Important Year-End Financial Planning Reminders
As the end of the year approaches, it's a great time to take a look at your financial plan and ensure you’re on track to meet your goals. Year-end planning can help you maximize tax benefits, avoid penalties, and set a strong foundation for the coming year. Here are some key financial planning reminders to consider:
Maximizing Retirement Contributions
Take advantage of retirement account contribution limits to boost your savings and reduce your taxable income:
401(k) Contributions: For 2024, the maximum contribution limit is $23,000, with an additional $7,500 catch-up contribution allowed if you are age 50 or older. Ensure your contributions are on track before December 31.
IRA Contributions: You can contribute up to $7,000 to a Traditional or Roth IRA ($8,000 if age 50+). While the deadline for these contributions extends to April 15, 2025, it’s wise to plan early.
Required Minimum Distributions (RMDs)
If you are 73 or older, you are required to take RMDs from your retirement accounts by December 31. Failure to do so can result in a hefty penalty of 25% of the amount that should have been withdrawn.
Review your accounts and ensure you’ve met this obligation to avoid unnecessary costs.
Tax-Loss Harvesting
If you hold taxable investment accounts, consider selling investments with losses to offset gains realized during the year. This strategy can reduce your taxable income and help manage your overall tax liability.
Be mindful of the “wash-sale” rule, which disallows claiming a loss if you purchase the same or a substantially identical investment within 30 days.
Charitable Contributions
Making charitable donations is not only a meaningful way to give back but can also reduce your tax bill. Donations must be made by December 31 to count for the 2024 tax year.
Consider donating appreciated securities or using a donor-advised fund for additional tax benefits.
Annual Gifting
Take advantage of the annual gift tax exclusion to transfer wealth to loved ones tax-free:
Individuals can gift up to $18,000 per recipient in 2024.
Married couples can gift up to $34,000 per recipient by combining their exclusions. This is an excellent strategy to reduce your taxable estate while helping family members or friends.
Financial Plan Review
The end of the year is the perfect time to review your financial plan and update any goals or strategies for the upcoming year. Consider:
Changes to your income or expenses
Adjustments in your risk tolerance or investment objectives
Major life events such as marriage, the birth of a child, or retirement
End of Year Review
End-of-year financial planning is an opportunity to reflect on the progress you've made and make adjustments to stay on track for the upcoming year. By taking proactive steps now, you can optimize your financial situation, avoid costly mistakes, and enter the new year with confidence.
