5 Smart Money Decisions You Need to Make Now

As the end of the year approaches, it might be a good time to take stock of your finances. Whether you contribute to your 401(k) or sell one of your losing investments, what you do now can help you save money in the future.

“October and November are good times to take inventory,” said Adam Wojtkowski, a spokesman for the U.S. central bank certified financial planner. “And if you have to make actual trades in November and December, try to get them done.”

Consider Roth IRA conversions

Catherine Valega, a CFP at Green Bee Advisory, has recommended Roth IRA conversions to some of her clients this election year because the Tax Cuts and Jobs Act (TCJA) of 2017– a law that lowered income and tax brackets – expires in 2025. That means income tax rates could increase after December 31, 2025.

With a Roth conversion, you move money from a pre-tax account, such as a traditional IRA in an after-tax Roth account where your money grows and withdrawals are also tax-free. This means that you will effectively reduce taxes in the coming years.

“Setting the historically low ordinary income tax rates by a Roth conversionn and claiming a specific (tax) bracket would also be beneficial before the end of the year,” said Brian Schmehil, Managing Director of Wealth Management at The Mather Group.

However, when you convert a retirement account to a Roth IRA, the amount you convert is considered taxable income. This means that you owe income taxes on the conversion and could face a higher tax bill in April. Converting could also put you in a higher tax bracket this year. That’s why Wojtkowski recommends considering what tax bracket you’re in before opting for a Roth conversion.

Maximize some of your investment accounts

While the contribution limits for IRAs and Health Savings Accounts (HSAs) until tax day, you have until December 31 to contribute to or max out some of your employer-sponsored accounts, like your 401(k).

“On the employer plan side, if you’re able to do that maximize your contributionyou (want to) do it with the limited salaries you have between now and the end of the year,” Schmehil said.

Katherine Edwards, CFP at Mainstreet Financial Planning, also suggests using this time of year to evaluate your retirement strategy and increase your savings rate.

“If you’re not maxing out your retirement accounts, consider increasing the amount you put in your retirement account,” Edwards said. “Maybe you’ll get a raise and increase contributions to your retirement account by 1% every December.”

Look for opportunities to harvest tax losses

If you sell your investments at a profit, you are a so-called a capital gains tax. In a year like 2024, which has seen both stock market highs and turbulence, you could use some of the losing bets to your advantage.

Edwards said harvesting losses on your investments at the end of the year is a good idea to lower your tax bill, although she also recommends doing this year-round or when the market is bad.

Of harvesting tax lossesyou sell an investment at a loss to offset your investment capital gains and reduce your ordinary incomeup to $3,000. Capital losses in excess of $3,000 can be carried forward to future years to offset your gains.

If you still think the losing investment can turn around, make sure you don’t buy it back within 30 days of the sale to catch tax losses. That could get you in trouble wash sale rule.

Don’t forget to make the required minimum distributions

Don’t forget to bring required minimum distributions (RMDs) from your IRAs before the end of the year, if you qualify, or you could face a hefty fine.

If you are age 73 or older and it is not the first year you will take a required minimum distribution from your retirement account (such as an IRA or 401(k)), you have until December 31 to take your RMD.

Otherwise, you will owe a penalty equal to 25% of the RMD amount not withdrawn by the deadline. If this is your first time doing an RMD, you have until April 1 of the following year.

Some retirees may need that money for expenses, but if they don’t, there’s a silver lining. You can use the extra money to invest.

“CDs and other liquid investments are great if their purpose for using the money is short-term and they plan to need it soon. If they don’t plan to use it for the next five to 10 years, they might consider invest it in something more aggressively in the investment account,” says Gerika Espinosa, a CFP and financial advisor at DMBA Financial Planning and Wellness.

Another option, according to Espinosa, is to use those funds to become tax efficient qualified charitable contributions.

Donate to a good cause

When you give to a charity that you care about, you can also receive a tax benefit. However, before subtracting a charitable contribution You want to pay the contribution from your income in the 2024 tax year at the latest at the end of the year.

To receive the tax deduction on your annual gross income (AGI)you have to itemize your deductions instead of taking the standard deduction. That’s why some experts recommend bundling charitable contributions.

“If someone is in a position to take the standard deduction in most years – rather than making charitable contributions year after year – (consider) possibly bundling up three years’ worth of charitable contributions in a given year and putting them into a donor-advised fund. advised fund,” Wojtkowski said.

With the TCJA set to expire at the end of 2025, experts also say it may be beneficial to make charitable contributions now rather than later, as the tax benefits could diminish.