2024 Year-End Tax Planning for Individuals

As the end of 2024 approaches, now is the time for individuals to fine-tune financial strategies and explore opportunities to reduce federal income taxes due at year end. There are several steps which can be taken in the closing weeks of the year to help reduce 2024 income taxes. These include making additional retirement plan contributions, making ROTH conversions, and taking advantage of the estate tax planning opportunities. Depending on your situation, one or all of these steps can be effective at reducing overall liabilities. To help clients, prospects, and others, Klatzkin has provided a summary of the key details below.

2024 Year End Tax Planning Steps

• Retirement Contributions – Maximizing contributions to retirement accounts can reduce taxable income. For 401(k) plans, 403(b) plans, governmental 457 plans, and the federal government’s Thrift Savings Plan, the 2024 contribution limit is $23,000, with an additional $7,500 allowed as a catch-up for those aged 50 or over. IRAs have a contribution limit of $7,000, with an extra $1,000 catch-up for those aged 50 or over. Reaching these contribution limits by year-end can reduce taxable income while building retirement savings.
• Strategic Roth Conversions – Consider converting a portion or all of a traditional IRA to a Roth IRA. While this increases taxable income for 2024, it allows for tax-free growth and tax-free withdrawals in retirement. Additionally, high-income earners may benefit from a two-step Roth contribution. This involves making a non-qualified contribution to a traditional IRA and then converting it into a Roth IRA. Repeating this strategy each year can build a substantial tax-free retirement asset. There is a Roth IRA rule that will not allow you to withdraw tax-free earnings from your account until five years after your first contribution unless you meet certain conditions. In most cases, however, you can withdraw contributions tax-free since you paid taxes on them before you contributed. If you plan on doing Roth IRA conversions sometime in the future, it is important to establish a Roth IRA account early to get the clock ticking on the 5-year rule.
• Charitable Contributions and Qualified Charitable Distributions (QCDs) – For individuals aged 70½ or older, a qualified charitable distribution (QCD) allows up to $105,000 to be donated directly from an IRA to a qualified charity. This counts toward the RMD while excluding the income from taxes. Non-deductible contributions are excluded. Additionally, consider donating appreciated securities held for over a year from non-retirement accounts rather than cash. This helps avoid capital gains taxes on the appreciation and provides a deduction equal to the fair market value.For those who prefer flexible donation timing, “bunching” multiple years of charitable contributions into one tax year can push itemized deductions above the standard deduction. Pairing this strategy with a donor-advised fund (DAF) allows you to receive the deduction this year while deciding on specific charitable distributions over time.
• 529 College Savings Plans – For individuals residing in states that offer tax deductions or credits for 529 plan contributions, maximizing contributions by year-end can provide additional state tax savings. Funds in 529 plans grow tax-free when used for qualified education expenses. Recent legislation adds further flexibility: once a 529 plan has been open for 15 years with the same beneficiary, up to $35,000 from the 529 plan may be rolled into the Roth IRA over the beneficiary’s lifetime. The amount of the rollover cannot exceed the IRA contribution limit for that year and the rollover must be made using funds that have been in the 529 plan for at least 5 years.
• Estate and Gift Planning – The estate and gift tax exemption currently allows individuals to transfer up to $13.61 million ($13.99 million in 2025) during their lifetime or at death without incurring federal estate or gift taxes. This elevated exemption is set to sunset at the end of 2025. After that, the amounts are scheduled to return to 2017 levels, which, adjusted for inflation, would drop the single taxpayer limit back to an estimated $7 million. For those with significant assets, making larger gifts now can help maximize tax-efficient wealth transfers before the exemption decreases.

Separately, the annual gift tax exclusion permits tax-free gifts of up to $18,000 per recipient each year without impacting the lifetime exemption. This exclusion is adjusted annually for inflation and is not affected by the sunset provision. Reviewing estate planning documents, including wills, trusts, and beneficiary designations, can also help ensure plans are current and aligned with any recent personal or legal changes.

Other considerations:

• Tax loss harvesting and wash sale rules
• H.S.A. contribution (have till 04-15-25)
• Avoid purchasing new mutual funds with large expected capital gain distributions near year-end
• Catch up on federal tax payments through payroll

If you are self-employed or otherwise expect to owe additional taxes, it’s important to review your estimated tax payments before year-end. Underestimating your tax liability can lead to penalties for underpayment.

Contact Us

Year-end tax planning is an opportunity to immediately reduce taxable income. As the new year quickly approaches, it is essential to consult with a tax advisor to determine the practical steps you can take to reduce federal and state liabilities. If you have questions about the information outlined above or need assistance with a tax or accounting issue, Klatzkin can help. For additional information call 609-890-9189 or click here to contact us. We look forward to speaking with you soon.