As the year draws to a close, millionaires are making strategic financial moves to secure their wealth and prepare for the upcoming year. These year-end money maneuvers are not just for the wealthy; anyone can adopt these strategies to enhance their financial health.
Key Takeaways
- Maximize retirement contributions to take advantage of tax benefits.
- Consider Roth conversions to build tax-free wealth.
- Review and adjust insurance coverage to fit current needs.
- Plan for education costs with 529 plans.
- Lock in higher interest rates with Treasury bills or CDs.
- Utilize tax-loss harvesting to reduce tax liabilities.
- Make charitable contributions for tax benefits.
Maximize Retirement Contributions
Wealthy individuals prioritize their retirement savings, often maximizing contributions to their 401(k) or IRA. For 2024, the contribution limit for a 401(k) is $23,000, with an additional $7,500 for those over 50. Allocating year-end bonuses to retirement accounts can significantly boost savings.
Consider Roth Conversions
Roth conversions are a favored strategy, especially in lower tax years. By converting traditional IRAs or 401(k)s into Roth accounts, individuals can pay taxes now and enjoy tax-free withdrawals later. This move also simplifies estate planning and reduces future required minimum distributions (RMDs).
Review Insurance Coverage
The end of the year is an ideal time to reassess insurance policies. Changes in life circumstances, such as marriage or the birth of a child, may necessitate adjustments in coverage. Comparing policies can lead to better rates and coverage options.
Plan for Education Costs
With the rising costs of higher education, planning ahead is crucial. Contributing to a 529 plan before December 31 allows for tax-free growth when used for qualified education expenses. This strategy can help families take advantage of state tax benefits and compound growth over time.
Lock In Higher Interest Rates
As interest rates fluctuate, now is the time to secure favorable rates with investments like Treasury bills or high-yield CDs. This low-risk approach can help preserve wealth and maximize savings potential.
Consider Tax-Loss Harvesting
Tax-loss harvesting is a smart strategy to offset capital gains by selling underperforming investments. This can reduce taxable income and, if losses exceed gains, allow for deductions against other income.
Make Charitable Contributions
Charitable donations not only benefit others but can also provide tax advantages. Donating appreciated stock avoids capital gains tax, and bundling donations into a donor-advised fund can help exceed the itemized deduction threshold. For those over 70½, using a qualified charitable distribution (QCD) from an IRA can satisfy RMDs while avoiding taxable income.
Implementing these strategies can lead to significant financial benefits, regardless of your current wealth status. By taking proactive steps now, individuals can set themselves up for a prosperous new year and beyond.
Sources
- Millionaires Make These 7 Year-End Money Moves: You Should Too, Money Talks News.
- Make These 10 Money Moves Before the Year Ends – CNET, CNET.
- No. 1 skill you need to run a money-making side hustle: ‘A gigantic portion of’ your success depends on it, says expert – NBC Los Angeles, NBC Los Angeles.
