It’s December. This is an important time to stop and take a moment to review your finances. Making strategic moves before year end can set you up for success in the coming year. This post will provide 5 things to do with your finances before year end.
1. Maximize Retirement Contributions
Whether it’s an IRA account or 401k account, if you can, make sure you take full advantage of these tax saving benefits.
- 401 (k) or 403 (b) contributions for 2025 are $23,500. If you are age 50 or older you can add $7,500 as a catch-up contribution for a total tax deferred contribution of $31,000.
- IRA contibutions are up to $7,000. If you are age 50 or older you can add an additional $1,000 for a total of $8,000 in pre-tax contributions.
- And new for 2025 under the Secure 2.0 Act the Super Catch Up – if you are 60,61,62 or 63 you can do a catch-up contribution of $11,250 (instead of the $7,500) for a total contribution of $34,750.
Remember all funds must be deposited in these accounts no later than December 31st.
2. Use up Flexible Spending Account (FSA) funds
FSAs are “use-it-or-lose-it” accounts. Meaning if you do not spend all the funds, they will not carry over to the next year, you forfeit those funds at the end of the year. Check your balances. There are specific websites you can go to and spend the funds on pharmacy type products such as band aids, contact solution, and more. Amazon has an entire section of flexible spending items click link.
3. Tax Loss Harvesting
If you chose a financial planner (see post Choosing a Financial Planner), make sure to schedule a call to review your projected 2024 annual income, potential taxes and opportunities to take “harvest” losses to offset moving into a higher tax bracket. Tax Loss Harvesting utilizes portfolio losses to reduce potential capital gain taxes on other assets. You can also reduce ordinary income but only by $3,000/year. If you sold a house or a company, you could reduce those capital gains with portfolio losses as well. This is an essential part of your 5 things to do with your finances before year end. Work with your accountant and financial planner to determine the optimum figures.
4. Take advantage of Roth Conversion Opportunities
There are definitely different opinions when it comes to Roth Conversions. Much of it is a result of which tax bracket you fall into today and may fall in the future. Below are some benefits of converting some of your retirement funds to a Roth.
- Tax Free Growth – once you pay the taxes to convert the pre-tax dollars to after-tax dollars, you never have to pay taxes again. Both the contributions made and the interest earnings grow tax-free. You won’t owe any taxes on interest, dividends or capital gains.
- Withdrawals after 59 1/2 are all tax-free
- Tax Diversification – by having both a Roth IRA and regular IRAs you can utilize the flexibility of when to take money from each fund during retirement – potentially saving taxes.
- Once you reach 70, on a typical IRA or 401K account you need to take Required Minimum Distributions (RMD). But with a Roth IRA you do not ever have to take any required distributions. The funds can continue to grow tax-free
- Your kids will love you! Heirs of a Roth IRA receive tax-free distributions. It’s a great way to pass wealth on to the next generation. This is especially true because they may inherit funds during their highest tax paying years.
- If you want to work until you are 80 – you can still contribute to a Roth IRA – there are no age limit restrictions.
Work with your accountant and financial advisor to determine if you have potential funds that can be converted to a Roth account. There are some considerations that are important including having cash on hand to pay taxes the year you convert, how much longer you have to let that money grow, your current tax bracket, and finally the 5-year rule. There is a 5-year waiting period to withdraw converted funds to avoid penaltiDises, regardless of age.
5. Charitable Contributions
Donating to a charity can lower your taxable income if you itemize your deductions. Make sure to keep receipts and good documentation on these contributions. Additionally, you can maximize this benefit by doing the following:
- Donate appreciated assets to a charity. By giving stocks or bonds to a charity that have increased in value, you can get a double tax benefit. You avoid capital gains, and you get a taxable deduction.
Final Thoughts
While December can be an extremely busy time of year, carving out time to take advantage of these 5 ends of year strategies can help you save taxes. A little planning now can pay off big in the year ahead.
Disclaimer: The information provided on this blog is for general informational purposes only. All content is based on personal experiences, research, and opinions. While I strive to ensure the accuracy and reliability of the information shared, I cannot guarantee that it is up-to-date, complete, or applicable to every situation.
