Ah, the holiday season. It is a time for festive lights, family gatherings, and the joy of gift-giving. But let’s face it—it’s also the perfect time to talk taxes. Wait, don’t roll your eyes just yet! While taxes might not be as exciting as unwrapping a shiny new gift, they can be just as rewarding when you uncover strategies to keep more money in your pocket—or your beneficiaries’ pockets.
As we inch closer to the end of the year, retirees may have an opportunity to make savvy financial moves. From charitable giving to estate planning, here are a few tips from the tax-focused retirement strategists at Oxford Advisory Group.
1. Make the Most of Charitable Giving
The holidays are the season of giving, and your generosity can also help you save on taxes. If you’re 70½ or older, consider a Qualified Charitable Distribution (QCD) from your IRA. A QCD allows you to donate up to $100,000 per year directly to a qualified charity without it being counted as taxable income. Even better? It counts toward your Required Minimum Distribution (RMD).
Here’s the impact: According to IRS.gov, 87% of taxpayers no longer itemize their deductions due to the higher standard deduction. But a QCD lets you enjoy a tax benefit even if you don’t itemize. It’s a win-win for your heart and your wallet.
2. RMDs: Avoid the Naughty List
Speaking of RMDs (Required Minimum Distributions), don’t forget to take yours before December 31 if you’re 73 or older (or 72 if you turned that age before 2023). Failing to take the correct amount could land you a penalty of 25% on the amount not withdrawn. Ouch!
For example, if your RMD is $15,000 and you forget to take it, that’s a $3,750 penalty. Don’t let Uncle Sam be the Grinch who steals your holiday cheer. If you’re unsure about how much to withdraw, consult your financial advisor to ensure you’re meeting the requirements.
3. Give the Gift of Gifting
Want to play Santa and reduce your estate’s future tax burden at the same time? The IRS allows you to gift up to $18,000 per individual in 2024 without triggering a gift tax. That means you can pass along money or assets to children, grandchildren, or even friends while reducing the size of your taxable estate.
Imagine this: A couple could give $36,000 to each child, grandchild, or loved one. For a family of four grandchildren, that’s $144,000 in tax-free gifts. Not only does this warm your heart, but it can also save your heirs significant estate taxes down the road.
4. Consider a Roth IRA Conversion
If you’ve been dreaming of a lower tax bill in retirement, a Roth IRA conversion might be your holiday miracle. Converting traditional IRA funds to a Roth IRA means you’ll pay taxes now but enjoy tax-free withdrawals later. This can be especially beneficial if your income is lower this year or if you expect tax rates to rise in the future.
Here’s a statistic to consider: The Tax Policy Center estimates that federal income tax rates are likely to increase after the current provisions of the Tax Cuts and Jobs Act expire in 2025. Locking in today’s rates could save you—and your beneficiaries—a bundle in the long run.
5. Tax-Loss Harvesting
Have some investments that didn’t quite pan out this year? Don’t fret—use those losses to your advantage. By selling underperforming assets in taxable accounts, you can offset capital gains from winners elsewhere in your portfolio.
Here’s how it works: Let’s say you sold a stock for a $10,000 gain earlier this year. If you sell another investment for a $7,000 loss, you’ll only pay taxes on a $3,000 gain. And if your losses exceed your gains, you can use up to $3,000 to offset your ordinary income, carrying over any additional losses to future years.
6. Start Estate Planning Conversations
The holidays are all about family, making it the perfect time to start conversations about your estate plan. It might not seem festive, but discussing your wishes now can prevent misunderstandings later.
Here are some questions to consider:
- Have you updated your will or trust recently?
- Are your beneficiary designations current?
- Have you considered creating a legacy letter to explain the values behind your decisions?
Pro tip: Sharing your estate plan isn’t just practical—it can also bring peace of mind to your loved ones. Plus, involving your family in these decisions now ensures your wishes are clearly understood.
Bonus: Don’t Forget Your Healthcare
While taxes and gifting are important, don’t overlook year-end healthcare planning. If you’ve met your Medicare deductible, consider scheduling medical procedures or exams before the year’s end to maximize your benefits.
The Bottom Line: Make It a Year-End Tradition
The holidays are a time of reflection, connection, and, yes, financial strategy. By taking a little time to implement these tax-saving tips, you may set yourself and your family up for better success in the year ahead. And who knows? Maybe you’ll even make taxes a new holiday tradition (okay, maybe not… but we can dream).
So, grab a mug of hot cocoa, cozy up by the fire, and tackle those year-end financial to-dos. After all, there’s no better gift than the peace of mind that comes with knowing you’ve cared for yourself and your loved ones.
Oxford Wealth Group, LLC is a federally registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training. The communications of an adviser provide you with information about which you determine to hire or retain an adviser. Information about Oxford can be found by visiting the SEC site www.adviserinfo.sec.gov. and searching by our firm name. We are a financial services firm that utilizes insurance and investment products. Insurance products and services are offered and sold through Oxford Advisory Group. Oxford Wealth Group, LLC and Oxford Advisory Group are affiliated but separate entities.
