No getting around it: It’s been an exhausting year. But before you retreat into your winter hibernation, insulated from the outside world, take a moment to run a quick checkup on your financial health to ensure you start (what’s hopefully) a calmer 2025 on the right foot.
From new tax law changes to federal laws designed to promote saving, there’s a lot to keep track of, and some of these changes come with a hard deadline of Dec. 31. Others are simply adjustments to keep in mind as you start a new year. Either way, your tax professional and wealth advisor can help guide you through this important end-of-year tax and financial planning checklist.
If you expect to be in a higher tax bracket in the future – or if you had a year of decreased income – talk to your tax professional to see if converting your traditional IRA to a Roth would be advantageous for you. The conversion will allow you to pay taxes now at a lower rate, potentially saving you money in the long run.
A Roth IRA also gives you more control over your taxable income in retirement, allowing you to plan withdrawals to minimize tax liability. This is especially helpful if you have irregular income streams or lower income years. Note that you’ll need to execute the conversion before Dec. 31 to realize the tax advantages for this year.
Your 401(k) is not one of those “set it and forget it” things; it needs regular attention to make sure it’s working hard for you. First, make sure you’re maximizing your contribution: The max for individuals in 2024 was $23,000, but that amount goes up to $23,500 in 2025. Too many people put their accounts on autopilot, thinking, “I’ll just do what I did last year,” and end up leaving money on the table.
Also, effective Jan. 1, 2025, the federal government has established higher catch-up contributions (part of the Secure Act 2.0) for 401(k), 403(b) and 457 plans, including $11,250 for those age 60-63 (an amount indexed annually for inflation). In the past, everyone had the same catch-up amount, but this will be the first time that’s not the case, which is bound to catch many by surprise. Plus, the amounts vary by age group, so check with your advisor to learn more.
Maybe you’re now a higher earner in the company, and maybe you’re now in the next tax bracket. But if you don’t adjust your withholding percentage to match your higher salary, you might now be underwithheld — and on your way to an unpleasant surprise in April. The good news is you can submit a revised W-4 form at any point in the year.
The tax-deferred savings vehicle known as a 529 plan is an effective way to help pay for postsecondary education costs — and now expenses associated with K-12 education, apprenticeship programs, and student loan repayment. Administered by the state, many also allow you to receive a tax deduction on contributions to these plans.
These plans can be effective tools for “washing” expenses you might have for your child’s college. For example, you can contribute the same amount as your out-of-pocket expenses, then reimburse yourself for those expenses to receive the state tax deduction. Just remember you’ll need to make those contributions and reimbursements in the same year, so get those in by Dec. 31.
No one likes taking a loss on an investment, but those losses can be advantageous when it comes to tax planning. Tax-loss harvesting is the term for the strategically timed selling of securities at a loss to counteract the capital gains tax you owe from selling more profitable assets. This is something we can work with you on throughout the year, as an individual can write off up to $3,000 annually.
As we approach the new year, the most important change you can make is regular check-ins and ongoing communication with your tax professional and financial advisor. By keeping the dialogue open, we can work with you throughout the year to ensure you stay financially healthy and happy — and avoid any painful surprises on Tax Day.
After all, we all deserve a little calm next year.
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Matt Ahrens, a Certified Investment Management Analyst, boasts a decade-spanning career marked by expertise in publications such as the Wall Street Journal, Barron’s, and U.S. News & World Report. Matt adeptly guides corporate retirement plans, educating employees, and ensuring fiduciary excellence. Armed with Wharton School’s portfolio design expertise, he spearheads investment management for clients including physicians, entrepreneurs, and small business owners. Quoted in Forbes, Fortune, and beyond, his insights redefine success.
Rachel Hartnett has over 14 years of experience in tax accounting and was a senior manager at a top accounting firm in St. Louis prior to joining MarksNelson in 2017. She specializes in estate planning and works with high-net-worth clients and their related businesses to help them manage their financial situation, including trust, private foundations, estate, gift, and tax planning. She also serves as the Assistant Department Head in Tax and leads the intern program for the department. She has a passion for helping others grow and develop, serving as a mentor to many up-and-coming accounting professionals.