KEY TAKEAWAY: As we approach the end of the year, now is a great time to review your finances and prepare for the upcoming tax season. Here are 10 financial moves to consider as you approach year-end. Scroll down to the TAKE ACTION section for this week’s actionable steps.

1: Contribute to or max out contributions to retirement savings plans.¹

If you’re working, consider maxing out your contributions to your tax-advantaged retirement plans. These offer you an opportunity to save for retirement while getting some tax perks as your invested savings grow.

• Employer Plans: In 2024, you can contribute $23,000 to your 401(k) or other employer-sponsored retirement plan, plus an extra $7,500 in “catch-up” contributions if you are 50 or older. Contact your HR department at work if you have any questions or want to see how you can still contribute to your 401(k) before year-end.
• Traditional and Roth Individual Retirement Accounts, or IRAs: These are separate accounts you can set up if you don’t have access to an employer retirement plan or want to save in addition to your employer plan.

A traditional IRA allows individuals to make pre-tax contributions, so if you are eligible, you may be able to reduce your taxable income in the year of your contribution, and invested savings can grow tax-deferred until withdrawn, at which time qualified withdrawals in retirement are taxed as ordinary income.

A Roth IRA, on the other hand, is funded with after-tax contributions, and while there isn’t the possibility of an upfront tax break, qualified withdrawals in retirement are tax-free.

The contribution limit for the combination of traditional IRAs and for Roth IRAs, for those who are income eligible, for 2024 is $7,000 or $8,000 with catch-up contributions if you are 50 or older. So, the contribution limits apply to the total of contributions you make to any traditional and Roth IRA; you do not get to contribute $7,000 (or $8,000 if you are 50 or older) to each.

Note that while you normally need earned income to contribute to a retirement plan, non-working spouses may also be able to contribute to their own IRA – traditional or Roth – as long as you and your spouse file a joint tax return and you have enough earned income to cover both you and your spouse’s contributions.

Finally, for those self-employed, the contribution limits are even higher for a Solo 401(k) and  Simplified Employee Pension (SEP). If you are eligible but don’t yet have a self-employed retirement plan, you still have time to set one up. With Solo 401(k) plans, you can also contribute an additional $7,500 if you are 50 or older.

Action Step: Check your tax-advantaged account contributions and top them up to the limit as best fits your situation and goals.

2: Contribute to or max out HSA contributions.²

If you have an HSA already set up, consider maxing out contributions to your Health Savings Account or HSA if you haven’t already.

If you don’t have an HSA but have an HSA-eligible high-deductible healthcare plan, consider opening one because you will not only get a tax deduction in the year you contribute to your HSA, but money contributed can be invested and grow tax-free. As long as you use the funds in your account for a qualified medical expense – which includes deductibles and copays – you won’t pay taxes on it.

Plus, there is no deadline for using the money in an HSA, so you can also use it to save for higher healthcare expenses you may expect when you are older.

For 2024, you can contribute $4,150 if you have an individual health plan or $8,300 for a family health plan. Individuals who are 55 or older can contribute an additional $1,000 to their HSA.

Action Step: Check your year-to-date contributions and top them off up to the contribution limit as best fits your situation and goals. If you have a high-deductible health plan and don’t have an HSA, seriously consider opening one.

Speaking of healthcare…

3: Take advantage of your year-to-date investment in your health insurance before your deductible (and potentially MOOP) resets.

If your health insurance plan is tied to the calendar year, which most are, and you are close to meeting or have already met your deductible and possibly even your maximum out-of-pocket amount or MOOP, then consider what healthcare appointments or other healthcare needs you can take care of before December 31st that your insurance will cover.

Action Step: Get in necessary qualified healthcare appointments and expenses before your deductible and MOOP reset to $0.

4: Spend what FSA funds you need to spend.³

Do you have a balance in your FSA (flexible spending account) for healthcare or daycare expenses that you must spend before year-end? You generally must use the money in an FSA within the plan year, but your employer may – it doesn’t have to – offer you a grace period to use your funds by a certain time or allow an amount of unused FSA funds to be rolled over into the following year. The bottom line is to check your balance and determine what you need to spend or roll over and when.

Action Step: Check your FSA balance and spend what you need.

5: Review your investment portfolio and consider harvesting investment losses to offset capital gains.

The end of the year is a great time to ensure your portfolio is still aligned with your goals. As part of this, you may want to use capital losses to offset capital gains to lower or eliminate capital gains taxes. You can review your gains and losses and consider what you want to sell. For example, you may want to sell positions that have gone up in value and sell positions that have gone down in equal value to offset the gains realized. If you have more losses than gains, you can use up to $3,000 of losses to reduce your taxable income.

Here are a couple of things I want to highlight:

• One, be mindful of wash sale rules. To deduct a loss, you must not purchase the same or a “substantially identical security” less than 30 days before or after the sale. If you do, the loss is disregarded, and you will lose the tax benefit. However, this applies only to losses; you can repurchase a security you sold for a gain without triggering the wash sale rule.
• Two, capital gains are taxed at different rates depending on if you owned the investment you sold for a gain for more than one year (so 366 days or more (one year plus one day)) or one year or less (so 365 days or less). If you hold an investment for more than a year, it is considered a long-term capital gain and taxed at lower preferential tax rates. An investment held for one year or less is considered to be a short-term gain and will be taxed at your ordinary tax rate. So, be mindful of this as you decide what to sell and when.

Action Step: Review your investment portfolio to ensure it still aligns with your goals, and consider if and what tax harvesting losses you might want to make (understand any tax implications before you act).

6: Take any Required Minimum Distributions (RMDs).⁴

If you are age 73 or older, you generally must take minimum distributions from your tax-deferred retirement accounts by the end of the year. If you miss the deadline, you could be subject to a 25% penalty on the portion of your RMD you failed to withdraw.

IRA RMDs: You need to calculate the RMD for each IRA separately each year, but you can aggregate or total your RMD amounts across all your IRAs and withdraw the total from one IRA or a portion from each of your IRAs. That is not the case for RMDs from employer retirement plans. 

Employer Plan RMDs: RMDs from employer retirement plans must be calculated for each plan and taken separately from each respective plan. The exception is 403(b) plans, where you can total the RMDs you need to take and then take them from any one (or more) of the plans.

Important: For those who have inherited an IRA, you also need to be aware of if and when you are subject to RMDs.

However, good news for Roth 401(k) owners: As with Roth IRAs, there are no RMD requirements for your Roth 401(k) plan. See the references for this section for more IRS resources on RMDs.

Action Step: Check if, how much, and by when you need to take the required minimum distributions from your different retirement accounts.

7. Make charitable donations or gifts to loved ones.⁵

Do you want to give to support a charity while realizing a tax deduction as well? If you itemize deductions on Schedule A (Form 1040), Itemized Deductions, you can deduct donations to qualified organizations. You can use the IRS’s Tax Exempt Organization Search Tool to determine if the organization you are considering contributing to qualifies.

A note for those 70½ or older: In 2024, you can donate up to $105,000 to a charity directly from your IRA using a Qualified Charitable Distribution or QCD. You won’t receive a tax deduction for the donation, but the gifted amount can be used to satisfy all or part of your RMD without adding to your taxable income.

Note that gifts to individuals are not deductible. However, even so, you may want to give to loved ones. If that is the case, you can give up to $18,000 to as many people as you want in 2024 without any of it being subject to the federal gift tax. This includes 529 college savings plans.

By the way, for 529 college savings plans, you can also choose to “superfund” a beneficiary’s 529 account by making a lump sum contribution of up to 5 years’ worth of contributions – or up to $90,000 in the case of 2024 ($18,000 x 5 years) – and elect to treat it as if it were made evenly over a 5-year period, gift tax-free.

Action Step: Consider making a tax-deductible charitable contribution or tax-free gift to loved ones.

8: Consider a Roth conversion if it makes sense for your situation.

If your income is too high to contribute to a Roth IRA directly or your future tax rate will be higher than it is right now, consider a Roth conversion. Be aware that any funds you convert or move from a traditional to a Roth IRA will be considered taxable income, so it’s good to consult a tax professional like a CPA to understand any tax impacts before you convert.

9: File your BOI (Beneficial Ownership Information) if the new requirement for doing so applies to you (because penalties can be stiff if you do not!).⁶

If you are a business owner, be sure to comply with the new reporting requirements outlined in the Corporate Transparency Act.

The Corporate Transparency Act (CTA) requires certain entities, known as reporting companies, to file a Beneficial Ownership Information (BOI) report with the Financial Crimes Enforcement Network (FinCEN) (domestic and foreign reporting companies doing business in the U.S.; check if that is you).

The CTA went into effect on January 1, 2024. Reporting companies must file their initial reports according to the following schedule:

• Companies created or registered before January 1, 2024: Have one year to file their initial reports, until January 1, 2025
• Companies created or registered after January 1, 2024: Have 30 days to file their initial reports after receiving notice of their creation or registration

Reporting companies must submit their BOI reports directly to FinCEN through its online Beneficial Ownership Secure System (BOSS): https://www.fincen.gov/boi

10: Here are some other items to consider as you look to next year:

• Start prepping for tax return time. For example, make sure your financial institutions and employers have your correct address. Get a folder or other filing system together and gather the documents you’ll need to file your taxes there.
• Review your tax withholdings. Do you need to make adjustments? Check out the Tax Withholding Estimator (also available in Spanish) from the IRS to determine how much income tax to withhold.
• Review and consider updating your benefit selections. In addition to your health insurance selection, consider if you, your spouse, or your child will need medical services that would make it worthwhile to contribute to an FSA for that or at least the amount of your health insurance deductible. As discussed previously, an HSA might be another option to consider for healthcare expenses.
• Review or update your beneficiary designations. Have you set up beneficiaries for all your accounts or other appropriate items, such as your bank accounts, retirement accounts, life insurance policies, and annuities? Have there been any changes that would require updating your beneficiaries?
• What else? Is there anything else that you’ve had on your financial to-do or bucket list you want to start addressing or planning for? Now is a good time to set your goals and create an action plan to achieve them.

Last but not least, if you want support, then get it.

As you consider these financial moves or your overall financial situation, if you want support for tax planning and reporting or your finances overall, then reach out to the appropriate professional to get the support you want.

TAKE ACTION:

So, to review, the financial moves we reviewed that you may want to consider if they fit you and your goals and situation are:

1. Contribute to or max out retirement contributions.
2. Contribute to or max out HSA contributions.
3. Take advantage of your investment in your health insurance before your deductible (and potentially MOOP) resets.
4. Spend what FSA funds you need.
5. Review your investment portfolio and consider harvesting investment losses to offset capital gains.
6. Take any Required Minimum Distributions.
7. Make charitable donations or gifts to loved ones.
8. Consider a Roth conversion if it makes sense for your situation.
9. Consider other future planning items, including prepping for tax season and reviewing and updating your tax withholdings, benefit elections, and beneficiary designations.
10. Comply with any Corporate Transparency Act reporting requirements that may apply to your reporting company (or face stiff penalties, so don’t ignore this).
11. If you want support, then get it.

References:

1: Tax-Advantaged Accounts

IRS.gov. 401(k) limit increases. Retrieved from https://www.irs.gov/retirement-plans/retirement-plans-for-self-employed-people#:~:text=Contribute as much as 25,2020 and %2456%2C000 for 2019).

IRS.gov. IRA year-end reminders. Retrieved from https://www.irs.gov/retirement-plans/ira-year-end-reminders#:~:text=If you’re still working,contributions until April 15%2C 2025.

IRS.gov. 401(k) and IRA limits. Retrieved from https://www.irs.gov/newsroom/401k-limit-increases-to-23000-for-2024-ira-limit-rises-to-7000#:~:text=Highlights of changes for 2024,to %247%2C000%2C up from %246%2C500.

IRS.gov. Retirement Plans. Retrieved from https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits

IRS.gov. https://www.irs.gov/retirement-plans/plan-participant-employee/sep-contribution-limits-including-grandfathered-sarseps

IRS.gov. https://www.irs.gov/retirement-plans/one-participant-401k-plans

2: Health Savings Accounts (HSAs)

Healthcare.gov. Understanding HSA-eligible plans. Retrieved from https://www.healthcare.gov/high-deductible-health-plan/hdhp-hsa-work-together/#:~:text=Once you turn 65%2C you,You are leaving HealthCare.gov.

IRS.gov. HSAs. Retrieved from https://www.irs.gov/publications/p969

3: Flexible Savings Accounts (FSAs)

Healthcare.gov.Using a Flexible Spending Account (FSA). Retrieved from https://www.healthcare.gov/have-job-based-coverage/flexible-spending-accounts/

4: Required Minimum Distributions (RMDs)

IRS.gov. RMDs. Retrieved from https://www.irs.gov/retirement-plans/rmd-comparison-chart-iras-vs-defined-contribution-plans#:~:text=Note: There are no RMD,subject to the RMD rules.

IRS.gov. Retirement Plan RMDs. Retrieved from https://www.irs.gov/retirement-plans/required-minimum-distributions-for-ira-beneficiaries

IRS.gov. RMDs for IRA Beneficiaries. Retrieved from https://www.irs.gov/retirement-plans/required-minimum-distributions-for-ira-beneficiaries

Calculating Your RMDs: Scroll down to “Calculating the required minimum distribution.” Retrieved from https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds

5: Charitable Contributions & Gifts

IRS.gov. Charitable contribution deductions. Retrieved from https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deductions

Charles Schwab. Reducing RMDs With QCDs. Retrieved from https://www.schwab.com/learn/story/reducing-rmds-with-qcds

SmartAsset.com. Gift Tax Limits: How Much Can You Gift?. Retrieved from https://smartasset.com/retirement/gift-tax-limits

Fidelity.com. 529 contribution limits for 2024. Retrieved from https://www.fidelity.com/learning-center/smart-money/529-contribution-limits#:~:text=529 gift tax contribution limits&text=That’s because the IRS counts,your lifetime gift tax exemption.

6: BOI Filing

Beneficial Ownership Information. Retrieved from https://www.fincen.gov/boi-faqs#:~:text=C.,-Reporting Company&text=C. 1.-,What companies will be required to report beneficial ownership information,state or any similar office.

To file: Link to FinCEN’s Beneficial Ownership Secure System (BOSS): https://www.fincen.gov/boi

IMPORTANT: The information provided is for educational and informational purposes only. It is not intended to be a substitute for professional advice, diagnosis, or treatment. Always seek the advice of a qualified professional with any questions you may have regarding the topics discussed here as the topics discussed are based on general principles and may not be applicable to every individual. 

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