The holidays are coming and so is the year‐end, it’s time to do your tax planning. The top of your list will vary according to your age and where you are in your career, whether you are retired or still accumulating funds. Here you will find some reminders. We hope it helps you to ask the right questions to your accountant.
Distributions
If you are retired, you must begin taking Required Minimum Distributions (RMDs) at the age of 73. If you reach age 73 in 2024 you can delay taking the first RMD till April 1, 2025; however, that means you would have to take two distributions in 2025. Distributions are taxed as income, so we suggest you start taking the first distribution in the year you turn 73, even when your birthday is in December.
If you are still working and making contributions to a retirement plan (for example, 401(k), 403(b) or profit‐sharing plan) you can delay taking your RMDs until the year you retire, unless you are a 5% owner of the business sponsoring the plan.
Contributions
- In a 401k/403b or other workplan retirement plan you can contribute $23,000, with a catch‐up of $7,500 if you’re 50 or older.
- Regardless of age, anyone with earned income can open and contribute to an IRA, including those who have a 401(k) or 403 (b) account through an employer. The limit on annual contributions to an IRA is $7,000. The IRA catch‐up contribution limit for individuals aged 50 is $1,000 for 2024. The rules for deducting the IRA from your income are complicated; if it is not deductible, you might be able to convert it to a Roth IRA.
- If you are self‐employed, income for solo practitioners, freelancers and partnerships without employees: You can open a Solo 401(k) plan for retirement savings. This allows you to save more tax‐deferred money than a SEP IRA.
Roth Conversion: If it makes taxable sense, you should seriously consider turning part of your IRA into a Roth. Roth IRAs grow tax free, just like IRAs, but distributions are tax free. There are no required distributions. You can
take your contributions (not the earnings) out of the account after 5 years – earnings are tax free after 59 ½. You can leave the account to your heirs and their distributions will also be tax free.
Charitable contributions can lower your taxes. For 2024, this limitation was increased to $105,000, up from $100,000. Those who are 70 ½ or older can transfer up to $105,000 per year directly from an IRA to an eligible charity and at the same time satisfy your RMD. This is useful if you don’t need the distribution as it is not added to your taxable income. You can also give appreciated stock to a charity. You will avoid the capital gains tax and the charity doesn’t need to pay them either.
Charity begins at home, don’t forget to contribute to 529 plans for parents, grandparents, and other relatives. Over 30 states and the District of Columbia currently offer a full or partial tax deduction or a tax credit for 529 plan contributions. Check your state’s rules. Remember, 529 Plans, like retirement plans grow tax free. If the money is used for approved education expenses, it is not taxed. And with new rules, the beneficiary of the plan can now rollover any leftover in 529 Plans and use it for their Roth IRA Contributions.
