Important Year-End Tax Planning, Ep #177

As the year comes to a close, it’s the perfect time to review your financial strategy and make the most of every opportunity to optimize your tax situation. In this episode of Retirement Made Easy, we’re diving into practical, actionable year-end tax planning tips to help you finish the year strong.

You’ll learn how tax-loss harvesting can save you money, when a Roth conversion might be a smart move, and how charitable giving, 529 plans, and IRA contributions could work in your favor. We’ll also cover key considerations for retirees and why taking a close look at where you stand for the year is so important. Take charge of your year-end planning today. 

You will want to hear this episode if you are interested in…

• [1:30] Submit a question at RetirementMadeEasyPodcast.com!
• [2:27] Can you take advantage of tax-loss harvesting?
• [4:41] Are you able to make any Roth conversions?
• [9:54] Charitable giving, 529 plans, and IRA contributions
• [12:30] Considerations for someone already retired 
• [13:44] Where do you stand for the year? 

Can you take advantage of tax-loss harvesting?

Tax-loss harvesting is a key year-end strategy. By selling investments at a loss, you can deduct up to $3,000 on your taxes annually, with additional losses carried forward to future years. Reviewing short and long-term capital losses before year-end can help you decide if this strategy aligns with your financial goals.

Are you able to make any Roth conversions?

We do more Roth conversions in December than any other month of the year, especially for those who have variable incomes. Why? For some people, it makes sense to hold off on a Roth conversion until you can tally all of your yearly income. 

Let’s say someone gets bonuses quarterly and they don’t know if those bonuses will be $1,000 or $25,000 (someone in sales may fall into this category).We have some clients who get unpredictable bonuses in November/December at which point we can determine whether or not to do a Roth conversion. It makes sense to wait until the end of the year to determine what your sweet spot is. 

One client, living on Social Security and a small pension, discovered they could convert $11,000 to a Roth IRA annually without incurring taxes. Planning earlier could have provided three additional years of tax-free growth. Don’t miss opportunities like these.

Charitable giving, 529 plans, and IRA contributions

Here are some other key areas to consider: 

Charitable Giving: Review your total contributions for the year. Did you donate stock, appreciated assets, or cash? If you’re 70½ or older, a qualified charitable distribution from your IRA may reduce your taxable income. Donor-advised funds are another option to consider before year-end.

529 Plans: Some states offer tax deductions for contributions to 529 plans. Gifting to a grandchild’s education fund can double as a thoughtful holiday gift.

IRA Contributions: Don’t wait until the last minute to contribute to traditional or SEP IRAs. Maximize your 401(k) contributions by reviewing your pay stub and increasing your savings if possible before December 31.

Where do you stand for the year? 

A thorough year-end review ensures you’re financially prepared for the year ahead. Consider these questions:

• Will you owe taxes or receive a large refund? If you have a tax liability, can penalties be avoided?
• Are you withholding enough from pension income, IRA distributions, or Social Security?
• Do you need to adjust your withholding for 2025, especially if your income will increase?

By addressing these questions now, you can reduce surprises and set yourself up for a smooth transition into the new year.

Hopefully this episode is a reminder that these are the conversations you need to have with your financial advisor!

Resources & People Mentioned

• 3 Steps to Retirement Planning