Closing the Year Strong: Key Financial Moves Before Year-End

As the year-end approaches, there are several key financial moves to consider to optimize your tax strategy and maximize savings. Proactive tax planning is essential, and these steps can help reduce tax liabilities while setting a solid financial foundation for the upcoming year.

1. Roth Conversions: Evaluating Roth conversions can be beneficial, especially if your tax bracket is projected to increase in the future. This allows you to lock in a lower tax rate now and enjoy tax-free withdrawals later, providing potential tax savings in retirement.
2. Retirement Contributions: Make the most of your retirement account contributions. For business owners, a solo 401k allows up to $72,000 in contributions, a valuable tool to boost retirement savings while reducing taxable income. Additionally, maximize contributions to 401k or IRA accounts to capture any employer-matching benefits, especially if your plan lacks a true-up feature.
3. Tax-Efficient Investments: For brokerage accounts, consider tax loss harvesting to offset investment gains and reduce taxable income. Transitioning from mutual funds to ETFs can also lower capital gains taxes. High-net-worth individuals may benefit from direct indexing, a strategy that can further enhance tax efficiency.
4. Health Savings Accounts and Flexible Spending Accounts: Review any funds in your Flexible Spending Account (FSA), as they may need to be spent by year-end. For Health Savings Accounts (HSAs), consider making contributions for their tax deferral and growth potential, and possibly invest excess funds for long-term growth.
5. Charitable Giving and Annual Gifts: Take advantage of the annual gift tax exclusion, allowing up to $18,000 per person, or more for married couples. Direct gifts of appreciated securities to charities can also maximize your giving impact while minimizing capital gains taxes.
6. Required Minimum Distributions (RMDs): With the Secure Act, managing RMDs for inherited IRAs and retirement accounts has become more complex. Non-spouse beneficiaries now have a 10-year rule for distributions, adding flexibility but requiring careful planning to avoid unexpected tax consequences.
7. Prepaying Deductions: By prepaying deductible expenses such as property taxes, mortgage interest, and charitable donations before year-end, you can maximize tax deductions. Business owners should manage deductions carefully to ensure they show consistent profits, especially if planning for a loan or business sale.
8. Financial Review and Planning: Having a comprehensive financial plan allows for clear short- and long-term decision-making. Regular reviews with a financial advisor help ensure your tax strategy and financial goals remain aligned, adapting as your circumstances evolve.

Taking these actions can help you close the year strong and set you up for a more secure future.