2024 Year-End Tax Planning Essentials

It may be hard to believe, but December 31 will be here soon.

Now is a great time to review your finances and implement smart tax planning to reduce your tax bill potentially. Here are seven essential strategies to consider.

1. Tax-Loss Harvesting

Tax-loss harvesting involves selling investments that have lost value to offset capital gains realized from other investments. In 2024, the capital gains tax rate is 0%, 15%, or 20%, depending on your income. Ask your investment provider for a realized and unrealized gain/loss report to identify any opportunities for tax-loss harvesting. The last day to avoid a “wash sale” rule violation is November 29, 2024.¹

2. Charitable Contributions

Charitable contributions are a great way to reduce taxable income while supporting causes you care about. Donating appreciated assets such as stocks, bonds, or real estate can be even more beneficial than cash donations as you can likely deduct the assets’ fair market value and avoid paying capital gains tax on the appreciation. Keep records of your donations, including receipts for gifts over $250.

3. Review Health Savings Account (HSA) Contributions

If you have a high-deductible health plan, contributing to a Health Savings Account (HSA) is one of the most tax-advantaged moves. For 2024, the contribution limit is $4,150 for individuals and $8,300 for families. An additional $1,000 catch-up contribution is allowed for those 55+. Contributions are tax-deductible, grow tax-free, and can be withdrawn tax-free for qualified medical expenses.

4. Maximize Retirement Contributions

One of the easiest and most beneficial tax-saving strategies is maximizing contributions to tax-advantaged retirement accounts if still needed this calendar year.

For 2024, the contribution limit for 401(k) plans is $23,000, with an additional $7,500 catch-up contribution allowed for individuals aged 50+. If you don’t have a 401(k), consider contributing to an IRA. The IRA contribution limit for 2024 is $7,000, with an extra $1,000 catch-up contribution for those aged 50 and over.³

Contributions to traditional 401(k) accounts are tax-deductible and can significantly reduce your annual taxable income. Traditional IRA contributions may be tax-deductible depending on your income level and access to employer-sponsored retirement plans. Roth IRA contributions, while not tax-deductible, offer tax-free withdrawals in retirement.

5. Required Minimum Distributions (RMDs)

If you are 73+, remember to take your required minimum distribution (RMD) from your traditional IRA or 401(k). Failing to take the RMD can result in a steep penalty—up to 25% of the amount not withdrawn. To avoid this, be sure you withdraw the correct amount by December 31.⁴

If you don’t need the RMD for living expenses, consider a Qualified Charitable Distribution (QCD). A QCD allows you to donate your RMD directly to a qualified charity, satisfying the RMD requirement and enabling you to exclude the distribution from your taxable income.

6. Consider a Roth IRA Conversion

If your income is lower than usual in 2024 or you expect to be in a higher tax bracket, consider converting a traditional IRA to a Roth IRA. When you convert to a Roth IRA, you’ll pay taxes on the amount converted now, but future withdrawals will be tax-free. This strategy can be particularly beneficial if you have significant retirement savings and want to avoid high tax bills in retirement.

7. Estate and Gift Tax Planning

If you’re considering transferring wealth to your heirs, take advantage of the annual gift tax exclusion. In 2024, you can gift up to $18,000 per person without impacting your lifetime estate tax exemption. Gifting assets reduces the size of your taxable estate and can help you pass on wealth without incurring tax liabilities.⁵

While these strategies can help with effective tax planning, each consumer’s finances are unique. Speak with your financial advisor to help formulate a tax plan that works for your situation.