What kind of tax moves should you consider making between now and the time that the clock strikes midnight on December 31st of this year? That’s what we’re going to talk about in the show today. So we’re talking about taking advantage of every single thing you could take advantage of in any one calendar year from the way of taxes and saving for retirement. Very first thing is really pay close attention to how much you put into your workplace 401k, 403b, or if you don’t have one, what you’ve put into an IRA or a Roth IRA for the year. Now in 2024, you can put in $23,000 into that. In 2025, you can put in $23,500. Over the age of 50, well, you get something back for all of those aches and pains that you wake up with every morning. Here’s the bottom line. In 2024, if you’re over 50, you can put away $30,500. And in 2025, you can put away $31,000 away.

So you’re getting down close to the end of the year. A lot of people get bonuses at the end of the year. How are you going to take that bonus? I’ve encouraged so many people to split the bonus. Take half of the bonus and spend it, enjoy it, have Christmas, take a vacation, do something with it, but take the other half of the bonus and add that to your 401k so that you pad yourself up to maybe reach the max that you can put into a 401k in any one year. Again, you don’t have that workplace plan, put it in an IRA. With that one, you can go up to $7,000. And you can put $8,000 if you’re older and if you’re over the age of 50. So take that bonus and fully fund an IRA or a Roth IRA, or continue to add to your 401k.

That’s one thing you can do to help save yourself money potentially on tax this year if you use the regular accounts, or put tax free money away for the future if you use the Roth accounts. And you can do that and actually save on taxes for the year in which you put the money into the pre-tax account. Now, you may think I’m crazy. Number two, you want to do some Roth conversions. Hey, what do you think about the idea of paying more in taxes right now? You say, “What?” Yeah, maybe the smartest thing for you to do is pay more in taxes now, particularly if you look at our national debt, you look at what taxes may be in the future, and you say, “I’d like to pay more in taxes now because I think taxes are going to be higher in the future and not lower.”

Well, you have the opportunity to do Roth conversions. In the first section, we talked about Roth contributions. That’s where based on what you’ve made each year, you’ve got to make a certain amount, but you definitely also can’t make too much to go into those Roths, but you can convert any amount into a Roth as long as you’re willing to pay the tax on it in that year. Where would the money come from? From your current 401k, particularly if you’re over 59 and a half, and you can do an in-service distribution, or if you’ve got an IRA and you want to convert over into a Roth IRA, where in the future, it grows without tax, it comes out without tax. There are no required minimum distributions at any age if you put the money into a Roth. So converting money into a Roth really is something you should consider.

A lot of things that go into that. What are those things? Number one, the conversion has to be done within the calendar year in which you’re going to pay the tax, like 2024, boom, by December 31st. 2025, boom, by December 31st, from January 1st to December 31st. So it has to be within the calendar year. Number two, you’ve got to consider what I call the tax ripple effect. If you convert a lot of money out of an IRA or a 401k and pay the tax on it and move that money into a Roth so that it’s never taxed again, it goes from a forever taxed in the Roth or the 401k to a never taxed into the Roth. Okay? So if you’re going to do that, you’ve got to be concerned about what it does to your income tax bracket. That’s the second thing you’ve got to watch. Number three, you’ve got to be concerned about what it might do to your capital gains.

You may be floating along under married filing jointly $100,000 of income, as a single person, $50,000 of income, and you may be able to actually have no capital gains. But if you convert a lot from an IRA or a 401k into a Roth, bingo, you could push all of that money that you’ve got for capital gains so that it gets capital gain taxed at 15%. You’ve got to be careful. You’ve got to run… We run software on it at our place so that if anybody’s wanting to do that, we hold their hand as they do it because it not only can affect your income tax bracket, it can also affect your capital gains. The third thing, if you’re on Medicare, you’re 65 years of age or older, it can affect your IRMAA, I-R-M-A-A. And I always kid around that that’s your ugly cousin that you don’t ever think about until she costs you money. And IRMAA is what you pay extra for part B and part D for raising your income level too high.

Believe you me, if you’ve ever had to pay extra IRMA for Medicare part B and part D, you know exactly what it is because it could be as an individual as much as an additional $625 a month, and if you’re married, for both of you, $625 a month each of you. So let’s do Roth conversions. Let’s get it from the forever taxed in the IRA and the 401k over to the never taxed in the Roth, but let’s be very careful that that ripple tax effect doesn’t impact our brackets, it doesn’t impact our capital gains, and it doesn’t impact our IRMAA and drive up our Medicare costs. Number three, a third thing you might want to consider as you approach the end of this year or any year is maybe doing some tax loss harvesting. Here’s what I mean. If you just sell a bunch of stock that’s lost money over a period of time, hopefully you don’t run into that issue.

But the reality is, as I see statements day in and day out across our conference room table, people have lost money on stocks in the past, or maybe you’re underwater on some of the things that you own right now. Well, that’s a tax lost. How do you harvest something? Well, I grew up on a farm. You go out in the field and you bring in the harvest from the field. So what you would do, you may want to consider doing this, you got to be careful doing this, is you may want to sell something, and this is the way you do tax loss harvesting, sell something that’s got a loss, and also concurrently sell something that’s got the equal amount of gain. Let’s just take a real simple example. If you’ve got something or several things that have lost $10,000, you may want to sell those and get out of those things.

And if you take a tax loss, the deduction may be spread over several years. But if you take a $10,000 loss and concurrently you sell something that’s got a $10,000 gain, we see it’s been a while since math class, but I think minus $10,000 plus $10,000 is zero. So your actual loss gain is zero. You’ve harvested your loss, sold something with a gain to offset it, so you owe no taxes. Let me say that again because most of you’re listening and watching this so that you can hear that word.

You owe no taxes if you do that the right way. So please understand that close to the end of the year, it’s a great time to do it. Then you know you’re not going to have those emergencies come up. That might cause you to have to sell more stuff for a gain and drive your taxes even higher. But if you’ve got this much loss and this much gain and you sell them both at the same time, you’ve got zero tax on that. That’s called tax loss harvesting. Don’t do it by accident. Do it deliberately because you’re working with a professional maybe who could help guide you through that.

Number four, something you definitely need to do probably by the end of the year is required minimum distributions. Now you say, “Wait a minute, Tom. You just said definitely and probably in the same sentence.” You definitely need to take a required minimum distribution each year once you reach a certain age. So you ask, “What age is it? Isn’t it 70 and a half?” It used to be. “Isn’t it 72?” It used to be. You say, “What is it?” It’s 73 now. That means if you’re listening to this in 2024 and you were born in 1951, you’ve got to start taking required minimum distributions for this year. If you’re listening to this in 2025 and you were born in 1952, the greatest of all years, if you were born in 1952, you’ve got to start taking required minimum distributions out of your IRAs and your 401k.

So they’re changing the rules constantly. By the way, if you were born in 1960 or later, you’re not going to have to take it out by 73. Don’t even want to tell you the new age, but it’s going to go higher. You’re going to be able to delay even longer, but you probably need to take it in the first year that you’re required to do it, probably. Because in that first year, just to confuse us, I’m sure, required minimum distributions, you’re allowed to wait until April of the following year to take your first one. I scratch my head on this one because I think, why do you do that? It just confuses. What’s the big tax day in April? I hear you saying April 15th. The date for required minimum distributions is April 1st, no fools. Okay? But then if you take that one and you delay it that first year and you take it from January to April 1st of the year following the year, you have to take required minimum distributions.

You see what I’m saying here? You see where I’m going here? You also have to take a second required minimum distribution for that second year. Yeah, you can delay your first year required minimum distributions until April of the second year, but so many people are confused. They say, “I’ve already done that.” No, it’s a gotcha because what that does is let’s say you have $500,000 in an IRA or a 401k, and for this first year, you have to take out $20,000. You delay it until next year, until April, take it out on April 1st, $20,000. Bingo. You’d probably have to take another $20,000 out, meaning for next year, that second year, you’ve got to take out $40,000, and that may drive you into a higher tax bracket. Now, if that’s confusing, go back and listen to this again, because as I thought through there, I systematically worked you through the confusion that you need to make sure you’re not being confused over because required minimum distributions are a big gotcha.

They’ve talked about it. They’ve said, “Maybe we just leave that money into an IRA.” Then if you leave the money into an IRA, you run yourself into the situation of what’s called an inherited IRA because maybe you leave that to your kids. Maybe you’re 85 years of age, and if they do get to a point where they don’t require minimum distributions each year and you don’t take any, because I haven’t paid any tax on my IRA except for the money I’ve taken out, I haven’t been forced to take out a certain amount, let me leave that to junior, and you’re 85 years of age and juniors 55 to 60 years of age, Junior’s probably living at a time where he, or if it’s Sally, your daughter, she’s probably living at a time where they’re making more money than they’ve ever made in their life, and stacking on top of that is your IRA that you didn’t pay tax on.

So they’ve got to take the money out in an inherited IRA over a 10-year period. And they just ruled last year, straightening out a law they passed four years earlier, that they’ve got to take out something every single year. So that blessing of that IRA that you intend to leave to your kids, it ends up being a burden because they’re in their highest earning years and they’ve got to take out a certain amount every year and completely drain it by the 10th year so that there’s nothing left in your IRA if you leave it to Junior or Sally, your daughter. You understand what I mean? It could be confusing. It could be something you need to get help on. Here’s another thing. Most companies will not do required minimum distributions after the 10th, the 12th, or the 15th of December because it takes some time to do the deductions, to get the money out, to make sure and credit it to the right year.

So required minimum distributions are something that you really need to be working with somebody other than the big box firms who say, “Well, we told you how much to take out.” And you’re on a yo-yo plan after that. You’re on your own. You know what I mean by that? So you’re on a yo-yo plan taking out required minimum distributions and maybe costing yourself a lot of tax. So is it confusing? Yes. Are there a lot of rules to it? Yes. And here’s the deal. If they can push you into a situation, they being the federal government, Congress, whoever you want to see that sinister person out there, and you have to pay more tax sooner or higher tax later, they don’t care because they’re in it to get the tax. And a lot of people get to a point and they say, “I really, really don’t need to take my required minimum distributions.”

Guess what? The government needs your required minimum distributions to stay afloat, so don’t expect them to go away. They’re just going to come back to you in a different way. And when it comes back in a different way, many times with the government, when they are new and improved with what they do for us, it just means we’re going to have to pay more tax. Number five, probably the biggest thing you think about when it comes close to the end of the year, if you’re charitable of giving of mind or you’re just that kind of person, is charitable giving. You need to make sure that anything that you’re going to give to your church, your mosque, your synagogue, anything you’re going to give to a 501(c)(3), you write that check, you make that contribution in this calendar year. Well, they cheat. I’ve heard of people who do, but cheating gets you in trouble when you start doing things with the IRS.

So just write the check, get it done by the end of the year. If it’s after the first of the year and you’re listening to this, decide what you’re going to give this year and give it as soon as you can. Go ahead and give it, get it done with charitable giving. Now, there are some things like qualified charitable distributions where if you’re 70 and a half, again, there’s rules to this, you can give X amount of dollars to your charity. You can give it straight from your IRA straight to the charity. If they’re a 501(c)(3) charitable contribution organization, then they’re going to get the full amount of the deduction, and you’re going to get the full amount of distribution out of your IRA. So wait a minute, I get full distribution. I get credit for the… Yeah, it’s a win-win in a lot of situations.

So if you’re 70 and a half, remember that’s the qualifier, you need to look at your QCDs. I do have people who use a QCD, qualified charitable distribution, if they’ve got an IRA or a 401k, to calculate what they want to give to their church. And they give the entire amount this year that they intend to give for next year, and so therefore they can deduct it. It comes off of their IRA. They don’t have to pay tax on it. It doesn’t require minimum distribution. Calculate into that. There’s so many great things that you can get, but it’s the predetermined gift of an amount of money directly from your IRA to your church. You get a 1099 on it. You have to tell your accountant specifically that it was a contribution because it’s so unusual for people to do because so few people take advantage of it on a 1099 form.

They don’t even have a box for it to distinguish it. So you’ve got to write it in on the 1099 when you file your income tax. Totally legal. There’s also donor approved funds or donor advised funds, DAFs is what they’re called. Those are a little bit more complicated, too complicated for this. So if you’re going to give a lot of money to something, there are other ways to give a lot more money and get the deduction. But if you’re going to give something by the end of the year to your church, get her done. If you want to use a qualified charitable distribution out of your IRA or your 401k, you can get her done by the end of the year and give everything for next year or this year, but you need to take advantage of these, again, the clock is ticking, by the end of the year in which you want to get credit for it.

So here’s the bottom line. You want to do RMDs this year, you want to do Roth conversions, you want to do contributions to your 401k or your IRA, the bottom line is get her done. You’ve got to act. You’re at the two minute warning of a football game or a basketball game when the announcer says two minutes. They don’t stop the clock, but I’ve heard it when I go to the Laker games or the Clipper games over and over again. Then it’s time to put it all on the line and get it done, because if you wait, it’s too late and you can’t go back. In almost all cases, you can’t go back next year and do something for this year. Hey, I value your time. I always want to bring value. I always want you to learn something and for you to say, “Hey, it was worth it my time.” We’ll do it every week.

I promise you every week, if you’ll give me a few minutes, I’ll do my best to increase your financial knowledge. And if we can help you, particularly about a situation, a question, anything you’ve got, go to the website, get an appointment, give us a call. We’ll see you next time!