deduction for their fair market value.
7. Maximize Gift Tax Exemptions
In 2024, you can gift up to $18,000 per individual ($36,000 if married) without impacting your lifetime estate and gift tax exemption. This is a great opportunity to transfer wealth to family members or fund a 529 plan for a loved one’s education.
8. Take Required Minimum Distributions (RMDs)
If you’re 73 or older, you must take RMDs from retirement accounts like traditional IRAs and 401(k)s. Missing the RMD deadline can result in penalties of up to 25%. If you don’t need the income, consider a qualified charitable distribution (QCD) to satisfy your RMD while supporting a charity tax-free.
9. Review Your Estate Plan
Ensure your estate plan reflects your current wishes. Key tasks include:
- Updating beneficiary designations on retirement accounts and insurance policies.
- Reviewing wills and trusts for changes in family or financial circumstances.
- Considering gifting strategies to minimize estate taxes.
10. Plan for 2025 Tax Changes
With several provisions of the Tax Cuts and Jobs Act set to expire in 2025, now is a good time to prepare. Discuss with your tax advisor whether strategies like Roth IRA conversions or accelerating income into 2024 make sense for you.
Final Thoughts
The year’s end offers a valuable opportunity to optimize your finances and reduce your tax burden. By ticking these items off your checklist, you’ll enter 2025 financially prepared and ready to tackle new opportunities.
Have questions or need assistance? Contact us today for personalized guidance on your year-end financial planning.
