As we approach the end of another year, we thought it would be helpful to provide an updated list of opportunities to hopefully wrap up 2024 on a financial high note.
- Required Minimum Distributions: For those who are age 73 or older, minimum distributions from IRAs and other qualified retirement plans may be required. For those with a 401(k) and still employed, the plan may allow for RMDs to be deferred until retirement or separation of service. There are no options to defer RMDs from a Traditional IRA, however, see the Charitable Gifts section below as an idea to limit taxation if the RMD is not necessary to meet expense needs.
- Tax Loss or Gain Harvesting: For those with taxable investments that have an unrealized capital loss, one option is to sell the position to recognize the loss and help offset capital gains and potentially income. One key to harvesting losses is that you may want to consider taking the proceeds of the sale and investing in a similar strategy so as not to lose exposure to the asset class. You’ll want to stay out of the sold position for at least 30-days, otherwise the IRS will disallow the loss for tax purposes. Your tax professional can help you with this decision.
Gain harvesting is similar to loss harvesting, but more for those who anticipate a significant increase in their tax bracket (and therefore their capital gains rates) in the next year or beyond. You may want to harvest some capital gains in your taxable investment accounts, pay taxes at a lower rate, and reinvest the proceeds into a similar strategy. Again, it’s recommended that you discuss this with your tax professional first.
- Roth Conversions: While Traditional and Roth IRA contributions can be made up until the normal April tax-filing deadline, if you are interested in converting dollars from a Traditional IRA to a Roth IRA and want the taxation to be treated in 2024, the deadline for this is December 31, 2024. As a reminder, any amounts converted from a pre-tax Traditional IRA to a Roth IRA will be taxed as ordinary income in the year converted. The potential benefit is that future earnings in the Roth IRA will be tax-free. Conversions can be done in-kind as well, meaning that shares of securities can be converted vs. selling positions and converting cash. There are many considerations with this strategy that should be discussed with us as well as a tax professional.
- Investigate Employer Benefits: This is the time of the year for open enrollment, and when you can/should review your existing benefits selections and determine if you’d like to make changes to coverage or contribution amounts.
- If covered by health insurance, consider whether a Health Savings Account would be an attractive option based on the health of your family and cash flow.
- If you have the option for a Flexible Spending Account, consider maximizing those contributions, and make a plan for utilizing those dollars to cover approved expenses.
- Confirm the amount of any employer match in a retirement plan, so that you at least contribute enough to get this benefit.
- If you have a SIMPLE IRA, this is the time of year where you’ll be notified of any changes to the plan, and where generally contribution amounts can be amended.
- Do you have a deferred compensation option? Utilizing this is worth discussing with your tax professional.
- Charitable Gifts: For those who are charitably inclined, December 31, 2024 is the deadline for deductible charitable gifts to be made, but you’ll likely want to complete gifts by December 15th to avoid any issues with delays. Given the high levels of standard deductions, the tax benefit of this may be lost for some. If this is the case for you, consider doubling up charitable gifts in one year and not giving any in the next to maximize the tax benefit. For someone over the age of 70½, with Traditional IRA assets, giving money from the IRA directly to a qualified charity is not considered taxable income, and those of RMD-age can also use a direct charitable gift to satisfy their RMD in a given year. As with any of the above, consulting with a tax professional is advised.
Note: Those with check-writing capabilities on an IRA may want to consider having any direct charitable gifts sent from the IRA custodian and not via a written check. If the charity is delayed in cashing the check until after year-end or the check is lost, this is difficult to correct with a personally-written check, versus if sent directly from the custodian, the custodian already reported the money as leaving the IRA, so the remedy is the custodian simply re-issuing the check.
Even in a year of ups and downs, it’s important to be aware of opportunities available to you. Please don’t hesitate to reach out to us with any questions.