It is important to plan for taxes year-round in order to be adequately prepared to file your tax return the following April. However, this is especially true towards the end of the calendar year when it is time to make sure your ducks are in a row. This blog will highlight some areas that are important to think about before the end of the year, such as:
Tax-Deductible IRA Contributions
The deadline for current-year contributions to these accounts is the same as the tax deadline for that year (April 15th of the following year, subject to change due to weekends or holidays). The contributions are tax-deductible up to the current year’s limit set by the IRS as long as your modified adjusted gross income is less than $146,000 ($230,000 if filing jointly). For 2024, that limit is $7,000, or $8,000 if you are age 50 or older.
Qualified Charitable Distributions (QCDs)
QCDs are a great tax savings strategy if you already give to charities and non-profits, as long as you are 70 ½ or older. These are non-taxable distributions paid directly from an IRA to a qualified charity. They can satisfy all or a part of your required minimum distribution. For example, if your RMD is $10,000, and you made qualified charitable distributions totaling $6,000, your remaining taxable RMD would be $4,000! Remember – the deadline for QCDs is December 31st and the QCD limit for 2024 is $105,000.
Roth Conversions
A Roth conversion is a way to move assets from a traditional retirement account to a Roth retirement account such as an IRA to a Roth IRA. This involves paying tax on the converted amount as if it were ordinary income for the year in order for it to grow tax free for the future. Some considerations to be made when thinking about Roth conversions are your estimated current and future tax brackets, and the future growth of the different assets you own.
529 College Savings Program Contributions
529 programs are a powerful tool as legislation has expanded the use of the plan over the last decade. They are state-run, tax-deferred savings plans that are used for qualified education expenses. The specific rules and fees of the plans differ from state to state so it is crucial to look into this prior to setting up a plan. Generally, in certain states, contributions to 529 plans are tax deductible in the year that they are made, and when the beneficiary of the account uses them for qualified education expenses, the distributions are tax-free!
Between work, family, and shopping and travel for the holidays, the end of the year can be jam-packed, even before adding financial matters to the equation. This is where a comprehensive wealth management firm, like us here at JGUA, can help ease the stress of managing your finances!
This blog covers some topic areas, however there may be others specific to your situation. It is important to remember that each individual taxpayer’s situation is unique and you should consult your tax advisor regarding any of the topics covered in this blog if you think they may apply to you.
