By Michael Berkhahn, CFP®
As year-end approaches, it’s easy to get overwhelmed by holiday responsibilities like shopping, decorating, and spending time with loved ones. However, there is another important responsibility that needs to be considered: your “financial” to-do list. Many people pay too much in taxes – oftentimes unknowingly. Below are the top 5 money moves to make before December 31:
Review your retirement contributions
Review your retirement accounts to see if there’s room for additional contributions. If so, consider contributing to a Roth IRA, which has a contribution limit of $7,000 ($8,000 if you’re 50+) for 2024. However, there are income limits to keep in mind: as a single filer, your Modified Adjusted Gross Income (MAGI) must be under $161,000, or under $230,000 if married and filing jointly.
If your income exceeds these limits, you can still contribute to a Roth IRA through a strategy known as the Backdoor Roth Conversion. This allows higher-income earners to convert funds from a traditional IRA to a Roth, bypassing the income cap.
Related: 4 Key Terms to Strengthen Your Money Literacy
Tax Loss Harvesting
While it’s been a strong year for the markets, not all investments performed well. If you’ve realized capital gains by selling successful stocks, you can offset these gains by selling underperforming assets, a strategy known as tax-loss harvesting. This allows you to reduce your tax liability by using losses to offset taxable gains.
If you’re still confident in the long-term value of a stock you’ve sold, you can repurchase it after 30 days to comply with the IRS’s wash-sale rule.
Employee Health Benefits Account
If you contribute to a Flexible Spending Account (FSA), check the expiration date for your funds. Most FSAs require that you use your savings by December 31, although some employers offer a grace period through March 15 of the following year. To avoid forfeiting your savings, double-check your plan’s specific deadlines.
For individuals with a Health Savings Account (HSA), you’re not required to spend your savings by year-end, as HSA funds roll over. However, it’s wise to ensure you’ve contributed the maximum amount for the year. HSAs are particularly valuable because they can be used as a tax-advantage resource during retirement.
Roth Conversions
If you have pre-tax retirement accounts, a Roth conversion might be a smart move. This involves converting a portion of your traditional IRA or 401(k) into a Roth IRA, allowing you to pay taxes now so that your future withdrawals are tax-free. Done strategically, Roth conversions can save you thousands of dollars in taxes over time, especially during retirement.
Make Charitable Contributions
The holiday season is a popular time to donate to your favorite charity (another of the top 5 money moves). If you’re required to take a required minimum distribution (RMDs) from your retirement account and want to minimize taxes, consider making a Qualified Charitable Distribution (QCD). A QCD allows you to donate directly to a charity from your IRA, which satisfies your RMD without subjecting the distribution to ordinary income taxes.
Combining these five financial moves before the year ends with a comprehensive financial plan can help ensure that you’re on solid financial footing as you head into 2025.
Michael Berkhahn, CFP®, is Vice President of Graham Capital Wealth Management, an independent Registered Investment Advisor that specializes in providing investment management strategies for high net-worth families, foundations and pension plans. As a CERTIFIED FINANCIAL PLANNER™ practitioner, Berkhahn is part of an elite group of advisors who have completed the necessary training and requirements to hold the CFP® designation and is a fiduciary committed to complying with its continuing education and ethics standards.
