6 Year-End Financial Strategies to Maximize Your Money

Welcome back to another episode of We're Talking Money. I'm Dustin Hocken, this is Phil Clark, OmniStar Financial Group. Today we're going to be talking about six financial maneuvers that you don't want to miss before year end. These are going to make you a lot better for 2024.

We're going to kick it off with utilizing that FSA, which is a flexible spending account. And don't forget, those are accounts that are typically known as use it or lose it accounts. So if you've got a balance in that account, here we are just a few weeks away from year end, you want to figure out how you can use it so you don't lose it. Keep in mind this is a little different than HSA. That's not a use it or lose it; we'll talk about that a little later in the show. And then one more thing to consider: you could have an employer that allows some rollover options for this kind of plan, but most of them don't.

Number two, Roth conversion. This should be something that's looked at every year, looking at your tax situation, what it was this year, what it's going to look like moving forward. Especially as we have some volatility in the market, it can be a great time to convert funds, because if your retirement account has decreased in value, we can convert that same amount for less tax today, let it ride back up all tax-free, and we'll have those tax-free distributions. If you have some stocks that you really like, don't worry, you can always convert like kind, so you don't have to lose those stocks. But must be done before year end.

Let's jump into the next one. That is maximizing contributions to things like HSAs, IRAs, and then of course the thing that everyone's familiar with, the 401K. Let's talk about IRAs and HSAs first. You have until April of next year, so your tax filing deadline in the following year, so you have time on those. What you don't have time for is the 401K. That has a year-end deadline. You got to get that thing maxed before December 29th. So if you haven't funded it, you want to make sure that you do. And if you still have room, get with your employer, take some of that final year's compensation, put it into that 401k.

Remember, you can do $22,500 in 2023 if you're under 50 years old. If you're over 50, you get that catch-up contribution that gets you all the way up to $330,000. Don't miss this one. It makes a huge difference on two things: one, your tax return for this year, and for your retirement nest egg, and you don't want that to come up short.

The next tip: optimizing charitable contributions for tax deductions. If you make a charitable contribution for a nonprofit or a charity that qualifies, you're going to get a tax deduction for that, but that's only if you itemize your taxes. For those of you, and most people, who do the standard deduction, you may not think this relates to you, but it can. There's a technique that we talk about a lot called bunching, and it looks at if you're going to make charitable gifts or you're going to tithe, you're going to give money somewhere and you would receive a deduction, don't do just one year at a time. Look forward and say, you know what, I'm going to do three years now, and this is actually going to push me over that standard deduction, and now you can itemize and get those tax savings. But again, if you want to do it for 2023, you do it before year end. Big time tax saver.

Next we're going to jump into required minimum distributions. Now, SECURE Act 2.0, which was enacted last year in 2022, it changed things a little bit. Not a lot, but definitely made some changes. And one of those changes is if you're 73, that's the magic number now for when required minimum distributions have to begin. Now, if you're 73 this year, you've got to make an RMD, or a required minimum distribution. But if you fail to make it by 1231 of this year, you actually have until next year April to make that distribution. However, that means you're going to have to make two in the same year, so be prepared for that tax hit if you fail to take your first distribution this year.

Now let's talk about what happens if you fail to make your required distribution. For example, you don't take it this year and you forget to take it by April of next year. You've got a problem. You're going to have a penalty. That penalty fortunately is no longer 50%. The new SECURE Act 2.0 dropped it to 25%, so that is a benefit. But 25% excise tax is no good. You don't want that, and there's no reason to have it. Just remember to make that RMD. If you need help with what that looks like, you can reach out to your financial advisor, reach out to us.

Last point: consider tax loss harvesting in your taxable accounts. Tax loss harvesting means you're selling investments in a taxable account strategically, knowing that you still want that stock or a similar stock inside your portfolio. Now, there may be some bad news or something come across a particular stock. That's a great time to actually sell, capture the loss to offset your taxes and offset other gains in your taxable account. If you have more losses than gains to offset, you can always use $3,000 against your ordinary income, and that continues to roll over year over year, so you don't just lose those losses. Very powerful.

This is something that we do in our portfolios throughout the year, and you should look in your portfolio, make sure this is happening in your investments. If it's not, it's not too late. You can do it before the end of the year, but you really want to capture those losses while you can.

Well, there you have it. Six great tips, Dustin, that can help all of our listeners have a much better 2024. Now, I hope this edition of We're Talking Money has inspired you to take a look at your finances, look at your year-end strategies if you have them, and if you don't, consider some of these. They just might make your wallet a little bit fatter as we come into year end, and that's a good thing.

As always, thanks for watching We're Talking Money. Please like, share, subscribe, all that good stuff on our page. It really helps us grow a better reach, and it also helps you make better financial decisions, because we're putting out videos like this every week. Thanks again, and we'll see you next time on We're Talking Money.

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