6 Money Moves to Make in December

The Illinois CPA Society offers six year-end money moves to make to create some tax-time savings.

CHICAGO, Dec. 2, 2024 – Before getting bogged down by the hustle and bustle of the holiday season and the hunt for the perfect gifts to give your loved ones, show yourself some love by gifting yourself a tax break. With the end of the year quickly approaching, now’s the time to make important year-end money-saving moves that could lower your tax bill, boost your tax refund, or start you off in a better financial position in 2025. Here are six tax-savvy money moves to make now.

  1. Revisit Work Retirement Contributions: Now’s the time to see if you’re on track for maximizing your retirement account contributions for the year. Payroll contributions to tax-deferred retirement accounts—like your employer’s 401(k) or 403(b)—reduce your taxable income, thus lowering your tax bill. The contribution limit in 2024 is $23,000, or $30,500 if you’re age 50 or older. If you can afford to, increasing your contributions is generally a smart tax move—especially if your employer matches contributions.
  2. Max Out an IRA: Depending on your income, you may be eligible to make tax-deductible contributions to a traditional individual retirement account (IRA) outside of, or in addition to, an employer-sponsored account. The 2024 contribution limit to a traditional IRA is $7,000, and an additional $1,000 catch-up contribution is allowed if you’re age 50 or over. Alternatively, you may want to invest in a future tax break instead. For the 2024 tax year, individuals with an AGI of $146,000 or less ($230,000 for married couples filing a joint tax return), regardless of whether they participate in an employer retirement plan, can contribute up to $7,000 (or $8,000 if age 50 or older) to a Roth IRA. Since contributions to Roth IRAs are made with after-tax money, investments grow tax free indefinitely. Non-working spouses can also contribute to a Roth IRA as long as the working spouse has earned enough income during the tax year to cover both contributions.
  3. Consider a Roth Conversion: If you’ve been putting all or most of your retirement savings into a tax-deferred traditional IRA or 401(k), converting all or a portion of those funds to a Roth IRA could help lower your future tax bills. While you’ll have to pay taxes on any money you convert in the year of the conversion, the converted funds will then grow tax free moving forward, and qualified withdrawals are tax free as well. This could be a prudent move if you anticipate being in a higher tax bracket in the future. Better yet, Roth IRAs aren’t subject to required minimum distributions (RMDs). Also keep in mind that the funds from inherited Roth IRAs, although subject to RMDs, are also distributed tax free.
  4. Don’t Forget Your RMD: If you turned, or will still turn, age 73 this year, it’s time to start taking your annual RMDs from your tax-deferred retirement accounts. While you can technically wait to do so until April 1, 2025, you’d then need to take two RMDs during 2025, which could push you into a higher tax bracket. The penalty for not taking your RMD is a steep 25% of the sum you should’ve withdrawn.
  5. Harvest Investment Losses: If you have investments (i.e., stocks, bonds, mutual funds, etc.) in a taxable brokerage account that have declined in value, consider selling them. Selling these investments will realize the losses, thus offsetting any realized capital gains. Capital losses offset capital gains without limitation, and an additional $3,000 of realized losses can reduce other taxable income (losses in excess of $3,000 will be carried forward to the next tax year).
  6. Give Your Health Savings Account (HSA) a Check-Up: If eligible, a tax-smart way of setting aside money for qualified medical expenses and lowering your taxable income is to contribute the maximum amount allowed (or the maximum you can manage) to an HSA. HSAs offer several advantages, like paying no federal tax on the contributed funds or investment earnings if the money is used for qualified medical expenses. For 2024, the contribution limit is $4,150 for individuals or $8,300 for families; an additional $1,000 catch-up contribution is allowed if you’re 55 or older. This is the only “triple tax-free” option available to taxpayers—tax-free contributions, tax-free growth, and tax-free disbursements for qualified healthcare expenses.

Need help making sense of the complexities of tax and financial planning? A CPA—a certified public accountant—can help you to strategically manage your finances all year long. And when tax time rolls around, a CPA can help prepare and file your tax return to ensure all eligible credits and deductions available are maximized. The Illinois CPA Society’s free “Find a CPA” directory can help you find the trusted, strategic advisor that’s right for you based on location, types of services needed, and languages spoken. Find your CPA at www.icpas.org/findacpa.

 

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Derrick Lilly
Asst. Director Communications & Publications | 312.517.7614