We’re coming up on the end of the year, and while it’s a time to take a break and enjoy the holiday season, it’s also a good time to consider tax strategies that may benefit you. Because taxes are calculated from January 1st to December 31st of each year, and certain retirement rules and laws reset at the same time, you may have some significant last-minute moves you can make with your money before the tax year is over.
1. Gift Tax Exemptions
2. Consider Tax-Loss Harvesting
3. Consider Maximizing Your Retirement Account Contributions
There are limits for yearly contributions to each retirement account. As the end of the year approaches (especially if you are over 50 and able to utilize catch-up contributions), you can reach your contribution limits before the year ends and continue to contribute as the new year starts. This can help you maximize your contributions quickly so you can catch up on your retirement savings if that’s a key goal for you. If you have a traditional 401(k), contributions to your 401(k) will be taken off your income for the year that they were contributed. You will still have to pay taxes on those contributions as income when you withdraw them.[2]
Keeping track of tax laws and executing tax strategies is a complex task. You may have the right idea when attempting to execute your own tax minimization strategy, but you could end up with a much larger tax burden if you aren’t aware of the minutia of tax and retirement laws, how they change each year, and how those changes may affect your short- and long-term tax strategy. A financial professional is well-versed in these specifics and can help you successfully execute a tax minimization plan.
