It's That Time Again...

It’s that time of year again when the calendar seems to speed up as Dec 31^st approaches. Of course there’s lots of holiday spirit and fun in the meantime, but year-end also brings financial deadlines that can be stressful. Let’s take a few minutes to review some of the bigger ones from my perspective.

Leveraging capital gains…

Consider your spending needs. Do you need to generate cash for monthly spending into next year or do you have a large expense coming up? If so, look to your brokerage account to help fund this.

The stock market has done well and you likely have unrealized capital gains in your brokerage (non-retirement) account. This type of account can be cheaper tax-wise when you’re looking to generate cash because you can sell shares of an investment and only pay taxes on the gain. If you’ve held the investment for at least a year the gain is considered long-term and would be taxed at a 15% federal rate for most filers and 0% for those with low taxable income. If you held the investment for less than a year it’s considered short-term and taxed as ordinary income, so selling long-term gains is preferable. Your brokerage firm should have these details if you’ve bought your investments within the last dozen or so years.

The calendar matters because anything sold by Dec 31^st counts for this year’s taxes. Have you’ve looked at where you might be within the federal tax brackets? Are you in a low enough bracket that your capital gain rate is 0%? Whichever bracket you may be in, do you have a good amount of room before the next higher bracket?

Whatever the situation, you can use the calendar as a tool. Say you’ll need $40,000 for a purchase early next year. You could sell some of an investment this year to stay within your current bracket and the rest in the first days of 2026, straddling tax years while still getting your cash. This sort of maneuvering might seem too complicated but it helps your after-tax investment return over time.

The good news, at least from the standpoint of simplicity, is that calculating capital gains doesn’t really matter for IRA or 401(k) distributions, if that’s where your money is. However, regular distributions from retirement accounts are taxed as ordinary income so you should still try to manage your bracket position as we approach year-end.

Maybe you don’t need cash but want to rebalance after a good run for stocks. If so, it’s usually better to rebalance your household portfolio from within your IRA and 401(k) if possible because buying and selling within retirement accounts isn’t taxable year-to-year; only distributions are taxable.

Funding your retirement account…

Individuals get until next tax season to fund their IRA or Roth IRA for 2025, so that’s not necessarily a near-term deadline.

Employer-related accounts are another story. Employees have to fund their 401(k) and other workplace plans by Dec 31^st while their employers have until tax time the following year to make profit-sharing contributions. The same timing applies if you’re self-employed with no employees or maybe only have family as employees – you make contributions both as the employee (by year-end) and employer (by tax time).

The maximum 401(k) contribution as an employee is $23,500 this year with an added $7,500 if you’re age 50 or older (and maybe a little more if you’re 60-63). It’s common for people, especially busy self-employed folks, to assume they’re on track to fully fund their account only to find out too late that they’ve undershot, so take time to double check and make corrections prior to year-end.

Taking your RMDs…

The rules governing required minimum distributions have been evolving, and again earlier this year. However, the current required beginning age for RMDs is 73, so if you’ll be that age by year-end, you’ll want to take your taxable distribution by Dec 31^st or pay a hefty penalty. Granted, you get a slight reprieve if it’s your first RMD year because you can delay until April 1^st of next year. But then you’ll have to take two distributions next year (the late one and the current one) and pay taxes on both. While this sometimes makes sense from a tax planning perspective, I rarely recommend it.

Your brokerage firm (and humble financial planner) can tell you what your RMD is so it’s usually straightforward to get this done on time.

Or Gifting them…

One alternative to paying taxes on your RMD is to give some or all of it directly to charity from your IRA (not from your checking account, and up to $108,000 per year per individual or double that for a couple assuming the spouse has their own IRA). Doing so negates income tax on the distribution. The catch is that checks sent to charities by your brokerage firm must be cashed by Dec 31^st to qualify for this tax year. So contact your IRA custodian to get these out asap if you’ve been on the fence.

Or gifting appreciated stock…

Another way to give to charity is via shares of stocks that have done well within your brokerage/non-retirement account. Ideally, these would be your highest gain shares so the charity gets the full value of the gift while you don’t need to worry about eventually paying the capital gains taxes yourself; it’s a win-win but the transfer has to complete before year-end to count for this tax year. You can do this via your brokerage firm usually within a few business days and it shouldn’t cost anything but your time.

The One Big Beautiful Bill Act made some changes to the rules for gifting appreciated stock so you should consult with your tax advisor before doing anything. That said, if you normally itemize your deductions, aren’t in the highest tax bracket, and plan to give more than, say, a couple of thousand to charity, this likely makes sense for you.

Or batching your gifts…

The aforementioned OBBBA makes it advantageous for some taxpayers to “batch” several years of their charitable giving of appreciated stocks into 2025. The reason is that starting next year some taxpayers may find themselves no longer itemizing their deductions and only getting to write off up to $2,000 (for joint filers) of charitable giving. So talk with your tax advisor and consider batching gifts directly to charitable orgs or giving to a donor advised fund, both by Dec 31^st.

I’ve breezed through a bunch of details so let me know of any questions. Otherwise, good luck as we finish out the year!

Have questions? Ask us. We can help.