9 smart financial strategies to do before January 1st
The holidays are upon us. So, who has time to dig into smart financial strategies before the ball drops in Times Square on New Year's Eve?
I do. And it will only take a few minutes.
With only a few weeks before the end of the year, there are several things you could be doing right now to set yourself up for a prosperous 2025.
Perform tax-loss harvesting
2024 has been a great year for stocks and with great years often come big capital gains. To reduce those taxable gains, selling holdings with unrealized losses can help to reduce your tax bill on other gains that you’ve already realized. But you must complete those sales before January 1st.
Take your RMD
If you are subject to Required Minimum Distributions, or RMDs on a retirement account, you need to complete those distributions by the end of the year. This year that applies to retirees that turned age 73 or older. The penalty for NOT taking your RMD is significant—for most folks that tax penalty is 25% of the amount you were supposed to take but did not. If you own an inherited IRA, no RMD is required for 2024 only.
Make charitable gifts
In case you hadn’t noticed, it is giving season (it’s hard not to notice that this time of year). If you itemize deductions on your tax return, make your gifts now. If you took the Standard Deduction last year but were close to the itemization threshold last year ($29,200 for married filers or $14,600 for single filers), giving a little more this year might help you get over the threshold. Keep in mind whether your income is going to going to go up or down in 2025. If it is going up next year, you might want to shift your gifts into 2025 instead. If your income is going down next year, increasing your charitable contributions now could be more beneficial to you.
Adjust your payroll tax withholding
Did you get a big refund last year? Did you have a big tax bill when you filed your taxes? Now is the time to try to get the right withholding set on your paycheck. By filing an updated IRS Form W-4 with your employer now you have the opportunity to get the correct amount withheld from your paycheck in 2025. Don’t forget that other income can affect your tax bill: if you had unusually large capital gains last year and you are not expecting those this year, that may change how much you want withheld. If you put this off until the middle of next year, you will
have already completed the first half of the year at the same withholding level which may not be accurate.
Increase your 401(k) / 403(b) salary deferrals
If you contributing to a retirement plan at work, great! Consider increasing your salary deferral by 1% for the new year. Most people don’t notice a 1% increase. If you make that 1% increase every year, you’ll soon be maxing out your 401(k) or 403(b). Already maxing out? The limits are going up in 2025: If you are under 50 you can contribute up to $23,500. If you are turning 50 in 2025 (or are over 50), you can contribute an additional $7,500, for a total of $31,000.
Maximize contributions to Health Savings Accounts
Health savings plans can help you save for future medical expenses. A unique feature of these accounts is that money goes in pre-tax, grows tax-deferred and qualified distributions are tax-free. No other account offers all three tax benefits. In 2025 the maximums are $4,300 for individuals and $8,550 for families. In addition, individuals age 55 and over can contribute and additional $1,000 to their HSA.
Put your IRA / Roth contributions on autopilot
No retirement plan at work? Or, maxed out your 401(k)? You can still make contributions to a Traditional or Roth IRA. In 2025, workers can contribute $7,000 ($8,000 if age 50 or older). You must have earned income unless you are married to a worker. In that case, you can open a spousal IRA even without earned income. The good news is that you have until April 15th, 2025 to fund your 2024 contribution. Once you have set it up, consider establishing an automatic investment plan (AIP) that drafts funds directly from your bank into your IRA. Then you never need to remember to make your contribution at tax time. An AIP can simplify the savings process.
Help your adult children start a retirement account
If you’ve done a lot to help your kids get a start in life, why not help them become excellent long-term savers with a retirement account? As long as they have earnings from work, you can fund a Traditional or Roth IRA for them, even if they are minors. By starting early you’ll be helping them to begin understanding the power of compounding and the potential for long term growth. Some parents tell their kids that they will match their contributions to get them to participate. They need to start somewhere. Why not with you?
Create a financial plan that fits your needs
Okay, we’re financial planners. So, we are a little biased here. But having a plan can help you avoid mistakes down the road and also help you be prepared for life’s unexpected financial twists and turns. When you are just starting out, your plan typically does not need to be complicated. You might be able to outline it on one sheet of paper. As one goes through life—getting married, buying a house, having children, changing jobs or getting promoted—finances
tend to get a lot more complicated. Also, if you just don’t seem to be getting any traction towards your life goals, a financial plan might be just what you need to start making the progress you’ve always wanted.
If you’d like to discuss these end of year strategies, give me a call. I’m here to help. You can schedule a quick call with me by clicking HERE.
Lyman H. Jackson
Lyman@PlanWithFPS.com
617-653-3303
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©2024 by Financial Planning Solutions, LLC (FPS), a Registered Investment Advisor. Reprinting or redistribution only by permission. This blog was written by a professional with 30 years’ of real world experience in finance. AI did not write this article. FPS provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client after entering into an advisory relationship. Information herein includes opinions and forward-looking statements that may not come to pass. Information is derived from sources believed to be reliable. Information is at a point in time and subject to change without notice. Such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.