Just as quickly as the holiday season sweeps in, it flies out the door. Before the new year rolls in with all its promise, don’t forget to take the chance to reflect on the year that 2024 has been. Part of your reflection and preparation for the new year should include an evaluation of your financial health. The end of the year offers the perfect window for financial planning that can set you up for a successful start to 2025. Here’s what you should focus on before the ball drops!
1. Reassess Your Financial Position After Market Volatility
This year, the market faced some swings that may have left you wondering how your portfolio fared. With inflation, rate cuts, and unfulfilled rumors of market slowdowns, take time to evaluate your investments and consider if adjustments are needed. While short-term volatility is often unavoidable, reviewing your long-term financial plan can provide clarity and peace of mind.
2. Ensure Retirement Accounts Are in Order
Retirement accounts often come with year-end deadlines that are easy to overlook but critical to meet. Missing these deadlines can lead to penalties, missed opportunities for tax savings, or unintended complications for beneficiaries. Whether you’re taking required minimum distributions, donating through qualified charitable distributions, or managing inherited accounts, ensure everything is in place before December 31.
Required Minimum Distributions (RMDs)
If you’re required to take RMDs from retirement accounts, ensure you do so from the required accounts before the year’s end to avoid hefty penalties.
Qualified Charitable Distributions (QCDs)
For those aged 70½ or older, QCDs allow you to donate directly from your IRA to a qualified charity, reducing your taxable income while supporting causes you care about!
Inherited IRAs
If you’ve inherited an IRA and there are multiple beneficiaries, ensure the account is split by the end of the year following the original IRA owner’s death. This step prevents complications and helps everyone manage distributions properly.
3. Optimize Your Tax Strategy
Reduce your liability and position yourself for a strong financial start to 2025 by fine-tuning your withholdings, exploring Roth conversions, or leveraging tax rules. Take advantage of strategies designed to save money and provide more control over your financial future!
Avoid Tax Penalties
Double-check that you’ve paid enough in taxes through withholding or estimated payments to avoid penalties. If you’re short, consider withholding taxes from an IRA distribution. You can replace those funds within 60 days, but beware of the once-per-year rollover rule.
Roth Conversions
Converting traditional IRA funds to a Roth IRA before year-end can be a smart move if you expect to be in a higher tax bracket in the future. While you’ll pay taxes on the conversion now, Roth IRAs grow tax-free and have no RMDs.
Leverage the Still-Working Exception
If you’re still employed and eligible, roll over IRA funds into a company retirement plan to defer RMDs on those assets. This can reduce your taxable income next year.
4. Maximize Estate Planning Opportunities Through Annual Exclusion Gifts
Before year-end, take advantage of the IRS’s annual gift tax exclusion, which allows you to gift up to $17,000 per recipient tax-free in 2024. This is a great way to reduce your taxable estate while helping loved ones financially.
Simple Steps To Get Prepped for 2025
Year-end financial planning is probably low on the list of things you’d like to do around the holiday season. But double-checking these items now can pay off significantly in the new year. A little preparation today can help ensure a secured retirement for tomorrow.
Any questions on this year-end list? We can help you start 2025 on solid financial footing. Give us a call: 952-460-3260.
