7 Year-End Tax Moves For Pre-Retirees, #221
It can be overwhelming to think about what you can do to minimize your tax burden. That’s why, in last week’s episode, we covered 7 year-end tax moves for retirees. This week, we’ll tackle what those nearing retirement need to dive into at the end of every calendar year. We all need to be mindful of how our decisions impact our tax burden and this is a great place to start!
You will want to hear this episode if you are interested in...
[1:16] Tip #1: Maximum your contributions to your retirement plans
[4:05] Tip #2: Consider a Mega Backdoor Roth IRA
[7:30] Tip #3: Do a Roth conversion
[11:52] Tip #4: Make charitable contributions
[14:15] Tip #5: Exercise non-qualified stock options
[15:07] Tip #6: Max out your FSA contributions
[17:14] Tip #7: Max out your HSA contributions
Tip #1: Maximum your contributions to your retirement plans
Many people contribute to their 401K, 403B, and 457 plans. However, most don’t fully take advantage of what they can contribute (You can contribute $23,000 or up to $30,000 if you’re over 50 in 2024).
If you’re off track for retirement, and you have the ability to contribute more, consider bumping up your contributions to reach the maximum. And if you do this on a pre-tax basis, it will lower your income tax for 2024.
Tip #2: Consider a Mega Backdoor Roth IRA
Check with your employer to see if they allow after-tax contributions. All 401K plans have a maximum limit of $69,000 between what you put in and what your employer contributes (or $76,500 if you’re over 50). If your plan allows for after-tax contributions, and you can save more money for retirement, decide whether or not you want to contribute above and beyond.
Tip #3: Do a Roth conversion
You can convert pre-tax money into a Roth account. You’d pay tax on the income for that year. If your 401K plan allows after-tax contributions and in-plan conversions, you can take the after-tax money and move it into the Roth account. Any gains on that money can be withdrawn tax-free. How else can you do a conversion? Listen to learn more!
Tip #4: Make charitable contributions
Due to the Tax Cut and Jobs Act of 2017, many people can’t itemize their taxes because of limitations. However, if you make contributions to a Donor Advised Fund, you can take that money and send it to a charity at any point. When you do it this way with a sizable donation, you should be able to itemize it on your taxes.
Tip #5: Exercise non-qualified stock options
Non-qualified stock options are taxed as ordinary income. If you find yourself in a year with lower income, you could consider exercising these stock options. You’d pay lower taxes on them pending your total projected income. It may be more beneficial or wait.
Tip #6: Max out your FSA contributions
An FSA account is a flexible savings account that is available to people who don’t have high-deductible health plans. They all allow you to contribute on a pre-tax basis to pay for medical-related expenses. If you’re in the 30% tax bracket, you’re saving 30% on these expenses versus paying out of pocket. Listen to learn about the three different types of FSA plans.
Tip #7: Max out your HSA contributions
If you’re on a high-deductible insurance plan, you’re typically offered an HSA. You’re contributing money pre-tax, which gives you a deduction. You can also pay for health-related costs tax-free. These accounts allow you to invest the money. If you can invest it for a number of years, you’ll essentially be spending your gains while letting the principal grow.
Resources Mentioned
Subscribe to the Retire with Ryan YouTube Channel
Connect With Morrissey Wealth Management
www.MorrisseyWealthManagement.com/contact