Smart Tax Planning Moves to Make Before the Year Ends

As the year draws to a close, now is the time to get proactive about your tax strategy. Smart tax planning moves made before December 31 can help you reduce not only your tax bill this year but for your lifetime tax bill as well. You should think about other opportunities to diversify your tax exposure and strengthen your financial future too. Whether you’re focused on retirement, estate planning, or preparing for future tax rates that may impact your investments, effective tax strategies are essential.

In this guide, we’ll cover essential year-end tax planning moves like Roth conversions, tax-loss harvesting, and maximizing contributions to benefit plans. With these tactics, you can make well-timed adjustments to secure more of your wealth and achieve your financial goals.

1. Optimize Your Retirement Savings: Roth Conversions

Retirement savings

One of the most effective year-end tax strategies is a Roth conversion, which involves moving funds from a traditional IRA to a Roth IRA. When you convert traditional IRA funds to a Roth, you pay taxes on the transferred amount, but future earnings grow tax-free, and qualified withdrawals are not subject to income tax (depending on certain qualifications).

This can be a powerful move for several reasons:

Tax Diversification: A Roth conversion helps diversify your tax exposure, reducing reliance on taxable or tax-deductible accounts in retirement. This can be beneficial if you anticipate being in a higher tax bracket in the future.

Required Minimum Distributions: Roth IRAs don’t require living required minimum distributions, making them ideal for retirement distribution planning.

Legacy Planning: Leaving Roth funds to heirs can potentially reduce their tax burdens, offering a smart solution for high-net-worth investors focused on wealth transfer.

If you’re in a lower tax bracket this year or expect tax rates to rise, a Roth conversion can lock in current rates. Learn more about Roth conversions here or speak to a financial advisor to explore if this strategy fits your financial goals.

2. Tax-Loss Harvesting: Minimize Gains and Offset Income

tax loss harvesting

Tax-loss harvesting (we like to call it tax deduction creation) is an essential strategy for investors looking to reduce taxable income and offset gains. This technique involves selling investments at a loss to offset capital gains and possibly reduce ordinary taxable income.

How tax-loss harvesting works:

Offset Capital Gains: When you sell an asset at a loss, it can offset gains from other investments. This can be especially beneficial if you’ve experienced market gains this year and want to reduce your tax liability.

Carry Forward Losses: If your losses exceed gains, you can apply up to $3,000 in losses to offset ordinary income annually and carry over any excess to future years.

To fully leverage tax-loss harvesting, work with your advisor to review your portfolio and identify any assets currently trading at a loss. Learn more about the benefits of tax-loss harvesting here.

3. Strategic Use of Tax-Gain Harvesting

capital gains

While tax-loss harvesting is valuable, tax-gain harvesting can also play an essential role in your tax strategy. Tax-gain harvesting is the intentional sale of investments at a gain to pay taxes at a lower rate.

This technique can be helpful if:

You’re in a Low Tax Bracket This Year: Taking gains in a year with lower income may allow you to pay taxes at a lower capital gains rate or at zero percent.

For instance, married couples filing jointly can earn up to $94,050 in taxable income and still qualify for a 0% capital gains tax rate on investment sales in 2024.

Similarly, individual filers with taxable income of $47,025 or less will also pay no capital gains tax for the year 2024.

Asset Repositioning: Harvesting gains allows you to reposition assets to align better with your goals without increasing your tax burden excessively. It also gives you a chance to reset your highly appreciated cost basis on investments that you like.

Tax-gain harvesting can make sense for investors who anticipate being in a higher tax bracket in the future or who want to balance long-term and short-term gains. Discuss this with your advisor to see if it aligns with your financial goals.

4. Maximize Contributions to Retirement and Benefit Plans

401k contributions

Year-end tax planning is an excellent time to ensure you’ve maximized contributions to retirement and other benefit plans, as these contributions may be tax-deductible and can reduce your overall tax burden.

Popular contribution vehicles include:

401(k) and IRA Contributions: For 2024, you can contribute up to $23,000 to a 401(k) if you’re under 50, with a $7,500 catch-up contribution allowed for those over 50.

Health Savings Accounts (HSAs): If you’re enrolled in a high-deductible health plan, you may contribute to an HSA. Contributions are tax-deductible, and withdrawals used for qualified medical expenses are tax-free. This makes HSAs a triple tax-advantaged way to save for healthcare costs.

Learn more about tax-deductible contributions for HSAs here. Ensuring you’ve maxed out these contributions can reduce your tax burden while building your retirement savings and long-term health safety net.

5. Tax Diversification and Distribution Planning
retirement planning

Year-end tax planning is about more than just saving—it’s about managing how you’ll access your wealth in retirement. A smart tax diversification and distribution planning strategy ensures you can draw income while minimizing taxes.

Why Tax Diversification Matters:

Spreading assets across taxable, tax-deferred, and tax-free accounts creates flexibility to adapt to changing tax laws and personal income needs:

  • Taxable Accounts provide flexibility but are subject to annual taxes on certain gains and dividends.
  • Tax-Deferred Accounts like 401(k)s grow tax-free until withdrawals, which are taxed as income.
  • Tax-Free Accounts like Roth IRAs offer tax-free growth and withdrawals, especially valuable in high-income years.

Smart Year-End Moves:

  • Strategic Roth Conversions: Convert funds during low-income years to create future tax-free income.
  • RMD Planning: Plan for required minimum distributions to avoid large taxable withdrawals.
  • Blended Withdrawals: Use a mix of account types to manage taxable income strategically.

These moves help you take control of your tax situation and preserve wealth for retirement. Talk to an advisor at The Lynch Financial Group to see how these strategies fit into your financial plan.

6. Estate Planning: Taking a Long-Term View

Year-end tax planning also provides an ideal time to review or establish an estate plan. Estate planning isn’t just for high-net-worth individuals; it’s a crucial step in preserving wealth and ensuring it’s transferred according to your wishes.

Key estate planning moves include:

Gifting: In 2024, you can give up to $18,000 per individual tax-free. Gifting can help reduce the size of your estate while passing wealth to loved ones in a tax-efficient way.

Qualified Charitable Donations (QCDs): A Tax-Efficient Way to Give

If you’re over 70½ and have a traditional IRA, a QCD allows you to donate directly to a qualified charity, bypassing taxable income. A QCD can satisfy part or all of your required minimum distribution (RMD), reducing your adjusted gross income (AGI) for the year.

Key benefits of QCDs:

  • Lowering AGI can help avoid triggering higher Medicare premiums or the Net Investment Income Tax.
  • QCDs are excluded from taxable income, even if you don’t itemize deductions.
  • You can donate up to $100,000 per year directly from your IRA to one or more charities.

This is a powerful strategy for individuals looking to support causes they care about while minimizing taxes. Work with your financial advisor to ensure your donation qualifies under IRS rules. To learn more about estate planning essentials, explore this guide.

7. Craft a Tax-Efficient Guaranteed Income with Annuities

Annuities can be a smart year-end tax planning move, providing guaranteed lifetime income while offering tax advantages. Two key options to consider are tax-free lifetime income annuities and tax-deferred annuities:

Tax-Free Lifetime Income Annuities: Funded with after-tax dollars, these annuities provide a reliable income stream in retirement without adding to your taxable income. They are ideal for retirees looking to stabilize cash flow while keeping taxes low.

Tax-Deferred Annuities: These allow your investments to grow without annual tax obligations, maximizing compounding potential. Withdrawals can be strategically timed in retirement to minimize tax impact.

Both options can help reduce your tax burden while creating an additional income stream your retirement. Before year-end, review your retirement income plan to determine if an annuity fits into your tax diversification strategy.

Conclusion: Act on Smart Tax Planning Moves Before the Year Ends

financial checklist

As the year wraps up, taking advantage of smart tax planning moves can help you feel more assured about your wealth, reduce your tax burden, and position yourself for your financial future. Whether it’s converting to a Roth IRA, harvesting tax losses, maximizing contributions to benefit plans, or making strategic estate planning decisions, each of these actions can significantly impact your financial health.

For personalized guidance on year-end tax planning or to learn more about strategies tailored to your unique financial goals, explore The Lynch Financial Group’s tax management services or learn about strategies for lowering lifetime taxes here.

Taking these steps now can bring lasting benefits in the years to come. Connect with a financial advisor at The Lynch Financial Group to build a strategy that aligns with your goals and your financial future.

Picture of Corey Shevlin

Corey Shevlin

Corey serves as an investment adviser representative at The Lynch Financial Group, designing, implementing, and monitoring investment portfolios for wealth management clients. He specializes in portfolio optimization and developing comprehensive financial plans. He currently holds his Series 65, Life and Health Insurance licenses. He attended the University of Delaware and graduated with a Bachelor’s degree in Political Science and Criminal Justice in 2019. Disclosure Financial Planning and Advisory Services are offered through Prosperity Capital Advisors (“PCA”) an SEC registered investment adviser with its corporate registered office in the State of Ohio. PCA and its representatives are in compliance with the current registration requirements imposed upon registered investment advisers by those states in which PCA maintains clients. PCA may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. Any subsequent, direct communication by PCA with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. The Lynch Financial Group and PCA are separate, non- affiliated entities. PCA does not provide tax or legal advice. Insurance, Investment, and Tax Services offered through The Lynch Financial Group are not affiliated with PCA. Information received from this website should not be viewed as investment advice. Content may have been created by a Third Party and was not written or created by a PCA affiliated advisor and does not represent the views and opinions of PCA or its subsidiaries. This site may contain links to articles or other information that may be contained on a third-party website. PCA is not responsible for and does not control, adopt, or endorse any content contained on any third party website. For information pertaining to the registration status of PCA, please contact the firm or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov). For additional information about PCA, including fees and services, send for our disclosure statement as set forth on Form ADV from PCA using the contact information herein. Please read the disclosure statement carefully before you invest or send money. For important information related to PCA, refer to the PCA’s Client Relationship Summary (Form CRS), Form ADV Part 2A and Privacy Notice by navigating to www.prosperitycapitaladvisors.com.