As the year winds down, it is the perfect time to take a closer look at your tax strategy. Thoughtful planning before December 31 can help you reduce your tax bill, strengthen your retirement plan, and make the most of your money.
Here are several smart tax moves to consider before the year ends.
Review Your Income and Deductions
Start by estimating your income for the year. If you are close to moving into a higher tax bracket, you may be able to defer income into next year or increase deductions this year to stay in a lower bracket.
Consider a Roth Conversion
If you have money in a traditional IRA, converting a portion to a Roth IRA before year-end may make sense, especially if you are in a lower tax bracket than you expect in retirement.
A Roth conversion means you will pay taxes on the amount converted now, but future growth and withdrawals can be tax-free. It can also help manage required minimum distributions (RMDs) later.
It is best to review this strategy with a financial or tax professional, as timing and income levels matter.
Maximize Retirement and HSA Contributions
2025 contribution limits continue to offer significant savings opportunities:
- 401(k), 403(b), and 457 plans: up to $23,500, plus an additional $7,500 if you are 50 or older. For individuals aged 60 to 63, SECURE 2.0 adds an enhanced catch-up contribution of $11,250 in 2025 (the greater of $10,000 indexed or 150 percent of the standard catch-up limit).
- IRAs: up to $7,000, with an additional $1,000 catch-up if you are 50 or older.
- HSAs: $4,300 for individuals or $8,550 for families, with a $1,000 catch-up for those over 55.
Contributing the maximum you can helps reduce taxable income today while building long-term wealth for retirement.
Manage Investment Gains and Losses
Now is a good time to review your taxable accounts. If you sold investments for a profit this year, you can offset some of those gains by realizing losses elsewhere in your portfolio, a strategy called tax-loss harvesting.
Be mindful of the wash-sale rule, which disallows a loss deduction if you buy back a substantially identical investment within 30 days.
Check Your Withholding and Estimated Taxes
If you owed taxes last year or expect your income to change, review your withholding and estimated payments now. Adjusting before year-end can prevent surprises and penalties at tax time.
Give Strategically
Charitable giving can help you make a difference while reducing taxes. You might consider:
- Donating appreciated stock instead of cash.
- Using a donor-advised fund to bunch multiple years of gifts into one.
- Making qualified charitable distributions (QCDs) directly from an IRA if you are 70½ or older.
The Bottom Line
Smart tax planning does not have to be complicated. The key is taking action before the year ends so you can make the most of available opportunities.
At Custom Fit Financial, we specialize in advice only fee only retirement planning for individuals and couples age 55 and over. We offer hourly and project based financial planning with no sales pressure or product commissions. Whether you’re in Cedar Rapids, Iowa City, or working with us virtually across the United States, we help you make confident informed decisions about your retirement.
Interested in learning more about reducing taxes before the end of the year? Schedule your free intro call today.
