Let’s begin the holiday season before Thanksgiving, following the lead of the country’s retailers. Naturally, in contrast to them, I’m working to help you earn or save money rather than spend it!
Consider the following year-end financial moves:
Make sure you have enough money saved to cover your April tax due by using the IRS’s Withholding Estimator. If not, raise your withholding until the end of the year by informing your payroll department. To lessen or avoid any tax penalties, if you are self-employed or do not have a job, think about making an estimated tax payment.
Increase your contributions by December 31 if you can. By doing this, you can lower your tax liability and accumulate savings for the future. A retirement contribution may be eligible for the Saver’s Credit, which is worth up to $2,000 for individuals and $4,000 for couples, if your adjusted gross income is $38,250 or less (or $76,500 if you’re married).
Consider funding your Health Savings Account before the year ends if you have one. The 2024 cap is $4,150 for individuals and $8,300 for families. Many plans that allow you to have a flexible spending account require you to spend the funds by the end of December or risk losing them. Verify whether there is any balance, and if so, use it.
The government mandates that you withdraw a specific amount from your pre-tax retirement plan (401(k), 403(b), or Traditional IRA) after the age of 73 if you have made contributions to one.
You will be penalized 50% of the amount you should have taken if you do not take an RMD. (If you make the correction within two years, the penalty decreases to 10–25%.) Depending on your age and the total value of your IRAs, you only need to take one RMD if you have many. RMDs do not apply to Roth accounts.
Up to $105,000 ($210,000 if married) can be sent directly to qualified organizations by anyone 70 years of age or older with an IRA. The amount transmitted is known as a Qualified Charitable Distribution (QCD), and it is not included against your taxable income. RMDs can be satisfied by QCDs for people aged 73 and up.
Many have questioned if they should sell equities before the next decline happens in light of this year’s significant gains. Although market timing is ineffective, this is a wonderful moment to make sure your investments align with your risk tolerance and time horizon.
This process is known as re-balancing, and it operates as follows: Assume that at the beginning of the year, 40% of your 401(k) was invested in bonds and 60% in equities. That equilibrium may be out of balance due to the increase in stocks; it may currently be 70-30. To get back to your desired allocation, take advantage of this chance to sell 10% of your stock holdings and move the money into bonds. Rebalancing a retirement account does not result in a tax event. However, you might be required to pay taxes on the gain if you rebalance a taxable brokerage account.
Sell losing positions and deduct the losses from the sales of winning positions if you have a taxable investment account. You can deduct up to $3,000 in losses from your regular income if your losses exceed your earnings. You are able to carry over any excess of $3,000 to subsequent years.
Business analyst Jill Schlesinger, CFP, works for CBS News. Her email address is [email protected]. She is a former options trader and the CIO of an investment advising firm. Visit www.jillonmoney.com, her website.
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