by Charissa Anderson, CFP®, CDFA
Senior Vice President
Portfolio and Wealth Management
As the year draws to a close, it's an opportune time to review your financial situation and ensure you meet year-end deadlines to maximize your financial benefits. Completing these year-end financial tasks can help you save on taxes, secure your retirement and prepare you for the year ahead.
Charitable Tax Planning
Charitable gifting is a meaningful way to support causes you care about while also enjoying potential tax benefits. By making donations to qualified charitable organizations before the end of the year, you may take advantage of deductions on your tax return.
When considering charitable gifts, it's important to keep in mind that in most cases, charities must receive donations by December 31 to qualify for a deduction in the current tax year. While transfers of cash can be completed relatively quickly, it is often more tax efficient to donate appreciated assets. If you are donating appreciated assets, begin the process by early December to allow ample time for processing. Schwab’s 2024 Year-End Giving Guidelines provide helpful processing timeframes and deadlines based on the type of gift you are making.
For individual retirement account (IRA) owners over age 70 ½ planning to make a qualified charitable distribution (QCD) of up to $105,000 from their IRA, processing times are shorter than donating stock, but we encourage you to start the process early and not risk processing delays.
Annual Gifting
The annual gift tax exemption allows you to gift up to a certain amount to an individual each year without incurring gift taxes. For 2024, individuals can give away $18,000 per recipient without incurring federal gift taxes or using up any portion of their $13.61 million lifetime transfer-tax exemption. Spouses can give away a combined $36,000. Gifts need to be completed (deposited into the recipient’s account, cashed or securities transferred) by December 31 to qualify. Like charitable donations, we encourage you to put these plans in motion sooner rather than later.
Keep in mind that you can also make unlimited gifts to pay for someone's medical expenses or educational tuition, without incurring gift tax consequences, if you make the payments directly to the medical service provider or educational institution.
Retirement Contributions
Consistently contributing to retirement accounts not only ensures long-term financial security but also offers tax advantages. While contributions to traditional IRAs and Roth IRAs can be made up until April 15 of 2025, employee contributions to many employer-provided retirement plans, such as 401(k)s, must be made by December 31. Review your year-to-date contributions, and if you are falling short of the maximum allowed contribution, consider increasing your deferral out of your final paycheck.
If only one spouse is working, you may qualify for a spousal IRA. The contributions can be made to a pre-tax traditional IRA, or an after-tax Roth IRA if certain income limits are met. Children with earned income may also qualify for an IRA.
Required Minimum Distributions (RMDs)
Make sure you’ve taken your required minimum distributions (RMD) from retirement accounts before December 31. Penalties apply if the RMD is not taken in full by the end of the year. For those taking their first RMD, the distribution can be deferred until April 1 of the following year, but the following year’s distribution will also be required, resulting in two RMDs in one tax year.
For inherited IRAs, the distribution rules are quite complex and depend on numerous factors. It’s important to work closely with your tax advisor to ensure you understand your options and requirements.
Flexible Spending Account
Flexible Spending Accounts (FSAs) offer a tax-advantaged way to pay for eligible medical and dependent care expenses. FSAs typically have a "use-it-or-lose-it" rule, meaning you must spend the funds by the end of the plan year or risk forfeiting the money. Check your FSA balances and plan to use the remaining funds before the year ends. Some plans offer a grace period or allow a small carryover amount, so confirm the rules with your employer.
If you have already met your health insurance plan’s annual deductible, consider incurring any additional medical expenses before the end of the year, at which point your annual deductible will reset.
529 Plans for Education Savings
529 plans provide a tax-advantaged way to save for education expenses. Contributions to a 529 plan grow tax-free, and withdrawals for qualified education expenses are tax-free when used for qualified education expenses.
529 plan contributions for the current year must be made by December 31. If you are paying for college expenses, review whether any expenses need to be reimbursed out of an existing 529 plan. Distributions generally need to occur in the same year as the qualified education expenses to ensure tax-free treatment.
Review Your Tax Situation
Income tax rates, capital gains tax rates, the taxation of Social Security and Medicare premiums are all affected by levels of income. Depending on your circumstances, you may benefit from shifting income and deductions as part of a multiyear tax strategy. It is also prudent to review your year-to-date tax payments to ensure you have at least paid enough to avoid penalties and allow time to make any necessary adjustments in your withholding.
Finishing these year-end financial tasks can help optimize your financial picture and ensure you are taking full advantage of the available tax benefits. If you have any questions or need help facilitating your year-end transactions, please contact your portfolio manager and client relationship associate.
Ferguson Wellman, Octavia Group and West Bearing do not provide tax, legal, insurance or medical advice. This material has been prepared for general educational and informational purposes only and not as a substitute for qualified counsel. We believe the information provided is from reliable sources but should not be assumed accurate or complete. You should consult qualified professionals to understand how this information may, or may not, apply specifically to you.