Year-End Tax Strategies
With the year drawing to a close, now is the perfect opportunity to take charge of your finances and explore tax-saving strategies. By taking proactive steps, you may potentially lighten your tax load and build a stronger foundation for retirement.
- Maximize Retirement Contributions
If your employer matches your 401k contributions, be sure to contribute the maximum amount of the match to take full advantage of this free money. By contributing to a 401k or traditional IRA, you may reduce your taxable income for the current year. This strategy is particularly beneficial if you anticipate a lower tax rate in retirement.
If you expect a higher tax rate in retirement, a Roth IRA may be a better choice. Roth contributions are made with after-tax dollars. Qualified distributions during retirement are tax-free.
Don't forget, there’s still time to contribute to your Traditional IRA or Roth IRA for 2024! The deadline for 2024 contributions is April 15, 2025.
- Roth IRA Conversion
Is your income lower this year? Consider doing a Roth conversion by transferring funds from a Traditional IRA to a Roth IRA. In so doing, you'll pay taxes now while you're at a lower income level. This means you can withdraw the funds tax-free in retirement.
It is important to note, however, that a Roth conversion is treated as taxable income in the year of the conversion. Therefore, it's crucial to convert an amount that keeps you within your current tax bracket to avoid a significant tax bill.
- Harvesting Tax Losses
To reduce your tax liability, consider selling investments that have lost value as it will offset capital gains.
- Charitable Giving
If you plan to itemize deductions on your tax return, charitable contributions can significantly reduce your taxable income. You can deduct cash donations up to 60% of your adjusted gross income (AGI).
For those over the age of 70 ½, Qualified Charitable Donations (QCD) can be a strategic way to fulfill your required minimum distribution (RMD) and reduce your taxable income. A QCD allows you to withdraw the RMD and direct it as a donation to a qualified charity. The amount you donate is excluded from your taxable income, making it a tax-efficient way to give.
- Helping Loved Ones
In 2024, you can gift up to $18,000 per person, per year, tax-free. This annual exclusion allows you to transfer wealth to your heirs without incurring gift taxes. By taking advantage of this annual exclusion, you can strategically reduce your taxable estate and potentially save your heirs significant tax costs in the future. While this won’t impact your current year’s taxes, it can be a valuable tool in long-term tax planning.
If you have questions regarding your financial situation or would like to start planning for the future, please reach out to our office. Our experienced advisors can provide tailored advice and guidance to help you make informed decisions about your finances.
