As the year draws to a close, many people are considering holiday plans, family gatherings, and completing work projects. However, for retirees and those planning for retirement, financial deadlines hold a special sense of urgency. Tax forms, retirement accounts, and even healthcare expenses can be influenced by these deadlines. Missing them could result in losing valuable opportunities or facing penalties.
To stay on top of retirement-related deadlines, here are the most important things you need to know before December 31st.
For retirees aged 70 and above (based on birthdate), a crucial year-end task is withdrawing the Required Minimum Distributions (RMDs) from traditional individual retirement accounts (IRAs), 401(k)s, and similar tax-deferred accounts.
Importance:
Once you reach the RMD age, you are required to withdraw a minimum amount annually. Failure to do so may lead to hefty penalties – 25% of the amount required to be withdrawn, which can be reduced to 10% with prompt correction.
Action:
Are you considering transferring funds from traditional IRAs or 401(k)s to Roth IRAs? Roth conversions are a powerful tax planning strategy as future withdrawals are tax-free. However, this conversion must be completed by December 31st.
Importance:
Action:
If you intend for your charitable contributions to count towards this year’s deductions, year-end is also the deadline. For charitably inclined retirees, Qualified Charitable Distributions (QCDs) provide increased flexibility.
Importance:
Action:
If you have an employer-sponsored healthcare plan with a Flexible Spending Account (FSA) and have not yet enrolled in Medicare, check your balance. FSAs typically follow the “use-it-or-lose-it” rule with a deadline of December 31st, although some plans may allow for a grace period or limited rollover amounts.
Importance:
Unspent funds typically disappear at year-end.
Action:
During the Medicare open enrollment period (October 15 to December 7), decisions made in December will impact your insurance coverage for the following year. Therefore, December is a crucial month for decision-making.
Importance:
Missing this deadline may result in being locked into your current coverage, potentially leading to higher premiums or prescription drugs not being covered.
Action:
If you have taxable investment accounts and sell investments at a loss before December 31st, you can offset up to $3,000 of capital gains or ordinary income. This strategy, known as “tax-loss harvesting,” can reduce your tax burden.
Importance:
When executed correctly, tax-loss harvesting can decrease taxes without significant changes to your investment strategy.
Action:
Employer-sponsored plans such as 401(k)s require contributions to your retirement account by December 31st. However, contributions to traditional IRAs can typically continue until the tax filing deadline in April.
Importance:
Action:
Retirement accounts, insurance policies, and estate planning, while not having specific deadlines, can be reviewed at year-end.
Importance:
In some cases, a designated beneficiary (such as a former spouse) may have passed away but still be listed in your will, leading to family disputes.
Action:
If you have a high deductible health plan and are eligible to contribute to a Health Savings Account, you can make contributions before the tax filing deadline. However, employers may set an internal deadline for employee contributions in December.
Importance:
Through an HSA, you can make tax-deductible contributions, achieve tax-deferred growth, and make tax-free withdrawals.
Action:
December 31st is not just the end of the calendar year but also the deadline for many retirement planning opportunities. Required Minimum Distributions (RMDs), charitable donations, and reviewing Medicare coverage all have critical deadlines that should not be overlooked.
By planning early and consulting with a financial advisor, you can avoid costly mistakes and optimize your tax strategy.