I'm a Tax Attorney: These Are the Year-End Tax Moves You Can't Afford to Miss

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The end of the year is upon us, and Christmas is fast approaching.

Even as we are busy with all the family events and flurries of activities (and snow!), it is prudent to also keep an eye on the financial side. There are some great opportunities to take advantage of before the end of the year.

Here are three.

1. Retirement contributions

You can make contributions to your traditional IRA and Roth IRA for 2025 up until April 15, 2026 (or until March 15 for a SEP with some flow-through entities).

However, you cannot backdate 401(k) contributions — you have to make those before December 31.

Either way, before the end of the year, you should have a good idea about how much you want to contribute and whether it makes sense to max out those limits.

Your CPA might tell you it would save you money to contribute more to an IRA for 2025, and that would be strictly true because you are not paying the tax on that money in 2025.

However, this can come back to bite you in the long run because the taxes are deferred, rather than forgiven. This means that someday you will need to pay the taxes.

It's a good idea to make sure that you have a long-term plan for when to pay the tax and how to minimize the taxes over your lifetime, rather than just looking at it year by year.

2. Roth conversions

Roth conversions for 2025 cannot be backdated and must be completed before December 31, 2025.

If you are going to convert to a Roth this year, you should start the process as soon as possible to ensure adequate time for processing — depending on the custodian or investment company, it could take a week or more to process a conversion.

You do not need to pay the tax on the conversion until January 15, 2025 (the last quarterly tax deadline). It would make the most sense to use outside funds to pay the taxes on the conversion so that your new Roth balance can start as high as possible.

Every situation is different, but for most people, it makes sense to at least "fill up" your current tax bracket using Roth conversions (or if you are in the 22% bracket, consider filling up the 24% bracket since it is only slightly higher).

Due to the new tax law known as the One Big Beautiful Bill (OBBB), the tax brackets are not changing for the worse, and we have at least the next few years to take advantage of:

• Some of the lowest tax rates in decades
• Increased standard deductions
• SALT (state and local tax) deduction limits

It is often better to pay a little more tax now (on the Roth conversion) than to pay a lot more tax later by deferring.

3. Capturing gains/rebalancing

Even with the shakiness of the market back in April and also earlier this month, most equities are still up quite a bit this year (and especially over the past three years).

Now may be a good time to think about capturing some of those gains in your nonqualified/brokerage account.

Depending on how much other income you have, it is possible to pay a 0% tax rate on capital gains.

For example, a married couple over age 65 who is living on combined Social Security and IRA withdrawals of $80,000 would still have more than $60,000 of room in the 0% capital gains bracket due to the increased standard deductions and the bonus deductions for being over 65.

The couple could sell $60,000 of highly appreciated stock and pay no capital gains tax in 2025.

The question then becomes, if you don't have an immediate plan for the gains you just captured, where should they be invested in the meantime for maximum tax efficiency? One idea is to use that money to pay taxes for Roth conversions.

If you are concerned about the market still being at or near all-time highs, you could take advantage of the (still strong) interest rates we have today and lock in some guaranteed options.

Using a fixed annuity would defer the taxes (similar to an IRA but without the long-term headache of required minimum distributions, or RMDs).

Conclusion

There are several strategies you can and should take advantage of before December 31. Most importantly, if Roth conversions make sense given your situation, you'll want to take advantage of every year you can while the taxes are this low.

However, with the market up significantly for the year, it may also be a good time to capture those gains in nonqualified/brokerage accounts, protect the accounts from loss and at the same time pay the capital gains tax at an efficient time.

Whatever area you want to focus on, you should have a long-term vision rather than just making a snap decision that only saves you tax temporarily while still raising your lifetime tax burden.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.