As hard as it is to believe that 2024 is coming to a close, it’s time to begin thinking about how you can leverage the remaining time to reduce your tax bill on April 15th.

Smart tax planning strategies can help you keep more of your hard-earned money while ensuring you’re on track to meet your long-term financial goals. However, even the most well-intentioned plans can go awry if you fall victim to common tax planning mistakes. 

At 1st Choice Financial Services, we provide comprehensive, holistic wealth management and retirement planning services that are highly personalized for your needs and goals. A well-thought-out plan can be designed to safeguard your family’s financial future.

We believe six risks need to be taken into consideration when planning for your retirement:

1. Longevity
2. Liquidity
3. Inflation
4. Market volatility
5. Mortality
6. Taxes

These six critical considerations represent potential challenges that could impact your ability to pursue your financial goals. To address them, we use a straightforward process to measure your concern about each type of risk. This process helps us assess how these factors affect your current assets and future financial outlook.

In today’s blog, we’ll highlight various 2024 year-end financial mistakes you should avoid. 

Get to know Kevin Deitrich, one of our partners.

Mistake #1: Procrastinating on Tax Planning

One of the most common mistakes is waiting until the last minute to address your taxes. Year-end tax planning requires reviewing your financial situation, adjusting your strategies, and implementing any necessary changes. 

If you are rushed at the last minute, you risk overlooking opportunities that could cause you to miss deductions or incur unnecessary tax burdens.

Solution: Start your tax planning early by consulting a Central PA retirement advisor. They can help you evaluate your income, deductions, and tax bracket to ensure you are maximizing every opportunity before the end of the year.

Mistake #2: Ignoring Retirement Account Contributions

Failing to maximize contributions to retirement accounts like 401(k)s, IRAs, or annuities can leave significant tax benefits on the table. These accounts not only help you save for the future but can also reduce your taxable income.

Knowing the deadlines for contributing to retirement accounts is crucial to optimizing your tax planning as the year ends. Adhering to these self-imposed deadlines will help you manage your retirement savings effectively and take advantage of the associated tax benefits.

Here’s a breakdown of the key dates for Individual Retirement Accounts (IRAs) and 401(k) plans:

• Individual Retirement Accounts (IRAs): You can contribute to both Traditional and Roth IRAs for the 2024 tax year until April 15, 2025.

• 401(k) Plans: Contributions to 401(k) plans generally must be made by December 31 of the current tax year. 

Solution: Work with a retirement advisor in Camp Hill, PA, to ensure you contribute the maximum allowable amount to your retirement accounts by the deadlines to realize applicable tax benefits. 

Mistake #3: Overlooking Required Minimum Distributions (RMDs)

If you’re 73 or older, you must take RMDs from your traditional IRA, 401(k), or other qualified retirement plans. Failing to take the correct distribution can result in a hefty penalty of up to 25% as of 2023 of the amount not withdrawn. Unfortunately, if you don’t have a comprehensive retirement plan, you may not have calculated the impact that RMDs can have on you financially. 

While these distributions provide a source of income, they can also create tax challenges if not properly planned. Here’s how RMDs can increase your tax burden: 

1. RMDs are considered ordinary income and are added to your total taxable income for the year. This can push you into a higher tax bracket, increasing your overall tax liability.

2. Higher-income from RMDs may cause a larger portion of your Social Security benefits to become taxable.

3. If your income surpasses certain thresholds due to RMDs, you may face higher Medicare Part B and Part D premiums under the Income-Related Monthly Adjustment Amount (IRMAA).

Solution: One effective way to mitigate the tax impact of RMDs is by making a Qualified Charitable Distribution (QCD). A QCD allows you to donate up to $100,000 annually directly from your IRA to a qualified charity:

• You can exclude the amount donated via a QCD from your taxable income, effectively satisfying your RMD requirement without increasing your tax burden. 
• Since the QCD is excluded from taxable income, it can help you avoid phaseouts of deductions and credits that occur at higher income levels.
• A QCD lets you fulfill charitable goals while benefiting from tax savings.

Mistake #4: Overlooking Capital Gains Harvesting

Capital gains taxes can significantly reduce investment returns if not properly managed. Many investors sell assets without considering the tax implications or fail to effectively offset gains with losses, especially during increased market volatility.

Tax loss harvesting involves selling investments that have declined in value to offset capital gains from profitable investments, reducing your overall taxable income. For example, if you sell a stock for a $50,000 gain, you can sell another investment at a $50,000 loss to offset the capital gain, resulting in no taxable capital gains for the year. 

Additionally, if your losses exceed gains, up to $3,000 can be deducted against ordinary income, with any remaining losses carried forward to future years. This strategy can help you manage taxes while rebalancing allocations in your portfolio.

Solution: Review your portfolio with a Camp Hill retirement advisor to determine if you should sell underperforming assets to offset other gains before year-end. 

Take Control of Your Year-End Tax Planning 

Avoiding common year-end tax planning mistakes is important for protecting your wealth and setting the stage for a profitable 2025. Proactive tax strategies, like maximizing deductions, managing retirement account contributions, and addressing potential pitfalls, can significantly affect your financial health.

As your experienced Central Pennsylvania retirement advisors, 1st Choice Financial Services, Inc., headquartered in Camp Hill, provides comprehensive financial solutions to clients in Harrisburg, Hershey, Halifax, Lancaster, Lebanon, Enola, and surrounding communities. 

Our team specializes in creating personalized financial plans to help you avoid costly errors and maximize your financial opportunities. Whether it’s retirement planning, tax strategies, or estate planning, we guide you every step of the way.

Don’t let the clock run out—contact us today to schedule a year-end review and start 2025 with confidence.

Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

The commentary on this blog reflects the personal opinions, viewpoints and analyses of the author, 1st Choice Financial Services, Inc., and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security, or any security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Foundations deems reliable any statistical data or information obtained from or prepared by third party sources that is included in any commentary, but in no way guarantees its accuracy or completeness.