ST. CROIX INSIGHTS
10 Financial Planning Moves to Consider Before Year-End
As we approach the end of 2024 and look ahead to 2025, it’s the perfect time to review your financial plans and take advantage of key opportunities before the year closes. From managing tax-saving strategies to optimizing retirement accounts, a little proactive planning now can set you up for a stronger financial future.
Before we toast with champagne, here are 10 financial planning ideas to consider before year-end.
1. Withdraw your Required Minimum Distributions (RMDs): RMDs apply to folks who are 73 or older. If you are subject to RMDs and if you don’t take them out before the end of the year, there will be a penalty. If you don’t need your RMDs to pay your living expenses, explore other options like giving to charity.
2. Maximize your year-end cash gifts: Under the Tax Cuts and Jobs Act, the deduction for cash contributions directly to charity increased from 50% of AGI to 60%, including for gifts to a donor-advised fund. If this Act sunsets, this limit will revert back to 50%, so donors should consider maximizing their cash gifts today. Additionally, the federal unified estate and gift tax exemption for 2024 has been at an all-time high of $13.61 million, or $27.22 million per married couple. No one knows what the future holds, so it may be wise for high-net-worth families to make last-minute gifts to get money out of their taxable estate.
3. Convert to a Roth account: A Roth IRA Conversion allows you to move funds from a traditional IRA, SEP IRA, or 401(k) into a Roth IRA. When converting, you’ll owe income taxes on the converted amount because traditional accounts are funded with pre-tax dollars, while Roth accounts are post-tax. However, if you believe you’ll be in a higher tax bracket later—due to increased income, changes in tax laws, or moving to a higher-tax state—paying the taxes now for no taxes later may be worth it.
4. Review your beneficiary designations: The end of the year is always a great time to review your retirement accounts and insurance policies to ensure everything is set up according to your wishes and to account for any big life changes that may have occurred over the last 12 months.
5. Leverage rolling GRATs: A Grantor Retained Annuity Trust (GRAT) is a special type of trust that lets you transfer assets to your beneficiaries while you receive fixed payments (annuities) for a set period. Rolling GRATs involve setting up multiple, shorter-term GRATs. With today’s elevated rates and market conditions, rolling GRATs may help you minimize tax risk.
6. Superfund 529 accounts: If you’re contributing to any 529 accounts for loved ones, superfunding allows you to front-load a 529 plan by making five years of contributions all at once with a large, lump sum and not run into gift tax issues.
7. Max out HSA contributions: Contributions to an HSA are tax-deductible (or pre-tax if made through payroll) and earnings grow tax-free. In 2024, you can contribute up to $4,150 for yourself, or $8,300 if you have coverage for your family. By contributing the maximum amount allowed, you take full advantage of these tax savings.
8. Transform net operating losses into tax-free income: If you’re a business owner who will record a net operating loss (NOL) this year, you may be able to turn the loss into tax-free income with a Roth conversion. NOLs can offset up to 80% of taxable income in the current or future years. You could potentially convert a portion of your traditional IRA or 401(k) into a Roth IRA and use your NOL to offset up to 80% of the taxable income created by the Roth conversion. This is a complex strategy. Be sure to work with your tax professional.
9. Create a tax projection: Use tax projections to potentially lower your future taxes. To start, review your last tax return and adjust for any changes this year, such as shifts in income, tax rates, or deductions. Then calculate your estimated taxes based on these updates.
- Suggestions for a Higher-Than-Usual Income Year:
- Maximize contributions to tax-advantaged accounts like a 401(k) or HSA.
- Accelerate income tax deductions where possible.
- Use tax-loss harvesting to offset taxable gains.
- In a Lower-Than-Usual Income Year:
- Convert pre-tax retirement assets to a Roth IRA.
- Proactively take distributions from your traditional IRA to minimize taxes over the long term.
10. Review Your Financial Goals and Rebalance Investments: As the year wraps up, take a moment to review your financial goals and ensure your investment portfolio aligns with them. Market fluctuations throughout the year can cause your portfolio to drift from its target allocation, so rebalancing can help maintain your desired risk level. This is also a good time to revisit your short- and long-term goals, such as retirement savings targets, college funding plans, or paying off debt. Adjust contributions or strategies as needed to stay on track for the year ahead.
These steps can help you close out the year on a strong financial footing while preparing for a successful 2025. And as the year comes to a close, I want to express my heartfelt appreciation to all my clients. Your trust and partnership are the foundation of my work, and I am truly grateful for the opportunity to help you achieve your financial goals.
As we approach the end of 2024 and look ahead to 2025, it’s the perfect time to review your financial plans and take advantage of key opportunities before the year closes. From managing tax-saving strategies to optimizing retirement accounts, a little proactive planning now can set you up for a stronger financial future.
Before we toast with champagne, here are 10 financial planning ideas to consider before year-end.
1. Withdraw your Required Minimum Distributions (RMDs): RMDs apply to folks who are 73 or older. If you are subject to RMDs and if you don’t take them out before the end of the year, there will be a penalty. If you don’t need your RMDs to pay your living expenses, explore other options like giving to charity.
2. Maximize your year-end cash gifts: Under the Tax Cuts and Jobs Act, the deduction for cash contributions directly to charity increased from 50% of AGI to 60%, including for gifts to a donor-advised fund. If this Act sunsets, this limit will revert back to 50%, so donors should consider maximizing their cash gifts today. Additionally, the federal unified estate and gift tax exemption for 2024 has been at an all-time high of $13.61 million, or $27.22 million per married couple. No one knows what the future holds, so it may be wise for high-net-worth families to make last-minute gifts to get money out of their taxable estate.
3. Convert to a Roth account: A Roth IRA Conversion allows you to move funds from a traditional IRA, SEP IRA, or 401(k) into a Roth IRA. When converting, you’ll owe income taxes on the converted amount because traditional accounts are funded with pre-tax dollars, while Roth accounts are post-tax. However, if you believe you’ll be in a higher tax bracket later—due to increased income, changes in tax laws, or moving to a higher-tax state—paying the taxes now for no taxes later may be worth it.
4. Review your beneficiary designations: The end of the year is always a great time to review your retirement accounts and insurance policies to ensure everything is set up according to your wishes and to account for any big life changes that may have occurred over the last 12 months.
5. Leverage rolling GRATs: A Grantor Retained Annuity Trust (GRAT) is a special type of trust that lets you transfer assets to your beneficiaries while you receive fixed payments (annuities) for a set period. Rolling GRATs involve setting up multiple, shorter-term GRATs. With today’s elevated rates and market conditions, rolling GRATs may help you minimize tax risk.
6. Superfund 529 accounts: If you’re contributing to any 529 accounts for loved ones, superfunding allows you to front-load a 529 plan by making five years of contributions all at once with a large, lump sum and not run into gift tax issues.
7. Max out HSA contributions: Contributions to an HSA are tax-deductible (or pre-tax if made through payroll) and earnings grow tax-free. In 2024, you can contribute up to $4,150 for yourself, or $8,300 if you have coverage for your family. By contributing the maximum amount allowed, you take full advantage of these tax savings.
8. Transform net operating losses into tax-free income: If you’re a business owner who will record a net operating loss (NOL) this year, you may be able to turn the loss into tax-free income with a Roth conversion. NOLs can offset up to 80% of taxable income in the current or future years. You could potentially convert a portion of your traditional IRA or 401(k) into a Roth IRA and use your NOL to offset up to 80% of the taxable income created by the Roth conversion. This is a complex strategy. Be sure to work with your tax professional.
9. Create a tax projection: Use tax projections to potentially lower your future taxes. To start, review your last tax return and adjust for any changes this year, such as shifts in income, tax rates, or deductions. Then calculate your estimated taxes based on these updates.
- Suggestions for a Higher-Than-Usual Income Year:
- Maximize contributions to tax-advantaged accounts like a 401(k) or HSA.
- Accelerate income tax deductions where possible.
- Use tax-loss harvesting to offset taxable gains.
- In a Lower-Than-Usual Income Year:
- Convert pre-tax retirement assets to a Roth IRA.
- Proactively take distributions from your traditional IRA to minimize taxes over the long term.
10. Review Your Financial Goals and Rebalance Investments: As the year wraps up, take a moment to review your financial goals and ensure your investment portfolio aligns with them. Market fluctuations throughout the year can cause your portfolio to drift from its target allocation, so rebalancing can help maintain your desired risk level. This is also a good time to revisit your short- and long-term goals, such as retirement savings targets, college funding plans, or paying off debt. Adjust contributions or strategies as needed to stay on track for the year ahead.
These steps can help you close out the year on a strong financial footing while preparing for a successful 2025. And as the year comes to a close, I want to express my heartfelt appreciation to all my clients. Your trust and partnership are the foundation of my work, and I am truly grateful for the opportunity to help you achieve your financial goals.