Five Things To Do Before End Of Year To Solidify Your Finances

Monday, November 18, 2024

By Robert N. Capra, CFP™ and Jeff Velastegui, Personal Estate & Business Advisor, Founder & Owner of The Legacy Group

The rush and excitement of the end of year is in full swing as you prepare for the holidays and buy those last-minute gifts for a special loved one. Just as there is an ever-so-long to do list to prepare for the holiday season, we want to share with you another important checklist for you to consider as the end of year draws near.

When we look back on 2024, it will go down as a year where markets were cooperative, inflation subsided and the Federal Reserve started to lower interest rates.  Even though your portfolio is most likely increased this year there are several things that can be done to help solidify your personal finances and get you off to a good start in 2025. 

Here are five things you can do before December 31^st to help you maximize your bottom line:

1. Tax Loss Harvesting

1. Portfolio losses are never fun, but they can be useful from a tax standpoint. If your non-qualified portfolio has sustained losses this year, even though they may be hard to find, you may be able to utilize those losses effectively to lower your tax bill. The IRS allows you to offset capital gains from selling securities at a profit by selling others at a loss. For example, if you sold stock A earlier in the year for a gain of $100 and sold stock B now for a loss of $100 then your net gain is zero and you owe no tax on the sale of stock A. If your losses exceed your gains you can offset up to $3,000 of non-investment related income and can even carry forward those losses indefinitely into the future until they are fully utilized. 
2. You do have to be aware of the “wash sale” rule, so you must make sure you do not buy the same or a “substantially identical” security in the 30 days prior or the 30 days after the sale or else you will not be able to take the tax loss from that security. 

2. Roth Conversion

1. Depending on your tax situation it make sense to convert assets held in a traditional IRA to a ROTH IRA. The idea behind the conversion is that you will be converting pre-tax assets to a ROTH where the growth will continue tax deferred but when you take withdrawals in the future they will be tax free! This can be particularly effective if you find yourself in a lower tax bracket this year.
2. Two things to pay attention to: First, a conversion will increase your income, so you want to be sure it does not increase your tax rate or impact your Medicare premiums. Second, you need to wait at least five years before taking a withdrawal or you will face a 10% penalty.
3. The sunset of the 2017 Tax Cuts and Jobs Act (TCJA) at the end of 2025 may make this an opportune time to explore ROTH conversion if you expect your tax bracket to increase if the legislation does in fact sunset.

3. Max Out Retirement Accounts

1. If you are not doing so already you only have a few weeks to max out your employer sponsored retirement plans such as a 401k or 403b. The deadline for contributions is December 31^st so if you still have capacity, it may not be too late to reach out to your retirement plan administrator or Human Resources department and see if you can increase your contributions to get to the maximum before the end of the year. The 2024 limit is $23,000 with an additional $7,500 in “Catch up” If you are over age 50. In 2025 the under 50 limits will be increased to $23,500 and the catch up for folks who are 50-59 or 64 or older are $7,500.
2. Something new relative to the catch-up provisions. Starting in 2025, those between 60 and 63 will be eligible to contribute up to $11,250 as a catch-up contribution as opposed to $7,500.  This means in 2025 those 60 to 63 will be able to contribute up to $34,750 in 2025!

4. Make a 529 Contribution

1. If you want your 529 college plan contribution to count for 2024 you must make it before December 31^st. A 529 plan can be an effective way to save for college as the funds in the account grow tax deferred and if used for education expenses can be tax free when taken out. Some states may even offer a tax deduction for monies that are contributed. For example, a Married couple in New York can deduct up to $10,000 from their state income tax return. ($5,000 for a single tax filer)

5. Take your Required Minimum Distribution

1. If you are currently of the age where you must take Required Minimum Distributions (RMD’s) from your qualified retirement accounts, you must take the distribution by December 31^st. If you fail to take this distribution you will pay a 25% penalty on the amount not taken, so it is critical that you ensure that your distribution has been taken by the end of the year.
2. If 2024 is the first year that you must take an RMD then you can delay until April 1^st of the 2025 and still follow the rule but keep in mind that would mean you need to take two distributions in 2025. One to satisfy 2024 and a second for 2025. The extra income could push you into a higher tax rate or impact your Medicare premiums, so it is worth considering the timing of the distributions.
3. If you are wondering if you must take an RMD the IRS offers the following on the required beginning date:

1. 1. April 1 of the year following the calendar year in which you reach age 72 (73 if you reach age 72 after Dec. 31, 2022).

1. You will also want to keep in mind that you can only aggregate the distribution from like accounts. For example, if you have two IRA’s you can take a distribution from one or both and as long as you take the total amount necessary you are not subject to a penalty. If you have a 401k and an IRA, each will have its own RMD, and you must take a separate distribution from each. Taking only from the IRA will not cover the necessary distribution that has to come from the 401k, so it’s important to understand how your retirement accounts are structured and what RMD’s are necessary.

So, there it is-your financial holiday “to-do” list! What better gift can you give yourself than peace of mind that you are doing everything you can to maximize your growth and deductions and properly prepare for a new year ahead.  If you need guidance or help checking these items off your list this December, we would be happy to discuss and coordinate with your tax professional.  

Have a healthy and happy holiday season!

Contact the Legacy Group and let us help you find the right strategy that suits your needs. Email us at LegacyGroupNY@financialguide.com 

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