Are You Financial Ready For The End Of The Year?
It’s hard to believe that it’s already December. The last month of the year brings prepping for Christmas, reflecting on the year that you’ve had, and creating goals for the year ahead. As we enter these last few weeks of 2024, now is a great time to remind you of a few areas to organize before the end of the year. In today’s blog, your team at Guardian Financial Management in Flower Mound, TX, is here to talk about what should be on your financial to do list before December 31st.
Withdraw Your Required Minimum Distribution
A required minimum distribution (RMD) is the minimum amount you need to withdraw from your Retirement accounts (i.e. your 401ks, 403bs, and IRAs) each year. You will need to withdraw these funds before December 31st of the year, otherwise you will face a 25% penalty. You can take your RMD out throughout the year as you deem fit, meaning you can withdraw funds regularly or all at once at the end of the year. An experienced financial advisor may be able to help you determine how much needs to be taken out each year and create the best plan for these funds depending on your needs. These funds can be used for living expenses, emergencies, investments, vacations, and more.
Complete Your Roth IRA Conversion
If you’re considering a Roth conversion for 2024, it’s important to complete it by December 31st. A Roth conversion allows you to move funds from tax-deferred retirement accounts, such as a 401(k) or traditional IRA, into a Roth IRA. When you make this conversion, the amount you transfer is treated as taxable income for the year.
While you’ll pay income tax on the converted amount, the long-term benefits can be significant. Once the funds are in a Roth IRA, they grow tax-free, and qualified withdrawals during retirement are also tax-free. This can be a powerful strategy for reducing taxable income in retirement and ensuring tax-free growth.
Key considerations for a Roth conversion:
Timing: Unlike Roth IRA contributions, which can be made until the tax filing deadline in April, Roth conversions must be completed by December 31st of the calendar year.
Tax Brackets: Converting large amounts in a single year can push you into a higher tax bracket. It’s wise to evaluate how much to convert based on your current and future tax rates.
Medicare Impacts: Conversions increase your taxable income, which could affect Medicare premiums if your income surpasses certain thresholds.
5-Year Rule: Withdrawals of converted funds are subject to a five-year holding period, regardless of your age, to avoid penalties. This applies to each conversion separately.
Estate Planning: Roth IRAs can be an excellent tool for passing wealth to heirs, as inherited Roth IRAs maintain tax-free withdrawal status (subject to certain conditions).
Before proceeding, consult a financial planner to determine how a Roth conversion aligns with your financial goals and to avoid unintended tax consequences. Proper planning can maximize the benefits while minimizing costs.
Give A Qualified Charitable Distribution
During this holiday season, you may be interested in supporting local charities that align you’re your personal beliefs. One great way to contribute to these local organizations is with a qualified charitable distribution (QCD). QCDs is a donation directly out of your IRA account to a charity. When you do a QCD you do not have to pay taxes on the money that is donated. QCDs are a great way to support an organization you believe in while also meeting your RMD for the year and avoiding some taxes on your IRA account. You can talk to your financial advisor to learn more about making a charitable distribution.
Talk To Our Team At Guardian Financial Management!
Our team is here to help you make a personalized strategy for your finances. To learn more about required minimum distributions, qualified charitable distributions, and more, call Guardian Financial Management in Flower Mound, TX, today at 972-996-7858.
