2024 has gone by quickly. As we near year-end, please note the following tax deadlines and financial housekeeping to-do items. Please coordinate with your CPA regarding your specific tax situation.
Watch for New Tax Legislation in 2025
An impactful piece of tax legislation, the Tax Cuts and Jobs Act 2017, was enacted under Trump’s first administration. This legislation was scheduled to sunset at the beginning of 2026, however given Trump’s victory, it is highly likely that during his second administration key provisions in this bill, including the temporary increase in the lifetime gift and estate tax exemption, will be extended. The specifics will be negotiated over the course of 2025, as it is a top priority. We will keep you updated on tax changes that could impact your individual situation.
Maximize Contributions to Tax-Advantaged Retirement Accounts
- Ensure that your company-sponsored retirement plan contributions are maxed out and that the plan is invested in line with your financial goals. The 2024 maximum 401(k) contribution is $23,000 and if you’re over 50 an additional $7,500 “catch-up” contribution is possible. The deadline for 401(k) contributions is December 31, 2024.
- Reset contributions for 2025 – the maximum contribution will be $23,500. If you’re over 50, the allowable “catch-up” contribution is $7,500. For those ages 60-63, the allowable “catch-up” has been increased to $11,250.
- For IRAs, the maximum contribution is $7,000, with an additional $1,000 “catch-up” if you’re over 50. Note that while year-end is a good time to review your plan, the actual deadline for IRA contributions is Tax Day of the following year, in this case April 15, 2024.
- Remember to establish and/or contribute to Custodial Roth IRAs for working children or grandchildren. Contributions can be made on a child’s behalf up to the lesser of the child’s earned income or $7,000 in 2024, whichever is less. Note that this contribution would count as part of the gift tax exemption limit.
Take the RMD, or “Required Minimum Distribution”, from your Individual Retirement Account (“IRA”) if Necessary
- When you must take an RMD from your Individual Retirement Account is based on your age, and in 2022 the SECURE 2.0 Act raised the required age to 73 for Required Minimum Distributions (“RMDs”).
- If you turned 73 in 2024, you must take an RMD from your Traditional, SEP or Simple IRA by April 1, 2025. Subsequent RMDs must be taken by December 31st. Note that if you delay your first RMD to the following year, you will be required to take two RMDs, potentially pushing you into a higher tax bracket.
- Regular RMDs must be taken by December 31, 2024
- Inherited IRAs – the RMD (if not taken by the deceased) must be taken by December 31, 2024. In some cases, extensions and waivers may be applied for. The rules for Inherited IRAs are complex, and it is important to consult with your CPA to ensure that the RMDs are distributed correctly and before year-end.
- Note that RMDs for Roth IRAs are not required
- Because of the changing rules, and their complexity, penalties had been waived for several years on underpaid or unpaid RMDs. However, penalties have been reimposed and they are substantial: 25% on any amount not withdrawn, which can (if appealed successfully) be reduced to 10%.
Review Charitable Gifting Options, Ensuring That End-of-Year Deadlines Are Met
Charitable giving not only supports a good cause, but it can also have tax advantages. Be sure to consult with your tax professional and note that most custodians have mid-December deadlines.
- Donation of appreciated stock: should you have stock that has gone up in value significantly and wish to give to a charity, a potential strategy is to gift appreciated security rather than simply writing a check. Please note that all gifting forms must be completed and submitted to Fidelity by December 12, 2024.
- Qualified Charitable Distribution (QCD): if you are required to take a RMD from your IRA, it can increase overall taxable income and your tax obligation. In some cases, the RMD can shift you into a higher tax bracket. A Qualified Charitable Distribution, or QCD, is a direct contribution from your IRA to a charity and can offset some or all of your RMD. Note that the maximum contribution is $105,000 and a deduction is not allowed, but you won’t have to include the amount of the QCD in your taxable income. Please note that all gifting forms must be completed and submitted to Fidelity by December 12, 2024.
Other Types of Gifting
- Gift tax exemptions: Should you wish to make cash gifts; the 2024 annual federal gift tax exclusion is $18,000 each without counting against the 2024 $13.6mm individual lifetime exemption. Note that gift checks should be cashed by the recipient by year-end to ensure they count in the 2024 tax year. In some cases, an IRS Form 709 form must be filed, even if no taxable gift has been incurred.
529 Contributions for Education Savings
For Colorado taxpayers, contributions to CollegeInvest savings accounts are eligible for a Colorado state income tax deduction (refer to collegeinvest.org), so it is best to make contributions by year-end. Note that there is the flexibility to “frontload” 5 years of a gift, which may make sense for you depending on your tax situation. In general, 529 deductibility rules and deadlines will vary by state.
- In 2024 529 to Roth IRA transfers will be allowed for up to $35,000 of unused 529 funds under certain circumstances. The 529 must be in existence for 15 years, with contributions and earnings for 5 years.
Tax Deadlines
- Key Dates:
- Due date for RMDs if you turned 73 in 2024 is April 1, 2025
- Regular due date for 2024 individual tax returns is April 15, 2024
- Last day to make 2024 contributions to Roth and traditional IRAs and HSAs is April 15, 2025
- Deadline for 401(k), 403(b) and 457 contributions is December 31, 2024
- Deadline for IRA contributions April 1, 2025
Tax Loss Harvesting
While we never recommend that taxes dictate investment strategy, in some cases tax loss harvesting, or selling securities for less than their cost basis to offset other realized capital gains, can make sense. There are restrictions around tax loss harvesting and should be done in consultation with your tax professional.
Review and Maximize Employee Benefits
Review and adjust paycheck withholdings and payments: major events or life transitions, including marriage, divorce, having a child or death, or claiming older dependents, may impact withholdings. Note that retirement plan contribution limits increase in 2025 – make payroll deduction adjustments accordingly.
- Review compensation and other benefits during open enrollment period: Review your compensation, including any incentive plans. Also, review and adjust your additional corporate benefits including health insurance, life insurance, disability insurance and FSA, as needed.
- Spend Through Use-It-or-Lose-It Accounts: Check deadlines with your FSA; you may have a grace period to use any funds contributed in 2024 through March 15, 2025, after which you would forfeit the ability to roll the funds over.
- Maximize your HSA contribution: The maximum HSA contribution in 2024 for individuals is $4,150, $8,300 for families and an additional catch-up contribution of $1,000 possible if the individual is over 55. The deadline for HSA contributions for 2024 is April 15, 2025. These are incredible accounts with triple tax advantages: tax deductibility, tax-advantaged growth and tax-free when withdrawn and used for qualified medical expenses.
Please let me know if you have any questions and have a wonderful holiday season!
Lariat Wealth Management is a registered investment adviser offering advisory services in the State of Colorado and other jurisdictions where exempted. Registration does not imply a certain level of skill or training.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice.
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