The final weeks of the year offer a unique window of opportunity that investors shouldn’t let slip by. End-of-year financial planning is a great time to take stock of your finances and make strategic financial decisions that can minimize taxes, maximize retirement plan contributions, and financially position yourself for the coming year. Acting now can mean the difference between hoping for a better financial future and actively building one.
Year-End Roth Conversion Analysis
If you are in a lower tax rate this year, converting some traditional IRA funds to a Roth IRA should be considered. In doing this, you are essentially locking in today’s tax rates and prepaying future taxes. If cash flow allows, this can be a great way to continue maximizing the amount of funds set aside for retirement. A Roth IRA can also be a valuable asset to leave to beneficiaries, as it provides tax-free distributions.
In order for a conversion to count for 2025, the distribution from the traditional IRA must occur in 2025. While the funds can be converted (arrive) to Roth in early 2026, we recommend not waiting. When determining if this makes sense, you must be mindful of potential impacts of increased income such as Medicare Part B.
Required Minimum Distributions (RMDs)
If you are 73 or older, make sure your RMDs are taken to avoid penalties. Consider qualified charitable distributions (QCDs) from IRAs if you would like to donate and reduce taxable income.
Charitable Gifts
Gifts must be complete by year-end. If you gift in the form of a check, that check must be cashed by the end of the year to be considered a completed gift. Consider utilizing electronic transfers instead of traditional checks. The 2025 tax-free annual gift tax exclusion is $19,000 per recipient. If you want to gift to charity, donating appreciate securities, establishing a Donor-Advised Fund or utilizing QCDs from your IRA may make sense.
Tax Loss Harvesting
This is the strategy of selling investments that have lost value to offset capital gains (and even some ordinary income). Also be aware of mutual funds for year-end capital gains and dividend distributions and determine if it is beneficial to sell the fund position before the capital gain is paid out. The goal is to lower your overall capital gains tax liability and optimize the portfolio for future growth.
529 Plan Funding
While there are no federal tax deductions, to claim the state income tax deduction for contributions (up to a maximum amount) to a state sponsored 529 plan in a given year, you may need to fund that plan before year-end. While there may be some exceptions, timing often matters.
Maximize Retirement Plan Contributions (by 2025 tax filing deadline)
For 2025, the 401(k)-employee contribution limit is $23,500 (plus $7,500 catch-up if 50+; if you are between the ages of 60-63, you are allowed a catch-up contribution amount of $11,250). IRA contribution limits for 2025 are $7,000 (plus $1,000 catch-up if 50+). While you have until the tax filing deadline (typically April 15) to make these contributions, it may make sense to do this before year-end if cash flow permits.
SECURE 2.0 Roth Catch-Up Rule
starting January 1, 2026, catch-up contributions for participants who earned more than $145,000 (indexed annually) in the prior calendar year must be made as Roth contributions.
Salary Deferrals/Deferred Compensation
Be sure to make or at least identify your salary deferral before year-end. There is one exception; a sole proprietor (in the very first year of business only) can make a salary deferral up to the tax filing deadline – not including extensions. However, to avoid confusion, we recommend not waiting. If you want to defer compensation in 2026 through non-qualified deferred compensation, those elections generally need to be made before the end of 2025 due to the tax code rules.
Review Estimated Tax Payments / Withholdings
Confirm that you made the required estimated tax payments. You should be paying this as you go throughout the year as you earn income – not waiting to make one big payment at the end of the year. If you have not done so, consider increasing your withholdings before the end of the year (from your paycheck, bonus, IRA/retirement account distribution, social security etc.) to satisfy tax requirements and reduce penalties on unpaid estimated quarterly taxes.
Open Enrollment
Review your Medicare (Medicare.gov) and compare coverage options to make sure your current plan is still the best fit for you and prescriptions are still covered.
Increase retirement plan and HSA contributions for 2026. Review your flexible spending accounts and make sure you have used them, so money is not left on the table. Review and update your beneficiaries.
With a few weeks left in 2025, end-of-year financial planning is a great time to make sure your finances are positioned efficiently and working congruently with your risk tolerance and tax picture. A conversation today with your financial advisor and accountant could help avoid missed opportunities and costly mistakes.