As the year wraps up, retirees have unique opportunities to help optimize their finances, reduce taxes, and ensure their retirement income strategy stays on track. Here are six steps to take before December 31.
1. Take Your Required Minimum Distributions (RMDs)
If you’re 73 or older, make sure you’ve taken your RMDs from IRAs and 401(k)s to avoid a hefty penalty. Missing the deadline can result in a 25% excise tax on the amount not withdrawn.
2. Consider a Qualified Charitable Distribution (QCD)
If you’re charitably inclined, a QCD lets you donate up to $100,000 directly from your IRA to a qualified charity. This satisfies your RMD and keeps the distribution out of your taxable income.
3. Review Your Tax Withholding
Check your withholding now to help avoid surprises when you file. Given tax law changes, you may be over withholding or under withholding on different income sources.
4. Evaluate Roth Conversions
Converting some traditional IRA funds to a Roth IRA before year-end can reduce future RMDs and create tax-free income later. This is especially useful if you’re in a lower tax bracket this year.
5. Rebalance Your Portfolio
Market fluctuations can throw your asset allocation off target. Year-end is a great time to rebalance and help ensure your portfolio aligns with your risk tolerance and income needs.
6. Use Your Medicare Advantage or FSA Benefits
If you have a Medicare Advantage plan or a health-related FSA, check for unused benefits like dental, vision, or wellness credits before they expire.
Closing:
Retirement planning doesn’t stop once you leave the workforce. Taking these steps now can help you reduce taxes and improve peace of mind heading into the new year.
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