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2025 is Around the Corner: 8 Smart Money Moves to Wrap Up the Year Right

by BlogTax PlanningWealth

As the year winds down, now is the perfect time to check off those financial to-dos. Here are 8 key money moves (plus a bonus tax hack to boost your credit card points) to consider making so you can head into the new year with less stress and set yourself up for financial success in 2025.

1. Use It or Lose It: Check Your FSA

If you have a Flexible Spending Account (FSA), be sure to spend any remaining funds before the end of the year to avoid losing them. FSAs typically come in three types: health care, limited-purpose (compatible with HSAs), and dependent care.

Some plans allow a small portion to roll over or offer a grace period into early 2025, but most require you to use the funds by December 31. Check with your employer to confirm your deadlines and eligible expenses, like medical co-pays, prescriptions, or child care.

2. Consider a Roth Conversion

If you’ve been debating converting a traditional IRA to a Roth IRA, now is the time to act. The deadline for a 2024 Roth conversion is December 31.

Why consider it now? If your retirement account balances are down, the tax bill on the conversion will also be lower, as it’s based on the value converted. You can transfer assets “in kind,” meaning no need to sell investments before converting, but you will owe taxes on the amount converted.

3. Maximize Contributions to Tax-Advantaged Accounts

Ensure you’re contributing as much as possible to accounts like 401(k)s, IRAs, and HSAs.

  • 401(k): For 2024, the contribution limit is $23,000, or $30,500 if you’re age 50 or older. The deadline for 401(k) contributions is December 31.
  • IRAs/HSAs: While contributions for 2024 can be made until the April 2025 tax filing deadline, HSA contributions made by December 31 through payroll deductions can avoid FICA taxes.

Pro tip: Use a year-end bonus to boost your retirement contributions or education savings in 529 plans, which may offer state tax benefits if funded by year-end.

4. Optimize Charitable Giving for Tax Savings

If you itemize deductions, consider making charitable donations by December 31 to reduce your 2024 tax bill.

  • Cash Donations: Deduct up to 60% of your adjusted gross income (AGI).
  • Appreciated Securities: Deduct up to 30% of your AGI and avoid paying capital gains taxes.

If you don’t normally itemize, try “bunching” donations. This strategy involves making several years’ worth of contributions at once to exceed the standard deduction in 2024. Donor-advised funds can help streamline this approach.

5. Don’t Forget RMDs if You’re 73 or Older

If you’re 73 or older, Required Minimum Distributions (RMDs) from traditional IRAs and certain retirement accounts are mandatory.

  • First RMD: Must be taken by April 1 the year after turning 73.
  • Subsequent RMDs: Must be taken by December 31 annually.

Avoid missing the deadline—there’s a 25% penalty for missed RMDs, though this can be reduced if corrections are made quickly.

6. Take Advantage of Tax-Loss Harvesting

Use tax-loss harvesting to sell investments at a loss to offset taxable capital gains.

  • Offset realized capital gains dollar-for-dollar.
  • Deduct up to $3,000 of investment losses against ordinary income ($1,500 if married filing separately).
  • Carry forward unused losses to future tax years.

Make sure you complete any loss-harvesting transactions by December 31 to apply them to your 2024 taxes.

7. Review Your Tax Withholding

If you’ve had significant changes in income, withholding adjustments may help avoid surprises come tax season. Use the IRS Tax Withholding Estimator to check if you need to fine-tune your withholding for 2025.

8. Plan for End-of-Year Expenses

Take stock of holiday expenses, travel, or any big-ticket items to avoid overspending. If you’re expecting a year-end bonus, create a plan for allocating it toward financial goals like debt repayment, savings, or investments.

Bonus Tax Hack to Get More Credit Card Points (from my friend Colin Stroud, Go Somewhere)

How I Earned 99,000 Chase Points from Paying My Taxes

This is what I call a next-level money move.

Here’s the situation: My wife needed a business credit card, and we also had a tax bill to pay. After some quick strategizing, we came up with a plan to turn this expense into a major points haul.

She applied for the Chase Ink Unlimited card, which has no annual fee and was offering a sign-up bonus of 90,000 points after spending $6,000 in the first 3 months. This card also earns 1.5% back on all purchases—including tax payments.

By using this card to pay $6,000 in taxes, we hit the spending requirement and earned:

  • 90,000 points for the sign-up bonus
  • 9,000 points from the 1.5% rewards on the $6,000 spent

That’s a total of 99,000 Chase points in one go.

Wait—You Can Pay Taxes with a Credit Card?

Yes, you can. The IRS allows credit card payments through third-party processors. The catch? There’s a small fee.

For this payment, we used a processor charging a 1.82% fee, which came out to $109 on a $6,000 tax bill.

Is It Worth It?

Absolutely. Here’s why:

  • For $109 in fees, we earned 99,000 points.
  • Those points can be redeemed for $4,000+ in travel when used strategically through Chase Ultimate Rewards (e.g., transferring to airline or hotel partners).

That’s a 36x return on the fee we paid.

Why You Should Consider This Hack?

If you have a tax bill (or any other large expense) and a great credit card offer, this is a fantastic way to maximize rewards. The key is ensuring:

  1. The processing fee is small compared to the value of the points.
  2. You can pay off the card balance in full to avoid interest charges.

So, why aren’t you doing this? It’s a simple and effective way to turn an unavoidable expense into major travel rewards!

Well Ladies that’s the 9 money moves you can make NOW. Remember, it’s Never Too Late to Plan

If you don’t check everything off your list this year, don’t stress—you can still take steps in 2025 to improve your finances (there’s several April 15, 2025 deadlines for 2024 like Roth IRA contributions). However, acting now can help you enter the new year feeling confident and prepared. But act quickly.

For personalized advice, consult a financial or tax advisor to see how these strategies (and others) could improve your financial outlook. I know a few who can hook you up. I can even hook you up with a complimentary financial or tax assessment. Email me: lynnt@herretirement.com or go to: https://herretirement.com/talk-to-a-retirementor

No taxes

Surprising Tax Stats: How to Save Big by Choosing the Right State

by BlogTax PlanningWealth

So, what are the lowest income tax states? Let’s start with the nine states that don’t have state earned income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. But don’t be misled—no state is truly tax-free. Many of these states make up for it with higher property taxes, sales taxes, or other fees.

If you’re a high-income earner, these tax savings can be significant. For example, if you earn $250,000 a year, moving from Vermont—where you could be paying over $15,400 in state income taxes—to a state like New Hampshire with a 0% tax rate on earned income (excluding dividends and interest) could save you a big chunk of money. If you invest that savings annually with a 7% return, it could grow to over $213,000 in just 10 years!

Similarly, if you’re earning $100,000 and move from a high-tax state like Oregon to a no-income-tax state like Florida or Texas, you could save about $7,200 a year. But, be careful—a move from Nevada, which has no state income tax, to Utah, where taxes are higher, could cost you an extra $4,000 annually.

Source: Fidelity
Charts assume income of $100,000. All income is assumed to be ordinary income subject to income taxation. A FICA tax rate of 7.65%, federal income brackets and state income taxbrackets are used. We assume that state adjusted gross income (AGI) is the same as the federal AGI and that the only deduction that applies is federal standard deduction based on filing status. We assume further that the additional federal standard deduction for age is included, and no credits are claimed. All data is as of 2023. Tax law may have changed between 2023 and the publishing date of the article. The combined FICA, effective state and federal income tax rates for a single filer earning $100,000 of income vary from a high of 29.16% in Oregon to a low of 22.72% in North Dakota. For a married couple filing jointly with the same income, the combined effective state and federal income tax rates range from a high of 21.64% in Oregon to a low of 15.89% in North Dakota. Assuming $100,000 in annual earned income, the lowest-tax states offer a combined effective tax rate of 21.91% for single filers and 15.89% for married people filing.

Among states with income taxes, top marginal rates range from a high of 9.3% in California to a low of 1.95% in North Dakota for someone earning $100,000. But rather than focusing on top rates, it’s smarter to look at your effective combined state and federal tax rate—this is the percentage of your income that actually goes to taxes after deductions and credits.

Your marital status can also impact your tax rate. For example, Oregon has the highest effective tax rates for both single and married joint filers, while North Dakota offers some of the lowest. Surprisingly, California, despite its reputation for high taxes, can be a good option for married couples, with a competitive effective rate for joint filers.

If saving on taxes is your goal, Florida and Texas are strong contenders, even with their rising costs of living. North Dakota and Ohio are also tax-friendly options. And if you’re married and don’t mind paying some state income tax, California or even New Jersey might be worth considering.

But here’s something you might not expect based on those same income parameters:

  • While the Northeast is known for high taxes, Oregon actually tops the list with the highest effective tax rates for both single and married joint filers. Hawaii isn’t far behind, with top rates of 28.27% for single filers and 20.44% for married filers.
  • Minnesota, Maine, and Montana also make the top 10 list for the highest income tax rates for both single and married filers.
  • California, despite being one of the most expensive states for single filers with an effective tax rate of 26.58%, ranks among the 20 best states for married couples filing jointly, with a rate of 17.58%.
  • New Jersey and Rhode Island are among the states with the lowest effective tax rates for married filers.
  • West Virginia lands in the middle for effective tax rates for both married couples filing jointly and single filers.

Source: Fidelity
Charts assume income of $100,000. All income is assumed to be ordinary income subject to income taxation. A FICA tax rate of 7.65%, federal income brackets and state income taxbrackets are used. We assume that state adjusted gross income (AGI) is the same as the federal AGI and that the only deduction that applies is federal standard deduction based on filing status. We assume further that the additional federal standard deduction for age is included, and no credits are claimed. All data is as of 2023. Tax law may have changed between 2023 and the publishing date of the article.

The bottom line is this: If you’re looking to keep more of what you earn, understanding these nuances can make a big difference. But remember, everyone’s tax situation is unique, so it’s always a good idea to consult with a financial or tax professional to figure out what’s best for you. And if you’d like to connect with retirement tax specialists, check out: www.TaxSmartRetiree.com. 

 

Tax Planning

What Can Wealthy Boomers Do to Stay Wealthy?

by BlogTax Planning

One of the most valuable things wealthy boomers can do to protect their wealth is tax planning. Here’s some tax planning strategies to consider in your financial plan:

  • Roth Conversions: Convert traditional IRAs or 401(k)s into Roth IRAs over time. While you’ll pay taxes on the converted amount, Roth IRA withdrawals in retirement are tax-free, which can reduce your future tax burden.
  • Tax-Efficient Withdrawal Strategy: Plan how you’ll withdraw money from various retirement accounts (e.g., traditional IRAs, 401(k)s, taxable accounts). Aim to minimize the tax impact by strategically choosing which accounts to tap into each year.
  • Asset Location: Allocate your investments wisely between taxable and tax-advantaged accounts. For example, place tax-inefficient investments (like bonds) in tax-advantaged accounts and tax-efficient investments (like stocks) in taxable accounts.
  • Qualified Charitable Distributions (QCDs): If you’re charitably inclined, consider making charitable donations directly from your IRA using QCDs. This can satisfy your Required Minimum Distribution (RMD) and lower your taxable income.
  • Tax-Efficient Investments: Invest in tax-efficient funds or individual stocks that generate lower levels of taxable income, such as index funds and ETFs.
  • Tax-Loss Harvesting: Offset capital gains by selling investments that have declined in value, thus realizing capital losses that can offset gains.
  • Minimize Medicare IRMAA Surcharges: Be aware of how your income affects Medicare premiums. There are some strategies that can help reduce the impact of IRMAA.
  • Estate Planning: Implement effective estate planning strategies, such as gifting assets to heirs over time to take advantage of gift tax exclusions and reduce your taxable estate.
  • 529 Plans: Use 529 college savings plans for education expenses. They offer tax-free growth and withdrawals when used for qualified education expenses.
  • Health Savings Account (HSA): If eligible, contribute to an HSA, which provides a triple tax advantage – tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses.
  • Long-Term Care Insurance: Consider long-term care insurance to protect assets from potential long-term care expenses while keeping premiums tax-deductible.
  • Real Estate Strategies: Explore tax-efficient real estate investment options, such as real estate investment trusts (REITs) or like-kind exchanges (1031 exchanges).
  • Use Tax Credits: Take advantage of available tax credits for retirees, such as the Retirement Savings Contributions Credit (Saver’s Credit) or any state-specific tax credits.

If you’d like to chat with a retirement tax planning specialist, reach out to us at: retire@herretirement.com.

Six Most Overlooked Tax Deductions

by Tax Planning
Who among us wants to pay the IRS more taxes than we have to?¹While few may raise their hands, Americans regularly overpay because they fail to take tax deductions for which they are eligible. Let’s take a quick look at the six most overlooked opportunities to manage your tax bill.