If you’re like many taxpayers, you might assume you can make any necessary adjustments to your tax plan as long as it’s before April 15. While some changes can wait until the tax deadline, others must be made by December 31. To avoid missing out on tax savings opportunities, take a look at these year-end tax strategies to consider.
Max Out Your Retirement Plan Contributions
If you aren’t yet retired and you have an employer-sponsored retirement plan like a 401(k), contributing as much as legally allowed is one of the most effective year-end tax strategies.
For 2025, the most you may contribute as an employee to a 401(k) is $23,500. However, if you are nearing retirement, you might be eligible for catch-up contributions:
- Age 50 or older: $7,500 (total employee contribution of $31,000)
- Age 60 to 63: $11,250 (total employee contribution of $34,750)
If you have the ability to do so, max out your contributions. Making extra 401(k) contributions can lower your taxable income now, however, keep in mind that when you take distributions in retirement, you’ll owe income tax.
Advisor Mallory Kretman explains, “Retirement contributions do more than just reduce your income tax today, they’re a strategic step toward financial independence. Every dollar you invest lowers your taxable income now while building long-term security. It’s a win-win: save on taxes today and feel more confident about tomorrow.”
Take All Required Minimum Distributions (RMDs)
Speaking of distributions, if you are 73 or older, you generally need to take required minimum distributions (RMDs) from tax-deferred retirement accounts. Minimum distribution rules apply to most kinds of tax-deferred accounts, including:
- 401(k) plans
- 457(b) plans
- 403(b) plans
- Other employer-sponsored retirement plans
- Traditional IRAs
- Salary Reduction Simplified Employee Pension Plans (SARSEPs)
- Savings Incentive Match Plan for Employees (SIMPLE) IRAs
- Simplified Employee Pension (SEP) plans
Verifying you’ve taken all your RMDs is a critical year-end tax strategy. If you don’t withdraw all you’re required to, you could owe a penalty up to 25% of the amount you didn’t withdraw. “Don’t wait until the last minute to process your RMD,” advises Mallory. “Many financial institutions experience delays at year-end, and submitting your request too close to December 31st may risk missing the deadline. To avoid potential penalties, it’s best to plan ahead and ensure your RMD is processed well in advance.”
Because they are funded with post-tax dollars, Roth IRAs are one of the few types of retirement accounts that do not have RMDs. Depending on your circumstances, it may be worth exploring Roth conversions in the years leading up to your RMD age.
A Roth conversion involves converting funds from a traditional IRA to a Roth IRA. This strategy can be especially effective during the “trough years” of retirement.
Offset Capital Gains Taxes
If you’ve realized substantial investment gains over the past year, it’s important to look into year-end tax strategies to minimize capital gains tax. If you anticipate owing capital gains taxes, strategically selling certain investments at a loss can offset gains. If your total losses exceed your gains, you can also deduct up to $3,000 from your taxable income. Any remaining losses beyond that limit can be carried forward indefinitely and used to offset future capital gains until fully utilized.
Make Strategic Charitable Donations
Some year-end tax strategies benefit you and the charitable causes you support. If you itemize deductions, make any charitable gifts by December 31.
Depending on your tax situation, you may be able to combine charitable giving with other year-end tax strategies to minimize your tax burden. For example, qualified charitable distributions (QCD) from certain retirement accounts count toward your annual RMDs. “One key benefit of making a QCD,” shares Mallory, “is that the amount donated directly from your retirement account isn’t counted as taxable income. This can be a powerful way to support causes you care about while potentially lowering your overall tax bill.”
If you have investments that have appreciated but you want to avoid capital gains tax, you might also consider donating these investments directly to qualified charities.
Need Help Choosing Year-End Tax Strategies?
Even if you already have a clear idea which year-end tax strategies you intend to use, it’s wise to consult with an experienced tax advisor. Laurel Wealth Planning LLC helps clients develop individualized strategies for retirement planning, investment management, tax planning, and more.
To schedule a complimentary meeting, send a message online, email laurel.wealthplanning@laurelwealthplanning.com, or call (952) 854-6250. Find out whether the Laurel Wealth Planning team is the right financial advisor for you based on your wants and needs.
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