By Ted Stricker, CFP®
With October nearly over and the year quickly winding down, now is a critical time to start strategizing for potential tax-saving opportunities. By getting organized today, rather than waiting until the final weeks of the year, you give yourself more options and flexibility to reduce your tax liability before 2024 wraps up. Here are our top recommendations to help you make the most of these last months.
Fully Contribute to Your Deductible Retirement Accounts
Contributing to your tax-advantaged retirement accounts remains one of the best tax-saving strategies available. Maximize contributions to 401(k) and 403(b) employer-sponsored plans to the caps of $23,000 for those under 50 years old and $33,500 for those 50 and over. Maximum SIMPLE IRA contributions are $16,000 and $23,500, respectively. If possible, arrange with your employer’s payroll service or HR to defer even a little more from your paycheck; you may not miss it week to week, but you’ll be glad you did by year-end. This goes for Roth 401(k) accounts as well.
And the same applies for traditional IRAs. If you’re not enrolled in an employer plan, try to maximize your allowable deductible IRA contributions. Remember, you have until April 15th of 2025 to contribute, but try not to wait—you can start your 2025 contributions after January 1st.
If you qualify, open and contribute fully to your Roth IRA, even if you have a 401(k) or other employer plan account. Both contributions and earnings withdrawals are tax-free in the future and tax-free anything will likely be precious in the years to come.
Consider a Roth Conversion
Converting some or all of your tax-deferred IRA to a Roth account could be a smart move if your income and tax bracket status are favorable for this strategy. By paying the taxes now (especially if 2024 will be a low-income year for you), you could reap tax-free benefits later in retirement. If you’re unsure about whether a Roth conversion is right for you, let’s chat.
And don’t forget your Roth IRA contributions. Even if you’re enrolled in an employer-sponsored retirement plan, you may still qualify to also contribute after-tax dollars to a Roth IRA. For those who are married and file jointly, the MAGI limit for contribution eligibility is $240,000. Single filers and those who file head-of-household or married filing separately may earn up to $161,000 and still contribute to a Roth IRA. Maximum contributions are $7,000 for 2024 with an additional $1,000 catch-up for those 50 and over. Like traditional IRAs, you have until April 15th, 2025, to make your 2024 contribution.
Optimize Your Charitable Deductions
Observers of halacha and tzedakah might take the time to consider the best ways of fulfilling charitable giving between now and year-end. Donating long-term appreciated assets, such as brokerage account common stock, may be advantageous since you don’t realize the capital gain and can take a tax deduction of the full fair market value (up to 30% of your AGI). For those over 70½ years old, you can donate directly from your IRA to a charity up to $105,000 using a “qualified charitable distribution” (QCD). For those taking required distributions, doing so can also fulfill this IRS requirement at the same time.
Autumn Is Harvest Time
This may be a good time to take gains achieved so far this year in taxable investment accounts and offset those taxable gains by realizing capital losses in other investments. If your losses exceed your gains, then you can use up to $3,000 of excess losses to deduct against ordinary income. If you do use tax-loss harvesting, be careful about buying the same sold security again too soon (within 30 days of the sale) to avoid trouble with the wash-sale rule.
Fully Contribute to Your HSA
Health savings accounts (HSAs) are a lesser-known but highly beneficial and tax-effective vehicle for building a resource for the future. HSAs have many tax advantages not found elsewhere.
Contributions and earnings are all tax-free (as long as used for qualifying medical expenses), you can invest in HSA accounts like most other investment accounts, and there are no required minimum distributions (RMDs). We discuss the benefits of HSAs here.
For 2024, individuals can contribute up to $4,150 (families $8,300), and those 55 and over are allowed a $1,000 “catch-up” additional contribution.
Get Exercising
If you’re fortunate to receive Non-Qualified Stock Options (NQSO), you might consider when and how many of your options to exercise before the end of the year. Exercising the option generates ordinary income taxation. If you exercise too many options, you might bump yourself up to a higher tax bracket. Employer-granted stock options can be tricky; usually it’s a good idea to coordinate exercising your options with solid tax planning and your overall financial plan and objectives.
If You Have Questions, Speak With Us
Tax rules and strategies can be confusing, but we’re here to help! By coordinating your tax planning with your overall financial planning on long-term goals, our assistance could be beneficial to your financial future. With our Certified Public Accountants and CERTIFIED FINANCIAL PLANNER® professionals, Bernath + Rosenberg stays current with the latest in tax laws and planning strategies to help you pursue a rewarding and comfortable retirement, according to your unique and special objectives.
To get started and make the most of your hard work, schedule a meeting by calling (212) 221-1140 or email tstricker@brwealth.com.
About Ted
Ted Stricker is a partner and financial advisor at Bernath + Rosenberg, a full-service accounting, tax, and wealth management firm with offices in Monsey, NY, Lakewood, NJ, Cedarhurst, NY, and Miami Beach, FL. The firm demonstrates a personalized approach to custom-tailored solutions and an unwavering commitment to client service. With over 26 years of experience in the financial services industry, Ted manages the firm’s wealth management team, and specializes in designing financial plans for business owners and affluent families. Since joining the team in 2015, he provides practical and sound advice, combining innovative approaches and solutions that reflect clients’ personality, lifestyle, and goals.
For the ninth year in a row, Bernath + Rosenberg has been named as one of the leading CPA firms in financial planning by Accounting Today, a publication that receives hundreds of submissions each year and features the Top 150 Firms in the nation. Ted is a CERTIFIED FINANCIAL PLANNER® practitioner and is a member of the Financial Planning Association. To learn more about Ted, connect with him on LinkedIn.
