Smart Year-End Money Moves to Make in December

As the year winds down, December offers a unique window of opportunity to make strategic financial moves. These actions can optimize your tax situation, bolster your savings, and set you up for a financially healthy new year. Here are eight smart money moves to consider before the clock strikes midnight on December 31.

1. Get Your Roth Conversions Done on Time

Roth conversions are a savvy tax planning strategy that allows you to convert traditional IRA funds to a Roth IRA. By doing so, you pay taxes on the converted amount now, but your money grows tax-free going forward.

Timing is everything. December 31 marks the deadline for Roth conversions to count for the current tax year. Delaying this move until January means you’ll have to wait an extra year to start reaping the tax-free benefits.

Why it’s a smart move:

Roth IRAs are not subject to required minimum distributions (RMDs), giving you greater control over your income in retirement.
If your income is lower this year than expected in future years, the tax hit on the conversion may be smaller now.

Tip: We like to determine how much to convert without pushing yourself into a higher tax bracket and this is why we love doing forward looking tax planning with you.

2. Max Out Your HSA

A Health Savings Account (HSA) is one of the most tax-advantaged savings tools available, offering triple tax benefits: contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free.

The 2024 contribution limits are $3,850 for individuals and $7,750 for families, with an additional $1,000 catch-up contribution for those aged 55 or older. If you haven’t maxed out your HSA contributions for the year, December is your last chance.

Why it’s a smart move:

HSAs can act as a stealth retirement account. After age 65, you can use HSA funds for non-medical expenses without penalties (though you’ll pay regular income tax).
Unused funds roll over year to year, so there’s no “use it or lose it” risk.

Tip: If your employer offers an HSA match, contribute enough to secure the full match—it’s essentially free money.

3. Do a Qualified Charitable Contribution (QCD)

If you’re 70½ or older, you can make a Qualified Charitable Distribution (QCD) directly from your IRA to a qualified charity. These donations count toward your required minimum distribution (RMD) but aren’t included in your taxable income.

QCDs are a powerful tool to reduce your tax liability while supporting causes you care about. The annual QCD limit is $105,000 per individual, making it an excellent option for generous donors with significant IRA balances.

Why it’s a smart move:

Reducing your taxable income may help you avoid higher Medicare premiums or the net investment income tax.
It’s an efficient way to support charities while fulfilling RMD requirements.

Tip: Ensure the funds go directly to the charity. A withdrawal that passes through your personal account won’t qualify as a QCD.

4. Open a Donor-Advised Fund

If you’re looking to simplify your charitable giving or make a larger donation this year for tax purposes, a donor-advised fund (DAF) is an excellent option. With a DAF, you can contribute cash, stocks, or other assets, claim an immediate tax deduction, and recommend grants to your favorite charities over time.

Why it’s a smart move:

DAFs allow you to bunch several years’ worth of charitable donations into one year, maximizing your tax deduction if you’re itemizing.
You can contribute appreciated assets, avoid capital gains taxes, and have more funds to give to charity.

Tip: December 31 is the deadline to open and fund a DAF for the current tax year, so don’t wait until the last minute.

5. Max Out Your 401(k)

Maximizing your 401(k) contributions is a no-brainer for tax-deferred retirement savings. For 2024, you can contribute up to $23,000 if you’re under 50, or $30,500 if you’re 50 or older (including catch-up contributions).

If you haven’t reached these limits yet, now’s the time to ramp up your contributions. Many employers allow you to adjust your contributions late in the year, so consider allocating a portion of your year-end bonus or extra paychecks to your 401(k).

Why it’s a smart move:

Contributions lower your taxable income for the year.
If your employer offers a match, maxing out your contributions ensures you’re not leaving free money on the table.

Tip: Confirm the deadline for 401(k) contributions with your employer. Some plans may have earlier cutoffs than December 31.

6. Make a Year-End Gift to Your Kids

The annual gift tax exclusion allows you to give up to $18,000 per recipient ($36,000 for married couples) in 2024 without triggering gift taxes or reducing your lifetime exemption.

This is a fantastic opportunity to transfer wealth to your children or grandchildren while minimizing estate taxes. You can gift cash, fund a 529 plan for education, or contribute to their investment accounts.

Why it’s a smart move:

Regular annual gifts can reduce the size of your taxable estate.
Contributions to a 529 plan may also qualify for state tax deductions, depending on your state.

Tip: Consider making the gift early enough in December to avoid any administrative delays.

7. Give to Charity

Beyond QCDs and donor-advised funds, charitable giving in general is a great way to make a positive impact while reducing your tax liability. Cash donations are the simplest form of giving, but donating appreciated stocks or mutual funds may offer even greater tax benefits.

Why it’s a smart move:

You can deduct charitable contributions if you itemize your taxes.
Donating appreciated assets allows you to avoid capital gains taxes on the growth, providing a larger overall gift to the charity.

Tip: For donations to be tax-deductible this year, ensure they’re made by December 31. Retain receipts and documentation for your records.

8. Tax-Loss Harvest Any Losses in Your Portfolio

If some of your investments have underperformed this year, December is the time to sell them and realize the losses. Tax-loss harvesting involves using these losses to offset capital gains from other investments or even up to $3,000 of ordinary income.

Why it’s a smart move:

Reducing your taxable gains lowers your overall tax bill.
Any unused losses can be carried forward to future tax years, providing ongoing benefits.

Tip: Be mindful of the IRS’s wash-sale rule, which prohibits you from repurchasing a substantially identical investment within 30 days before or after the sale.

Bonus Tip: Review Your Financial Plan

While tackling these year-end money moves, take the opportunity to review your overall financial plan. Evaluate your budget, check your progress toward financial goals, and plan for any changes in the year ahead.

Why it’s a smart move:

Staying proactive ensures you’re on track for long-term success.
Year-end planning can uncover new opportunities to save, invest, and reduce taxes.

Final Thoughts

December may be the busiest time of year, but prioritizing these smart money moves can pay off in spades. Whether it’s doing a Roth conversion, maximizing retirement contributions, or supporting the causes you care about, every step you take strengthens your financial foundation.

By being proactive now, you’ll not only close the year on a strong note but also set yourself up for a prosperous 2025 and beyond. Don’t let these deadlines pass—start today, and to ensure every move aligns with your goals. If you have questions about this or would like to discuss further, please get in touch with us as we would love to help you navigate this.

This commentary reflects the personal opinions, viewpoints and analyses of the Seaside Wealth Management, Inc. employees providing such comments, and should not be regarded as a description of advisory services provided by Seaside Wealth Management, Inc. or performance returns of any Seaside Wealth Management, Inc. client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Seaside Wealth Management, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.