2024 Year-End Tax Planning Strategies

By: Scott Van Den Berg, CFP®, ChFC®, CEPA®, AIF®, CRPS®, CMFC®, AWMA®

As we approach the close of 2024, it's an ideal time to revisit tax-saving opportunities that can help you make the most of your financial plan. With some proactive steps, you may be able to reduce your tax burden and position yourself for a stronger financial future. Read more for key strategies based on IRS guidelines and best practices in wealth management.

1. Maximize Retirement Contributions

One of the simplest yet effective ways to reduce taxable income is to contribute to retirement accounts. Contributions to tax-deferred accounts like Traditional IRAs and 401(k)s grow tax-free and are deductible within annual IRS limits. For 2024, contribution limits are:

401(k) Contributions: $23,000 if you're under 50, and $30,500 if you're over 50, including catch-up contributions.

IRA Contributions: $7,000 for individuals under 50, and $8,000 for those over 50.

If you haven’t reached these limits, consider contributing more before the year ends. This can help reduce taxable income now and allow your money to grow for the future.

2. Review Your Investments for Tax Loss Harvesting

For clients with taxable investment accounts, tax loss harvesting could help offset gains and lower tax liabilities. If you’ve sold any investments at a profit this year, you can offset those gains by selling underperforming assets at a loss. According to IRS rules, up to $3,000 of net capital losses can be used to reduce ordinary income annually. Be mindful of the "wash-sale rule," which prohibits repurchasing the same or substantially identical investments within 30 days of the sale.

3. Consider Converting a Traditional IRA to a Roth IRA

A Roth IRA conversion can be a powerful tool, especially in years when your income might be lower. Unlike traditional IRAs, Roth IRAs allow tax-free growth, and qualified withdrawals are also tax-free! By converting a portion of a Traditional IRA to a Roth (or Traditional 401(k) to a Roth 401(k), you pay taxes on the converted amount now at current rates but enjoy tax-free growth going forward. This move could be particularly beneficial if you expect higher taxes in retirement. This can also be a valuable estate planning tool.

4. Take Advantage of Charitable Giving Opportunities

Charitable giving can be a valuable way to reduce taxable income if you itemize deductions, allowing you to support meaningful causes while maximizing tax efficiency.

One powerful approach to charitable giving involves donating appreciated stock. If you’ve held the stock for more than a year, you can give it directly to a qualified charity and claim a deduction for the stock's fair market value. This strategy offers a dual benefit: not only can you deduct the full market value of the stock, but you also avoid paying capital gains tax on the stock’s appreciated value. For high-income individuals, this can be a highly efficient way to leverage charitable giving for tax planning. Keep in mind that the IRS limits deductions for contributions of appreciated stock to 30% of your adjusted gross income, though any unused amount can carry forward for up to five years.

Another effective strategy is “bunching” donations. By making multiple years' worth of donations in one tax year, you may increase your itemized deductions above the standard deduction threshold, which helps to maximize your tax benefit. This can be particularly useful in years when you have a higher income, allowing you to offset more taxable income.

5. Review Estate and Gift Tax Exemptions

For those planning to leave substantial estates, using the 2024 federal gift tax exemption can reduce estate taxes in the future. This year, individuals can give up to $18,000 per recipient without triggering gift tax. Married couples can gift up to $36,000 per recipient. Additionally, the lifetime estate tax exemption has increased to $13.61 million. If you have a taxable estate, it may be wise to take advantage of the current, higher exemption amounts before they potentially revert.

6. Evaluate Your Required Minimum Distributions (RMDs)

If you're over 73, the IRS requires you to withdraw a minimum amount each year from retirement accounts, known as a Required Minimum Distribution (RMD). Failing to take your RMD can lead to a significant penalty—up to 25% of the missed amount. To avoid this, consider taking your RMD before year-end. For those who don't need the RMD for personal use, a Qualified Charitable Distribution (QCD) can be a smart option, as it allows you to meet the RMD requirement without increasing your taxable income.

A Qualified Charitable Distribution (QCD) lets individuals age 70½ or older donate up to $100,000 annually directly from an IRA to a qualified charity. This donation satisfies the RMD requirement but is excluded from taxable income, reducing your overall tax liability and potentially keeping you in a lower tax bracket. To qualify, the QCD must come from a traditional IRA and be sent directly to a qualified charity. This approach can be especially useful in managing tax obligations while supporting causes that matter to you.

7. Review Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs)

Health-related accounts provide excellent tax benefits if used strategically. HSAs offer triple tax advantages: contributions are tax-deductible, funds grow tax-free, and withdrawals for medical expenses are tax-free. For 2024, the contribution limits are $4,150 for individuals and $8,300 for families, with an additional $1,000 for those over 55. Unlike FSAs, HSA funds roll over year to year. With FSAs, aim to use any remaining funds before the end of the year to avoid losing them.

Final Considerations

Year-end tax planning can feel complex, but these strategies are designed to help you save now and grow your wealth for the future. Consulting with Century Management Financial Advisors or your tax professional can provide clarity on which options best suit your needs. By acting before December 31, you can take meaningful steps to reduce your tax burden and strengthen your financial health. If you have questions or need guidance, call Century Management Financial Advisors—together, we’ll help ensure you enter the new year with confidence and a solid financial foundation.

Disclosures: Century Management is an independently registered investment adviser with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. CM is also registered as a Portfolio Manager in the Province of Ontario. This article is for informational purposes only and does not constitute tax or investment advice. For further details, please refer to the IRS website or consult your tax advisor. CM does not provide legal or tax advice. For a full description of our firm’s business practices, including investment management services, wealth planning, and advisory fees, please review our Form ADV Part 2A and/or Form CRS. These documents are available upon request and can also be accessed at centman.com. CM-2024-11-01