We hope everyone had a great Thanksgiving! As we approach the end of the year, we want to express our heartfelt gratitude for your trust in our team and services. Working with each of you is a privilege, and we deeply value the opportunity to help you navigate your financial journey.
In this edition of our newsletter, we’re excited to share 10 essential year-end tax and financial planning strategies to consider. These tips are designed to help you optimize your financial position as 2024 comes to a close and set the stage for a successful 2025. Let’s finish the year strong together!
Don't leave money on the table! Ensure you're contributing the maximum amount to your 401(k) or 403(b) plans. For 2024, the contribution limit is $23,000, with an additional $7,500 catch-up contribution for those 50 and older. In 2025, the contribution limits goes up to $23,500 with an additional $7,500 catch-up contribution for those 50 and older, and thanks to the SECURE Act 2.0 for those age 60-63 your catch-up contribution moves up to $11,250. By maximizing your contributions, you're not only securing your future, but also reducing your taxable income for the current year if your electing Pre-Tax contributions.
If your income exceeds the limits for direct Roth IRA contributions, a backdoor Roth IRA might be an excellent strategy. This involves making a non-deductible contribution to a traditional IRA and then converting it to a Roth IRA. While this doesn't provide an immediate tax deduction, it allows for tax-free growth and withdrawals in retirement.
Remember, Flexible Spending Account (FSA) funds are typically "use it or lose it." Review your FSA balance and plan to use any remaining funds before the year-end deadline. Consider scheduling medical appointments, purchasing eligible health products, or even stocking up on contact lenses or prescription glasses.
If you have a High Deductible Health Plan (HDHP), make sure you're taking full advantage of your Health Savings Account (HSA). For 2024, you can contribute up to $4,150 for individual coverage or $8,300 for family coverage, with an additional $1,000 catch-up contribution if you're 55 or older. HSAs offer a triple tax advantage: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. If you are over 65, you can also use the HSA for non-medical expenses penalty free.
Tax loss harvesting can be a silver lining in a stock or investment position that hasn't gone as planned or is underperforming. By selling these at a loss, you can offset capital gains or even deduct up to $3,000 against your ordinary income. Just be mindful of the wash-sale rule when reinvesting ( wait to reinvest for at least 30 days usually).
Conversely, if you're in a lower tax bracket this year, consider realizing some capital gains through tax gain harvesting. You might be able to take advantage of the 0% long-term capital gains rate, effectively "stepping up" your cost basis without incurring any tax liability. This strategy is only suited for taxable brokerage accounts, this won't work in retirement accounts.
Make your charitable contributions to claim them on this year's tax return. Consider donating appreciated securities instead of cash – you'll avoid capital gains tax and still receive a deduction for the full market value. Also, consider making a QCD ( qualified charitable contribution) if over 70.5 directly from an IRA to satisfy your RMD's (required minimum distribution). Lastly, you can look at a Donor Advised Fund ( DAF ) that can be a useful strategy and account to establish.
Take a moment to review your tax withholdings from your paycheck. If you've had any significant life changes this year (marriage, divorce, new child), you might need to adjust your W-4. Proper withholding can help you avoid a surprise tax bill or a large refund (which is essentially an interest-free loan to the government).
If you expect to be in a higher tax bracket in the future, now might be an opportune time for a Roth conversion. By converting traditional IRA funds to a Roth IRA, you'll pay taxes now but enjoy tax-free growth and withdrawals in retirement. This strategy can be particularly effective if your income is lower this year.
As we wrap up our tax planning tips, we want to remind you that open enrollment season is in full swing. Take time to review all your employee benefit elections. From health insurance to life insurance, disability coverage to retirement plans – make sure your choices align with your current needs and future goals.
We understand that navigating these strategies can be complex. That's why we're here to help. We encourage you to schedule a personalized consultation with us to review your specific situation and implement the most effective tax-saving strategies for you as 2024 comes to an end and 2025 begins
Schedule a Year-End Planning Consultation
Thank you again for your continued trust. We wish you and your loved ones a joyous holiday season and a prosperous end to the year.
Warm regards,
Your Wela Financial Advisory Team
Brent Forrest & Associates, LLC. dba Wela Financial Advisory (Wela) is a registered investment adviser. The information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. This article and images may have been enhanced by utilizing artificial intelligence (AI). Brent Forrest & Associates, LLC dba Wela Financial Advisory (Wela) is a registered investment adviser. The information presented is for educational purposes only and is not intended to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance. Wela may discuss and display, charts, graphs, formulas which are not intended to be used by themselves to determine which securities to buy or sell, or when to buy or sell them. Such charts and graphs offer limited information and should not be used on their own to make investment decisions.
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