Key takeaways

  • The end of the calendar year is a good time to review your finances and ensure that you’re on track to meet your goals.
  • A few year-end steps – like completing your retirement plan contributions or distributions and making charitable donations or gifts – can help prepare you for success in the coming year and beyond.
  • Tax-loss harvesting may help you offset capital gains taxes, but you should keep the wash sale rule in mind.

Contributors

Adam Frank

Managing Director, Head of Wealth Planning and Advice, J.P. Morgan Wealth Management

As the year comes to a close, here are seven strategies to consider when thinking about your finances. Consider talking to a J.P. Morgan representative and other advisors to help you with your year-end planning.

Retirement plans/accounts and contributions

Contributions to a traditional or Roth IRA for 2024 must be made by the due date for filing your 2024 income tax returns (not including extensions) – or April 15, 2025. Review what you have already contributed for 2024 and plan for any future retirement contributions.

If you own a business and want to set up a retirement account for your business, the SECURE Act extended the deadline to set up and fund most employer-sponsored qualified retirement plans to the sponsor’s tax filing deadline, including extensions (generally September 15 or October 15 of the following year, depending on the type of entity).

Thanks to the SECURE Act 2.0, there are some additional changes to IRA contribution rules that have begun to take place this year and will continue in 2025. We recommend reviewing these changes and working with an advisor and tax professional to plan out your retirement contributions.

Required minimum distributions (RMDs)

Take any required minimum distributions from your own retirement accounts before December 31 to avoid stiff penalties. Under SECURE Act 2.0, the age at which individuals must take their first required minimum distribution rose to 73. You can defer your first RMD to April 1 of the year after the year in which you turn 73, but after your first RMD, subsequent RMDs must be taken by December 31 of each year to avoid additional taxes.

On July 18, 2024, the Internal Revenue Service (IRS) issued Final Regulations regarding RMDs from inherited IRAs and qualified plan accounts. No excise tax will be assessed for designated beneficiaries (and certain others) who inherited IRAs between 2020-2023 and do not take a minimum distribution in 2024. However, on January 1, 2025, final RMD regulations will become effective and certain designated beneficiaries will be required to take RMDs in 2025. These rules are complex and we recommend clients consult with their own tax advisors before making decisions related to required distributions from inherited IRAs.

Starting this year, employer-provided Roth accounts (such as Roth 401(k)s) will no longer require that the employee account-holder take RMDs.

Harvest investment losses to offset capital gains but beware of the wash sale rule

Using capital losses to offset gains may lower or eliminate capital gains taxes.

However, in order to deduct a loss from the sale of stock or securities in the year you make the sale, you must not trigger the wash sale rule. Among other requirements, this means that you must wait at least 30 days either before or after your sale date to repurchase a security you’ve sold for a loss or another security that is “substantially identical”. If you’re not sure whether a security is “substantially identical,” check with your accountant or other tax professional. The wash sale rule is highly complex and you should consult your tax advisor regarding it.

Note that the wash sale rule applies only to disallow certain losses: You can repurchase a winning security that you had sold at a gain shortly before or after you sold it without triggering the wash sale rule.

Make gifts before year-end

In 2024, you can make an annual gift of up to $18,000 ($36,000 for married couples) to each recipient – the annual exclusion.1 If you don’t use your annual exclusion in a particular year, you lose it. Even if you are over the annual exclusion in a given year, you can make aggregate lifetime gifts of up to $13.61 million ($27.22 million for married couples) – the lifetime exemption applicable to 2024 – without triggering gift or estate taxes.2

If you used your full lifetime exemption in 2023, you have an additional $690,000 ($1.38 million for married couples) to give away in 2024. The unified credit for gift and estate tax is currently set to revert to pre-2018 levels at the end of 2025, and it could revert sooner if Congress addresses this issue in legislation, although we believe this is unlikely in a divided Congress.

Donate to charity this year

Charitable contributions may be deductible from U.S. federal taxable income if certain requirements are met and you itemize deductions, although the deduction is limited to a percentage of your adjusted gross income. Subject to exceptions, deductions that exceed the applicable limit can generally be carried forward for five years.3 The allowable deduction is generally the fair market value of the gift subject to adjustments.

If you contribute qualifying appreciated property (most frequently stocks, bonds or other securities that have grown in value), you can generally qualify for the income tax deduction described above based on the full fair-market value of the contributed property and avoid paying capital gains tax on the appreciation, so long as you’ve held that asset for at least a year, which can be a tax-efficient way of managing your charitable giving.

You can also consider making a “qualified charitable distribution” of up to $105,000 from your IRA or an inherited IRA – but only if you are over age 70½. A qualified charitable distribution does not give you an income tax deduction, but the amount of the distribution also is not includible in your income for 2024 even though it counts as part of your required minimum distribution (if you’re subject to RMDs).

Consider your stock options

If you will not be subject to the Alternative Minimum Tax (AMT) in 2024, consider exercising vested in-the-money incentive stock options, as this may have little or no U.S. federal income tax consequence.

Bottom line

The end of the year can be a good time to review your financial situation and ensure that you’re on track to meet your goals. These year-end steps can be a good place to start. Speaking with a financial advisor or a tax professional can be helpful to strategize and set yourself up for success next year and beyond.

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References

1.

IRS, “Frequently Asked Questions on Gift Taxes.”

2.

Ibid.

3.

IRS, “Publication 526, Charitable Contributions.”

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