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 off in a better financial position in 2025. Here are a few tax-savvy money moves to make now.
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.
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.
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.
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