We put this list of year-end tax planning strategies that may be of interest. Please contact our office if you would like to discuss any of these strategies at (732) 556-4200 or email team@oujowealth.com.
Retirement Plan Contribution Opportunities
We are big fans of maxing out retirement plans you are eligible for because of their tax benefits. Below are the IRS limits for 2024 and 2025 for various plans/accounts.
| 401(k), 403(b), and Similar Plans | ||
| Type of Contribution | 2024 | 2025 |
| Contribution Limit | $23,000 | $23,500 |
| Standard Catch-up (age 50+) | $7,500 | $7,500 |
| Total Contribution (age 50+) | $30,000 | $30,000 |
| Special Catch Up (Ages 60-63) | $0 | $11,250 |
| Maximum Total Contribution (ages 60-63) | $30,000 | $34,750 |
| IRA Options | ||
| Traditional and Roth IRA | ||
| 2024 | 2025 | |
| Contribution Limit | $7,000 | $7,000 |
| Catch-up Contribution (50+) | $1,000 | $1,000 |
| Total Possible (50+) | $8,000 | $8,000 |
| SIMPLE IRA | ||
| 2024 | 2025 | |
| Contribution Limit | $16,000 | $16,500 |
| Catch-up Contribution (50+) | $3,500 | $3,500 |
| Total Possible (50+) | $19,500 | $20,000 |
| Special Catch Up (Ages 60-63) | $0 | $5,250 |
| Maximum Total Contribution (Ages 60-63) | $19,500 | $21,750 |
SEP IRA
For 2024: 25% of the employee’s compensation or $69,000
For 2025: 25% of the employee’s compensation or $70,000
Advanced Retirement Strategies
Non-Deductible IRA Contributions/Backdoor Roth Conversion
For those earning above Roth IRA income limits, you can contribute after tax dollars to a non- deductible traditional IRA assuming you have earned income. You may be able to convert these contributions down the road into a Roth IRA, giving you tax free growth over the long-term. This strategy can be particularly effective for long-term tax-free growth.
Charitable Giving Strategies Deductions for 2024
- This section is a little complicated, but we are putting this in here because we know it can help some people that get tripped up by this, which is very common and understandable
- Standard Deduction vs. Itemized Deduction
- This is a particularly tough concept for most clients to grasp and understandably, so we’ll do our best to explain it here
Standard Deduction
-
- 2024 Standard Deduction Amounts:
- Single Filers: $14,600
- Married Filing Jointly: $29,200
- Additional $1,500 deduction for each taxpayer age 65+
- This is the baseline deduction you receive AUTOMATICALLY, regardless of specific expenses like medical costs, mortgage interest, state taxes, or charitable contributions.
Itemized Deductions
You will choose between two options:
-
- Take the standard deduction, OR
- Take itemized deductions if they EXCEED the standard deduction
- The main itemized deductions are:
- Medical Expenses
- Only deductible if they exceed 5% of your Adjusted Gross Income (AGI)
- Most taxpayers don’t have this significant of uninsured medical costs to take advantage of this
- Mortgage Interest
- Mortgage interest on mortgages up to $750,000 is tax deductible
- Medical Expenses
-
- From a financial standpoint, we are big proponents of having mortgage debt paid down/off regardless of whatever potential tax benefit there is
State and Local Taxes
-
- These include real estate taxes, state income taxes, state payroll taxes, state use/sales taxes
- You are CAPPED at $10,000 on these regardless even if you pay a lot in real estate of state income taxes
Charitable Contributions
-
- If you don’t have a mortgage OR high medical expenses, your only other itemized deduction outside of charity is state and local taxes which are capped at $10,000
-
- Example for Married Filing Jointly:
- Standard Deduction: $29,200
- You would need to donate MORE than $29,200 to charity to see a tax benefit
- Tax benefit applies only to donations EXCEEDING $29,200
- Example for Married Filing Jointly:
Strategic Giving Options
You might be wondering, “This is all very nice but what am I supposed to do with this information?”. Below are strategies that can be implemented if you are charitably inclined and want to receive some sort of tax benefit for your donations.
Bundling multiple years of donations
This can be done by:
-
- Donating a few years’ worth of donations to a charity or charities in one year
- Or opening a Donor Advised Fund (DAF) where you bundle years’ worth of donations into a fund that pays the public charities of your choosing over time and at your discretion
- These make a ton of sense for appreciated positions
- You can avoid taxable gains on these by donating them to the DAF
- These make a ton of sense for appreciated positions
Donating appreciated securities to charities
-
- See the Donor Advised Fund (DAF) strategy mentioned above
Using Qualified Charitable Distributions (QCDs) from your IRA if you’re 70½ or older
- QCDs allow eligible individuals to donate up to $105,000 per year (as of 2024) from their IRAs to charity without counting the distribution as taxable income.
- This can help keep your income low for Medicare premium purposes
Charitable Remainder Trusts (CRTs)
- These are for large donations/business sales
Important reminders:
Required Minimum Distributions (RMDs) required by December 31, 2024, for those 73 and older with IRAs/401(k)s
- Beneficiary IRAs and Roth IRAs opened after January 1st, 2020, are exempt from RMDs for 2024
- Beneficiary IRAs and Roth IRAs opened before January 1st, 2020, have to take RMDs for 2024
Roth Conversion Considerations
While Roth conversions offer long-term tax benefits, they may be less advantageous currently given how well the equity markets have done in recent years and where valuations are. Remember: you’ll need funds outside your retirement accounts to cover the conversion taxes for these to make sense.
Gift and Estate Planning
- 2024 annual gift exclusion: $18,000 per person
- Married couples can give $36,000 per recipient
- We could assist with gift tax returns if you gifted more than the amounts above
Looking Ahead: 2025 Tax Changes
There are plenty of proposals out there right now, but they are really “up in the air”. The main ones we are monitoring on our end are below:
- Tax Cuts and Jobs Act (TCJA) tax cuts possibly being extended
- This is a big deal for 2025 and forward tax planning purposes
- Corporate tax rates
- Currently at 21% proposed at 15%
- State and Local Tax (SALT) Deduction Cap of $10k Repeal
- Estate Tax Exemption Levels
Recap
Please contact our office if you would like to discuss any of these strategies at (732) 556-4200 or email team@oujowealth.com.
