As the calendar year approaches its close and the holiday season is in full effect, it is not only a great time to see family and celebrate, but it is also a great time to tie up any loose ends for 2024. You should consider reviewing your financial strategies to ensure you are taking full advantage of opportunities to both maximize savings and minimize taxes. December 31st marks the end of the tax year for most individuals and several windows of opportunity close. Below are a few key considerations to help set yourself up for success in 2025.
Tax loss harvesting. If you have any investments that have declined in value, it may be advantageous to sell them before the year ends. The losses of that investment(s) can be used to offset capital gains and up to $3,000 of ordinary income. This helps you adjust your portfolio composition in a tax-neutral manner, trim potential stock concentrations and add to diversification. If you have tax loss carryovers from prior tax years, you may not need to sell any positions to offset capital gains.
Contributing to a retirement account is a vital component of funding a successful retirement. The ability to defer income taxes in a company-sponsored retirement plan ends each year on the 31st of December. You should know your total contributions as you enter the 4th quarter and attempt to reach the limit by the end of the year (assuming you have the cash flow to do so). Do you know how much you have contributed so far this year and what the maximum amount is? For a 401k plan in 2024, the maximum contributions are $23,000, plus an additional $7,500 if you are age 50 or older for the catch-up contribution. An IRA has maximum contributions of $7,000 with the catch-up contributions being $1,000 for those age 50 or older.
Be Proactive regarding taxes and cash flow. Barring any unforeseen event, you shouldn’t be surprised by your taxes and cash flow. Review your 2023 tax return now and fill in the rough numbers for 2024. Will your taxable income be substantially higher or lower? A lower projection may allow you to consider Roth conversions or trim some capital gains. Higher projections may cause you to wait until after January 1st for any taxable events. IRAs and personal plans like SEPs and Solo 401k plans allow you to contribute for the prior year up until April 15th. However, will you have the available funds to contribute when the deadline approaches? Some households prefer to contribute prior to year-end to have the funds “out of sight and out of mind.”
The strategies listed above can not only have a significant impact this year and next but can also make a big difference over the long haul as well. Just as with everything you do in life, timing and execution matter and you should consult with your investment and tax advisors. If you are ready and interested to learn more, please contact me and we can discuss what the best course of action may be for you.
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