From maximizing tax-advantaged savings accounts to donating to charity, here are strategic tax moves to consider before year-end. 

Tax Day may still be months away, but there are plenty of tax-planning strategies you can consider before then to help manage your 2024 tax bill. In fact, certain tasks should not—or in some cases cannot—wait until next year, lest you miss out on potentially important tax-saving opportunities.

Here are the top strategies to consider before December 31—and those you can ponder until Tax Day.

Tax-planning strategies to consider by year-end

Be sure to take all your required minimum distributions (RMDs)

Generally, taxpayers age 73 or older must take minimum distributions from your tax-deferred retirement accounts by the end of the year. (Individuals who reached RMD age in 2024 have until April 1 to take their first distribution.) If you miss the deadline, you could be subject to a 25% penalty on the portion of your RMD you failed to withdraw. That said, if you're concerned your RMD income could push you into a higher income tax bracket, you can start planning now to potentially reduce RMDs next year and beyond.

Maximize contributions to your workplace retirement plan

First and foremost, if your employer matches contributions, be sure to contribute enough to your tax-deferred workplace retirement plan to get the full amount. That said, consider contributing the maximum allowed—$23,000 ($30,500 if age 50 or older) in 2024 for 401(k)s and similar plans—if you have the means. Not only can this help reduce your taxable income for the current year and boost your overall savings, but doing so can also be a great tax-planning strategy if you think your tax rate will be lower in retirement than it is today.

On the other hand, if you believe your tax rate will be higher during retirement, funding a Roth account could be a better strategy. If your employer offers the option and you haven't already maxed out your traditional 401(k), you can make after-tax contributions to a Roth 401(k) up to the $23,000 limit ($30,500 if age 50 or older), minus whatever you contributed to your traditional 401(k).

See if converting a traditional IRA to a Roth makes sense

If your income exceeds Roth IRA contribution limits (see "Contribute to a Roth IRA"), you can convert the pretax savings in a traditional IRA to a Roth in order to reap those tax-free withdrawals in retirement. As with any distribution of pre-tax funds from a tax-deferred account, the converted funds will be treated as income, so generally, you'll want to convert just enough to remain within a specific tax bracket to avoid a hefty tax bill. For example, if you are single and will earn $180,000 this year, you fall into the 24% tax bracket, which ranges from $100,525 to $191,950 for tax year 2024. That means you can convert up to $11,950 ($191,950 – $180,000) without being pushed into the next bracket.

Consider after-tax contributions to an employer plan, along with a Roth rollover

This tax-planning strategy potentially allows high-income earners to save even more in a Roth account by sidestepping the income limits of a Roth IRA and the tax consequences of a regular Roth conversion. If permitted by your workplace retirement plan, you would first max out your normal 401(k) contributions for the year, then contribute after-tax dollars up to the 2024 overall account limit—including employer matches—of $69,000 ($76,500 if 50 or older). To avoid being taxed on any additional investment returns, you'll want to convert or rollover those funds as quickly as possible to a Roth 401(k) or to a Roth IRA—often called a mega-backdoor Roth conversion.

If your employer-sponsored retirement plan doesn't allow you to fund your account with after-tax dollars or take distributions while still employed, you could consider a backdoor Roth. With this tax-planning strategy, you would contribute after-tax dollars—up to $7,000 ($8,000 if age 50 or older) for tax year 2024—to your traditional IRA and then convert it to a Roth IRA.

Optimize your charitable contributions

If charitable giving is part of your financial plan and you itemize your deductions, act by year's end to ensure your donations are as tax-efficient as possible:

• Charitable donations: In general, you can deduct cash donations to qualified charities worth up to 60% of your adjusted gross income (AGI), which is your total gross income minus certain deductions. Donating appreciated long-term investments can be especially tax-efficient because you don't have to recognize the capital gains and you can receive a tax deduction for the full fair-market value of the donation (up to 30% of your AGI).
• Qualified charitable distribution (QCD): If you're 70½ or older, you can donate up to $105,000 to a charity directly from your IRA using a QCD for tax year 2024. You won't be taxed on the distribution or receive a tax deduction for the donation, but you can use your gift to satisfy all or part of your RMD without adding to your taxable income.

Exercise some nonqualified stock options (NQSOs)

If your employer issues NQSOs, which are taxed as ordinary income when exercised, waiting until the end of the year allows you to exercise just enough to stay within a specific tax bracket, thereby keeping your taxes lower than if you had exercised your options all at once.

Reduce or eliminate capital gains with tax-loss harvesting

The end of the year is a great time to make sure your portfolio is still aligned with your goals. When rebalancing, you may be able to reduce your tax liability by offsetting any realized capital gains with your losses. On way to employ this tax-saving strategy is to tally up your capital gains for the year, then cash out capital losses of equal value. If you have more capital losses than gains, not only can you potentially offset up to $3,000 of ordinary income on your 2024 tax return, but you can also carry over any excess amounts to future tax years. To avoid the pitfalls of the wash-sale rule when tax-loss harvesting, be sure not to buy the same or a similar security within 30 days before or after the realization of the loss.

Help out your loved ones with tax-free gifts

In 2024, you can give away up to $18,000 ($36,000 if married) per person to an unlimited number of people without eating into your lifetime estate and gift tax exemption. This won't reduce your taxable income for the year, but it will allow you to strategically transfer wealth to your heirs tax-free.

Tax-planning strategies to consider by Tax Day

Maximize all other tax-deferred savings accounts

You can potentially help reduce your taxable income by funding your tax-advantaged accounts, and you have until Tax Day to make contributions for the 2024 tax year. Maximum contribution limits for 2024 are:

• Health savings accounts (HSAs), if available to you: $4,150 for individuals ($5,150 if age 55 or older) and $8,300 for families ($9,300 if age 55 or older). HSAs provide for many tax benefits, including tax-free contributions and potential growth, and you won't owe taxes on withdrawals so long as you use the funds to pay for qualified medical expenses.
• Traditional IRAs: $7,000, plus an additional catch-up contribution of $1,000 for individuals ages 50 or older. If you or your spouse are covered by an employer retirement plan, be aware your contributions to a traditional IRA may not be fully tax-deductible and deductions may be phased out.

Contribute to a Roth IRA

Contributing after-tax dollars to a Roth IRA won't help reduce your taxable income when you make them. However, once you reach age 59½, all contributions and earnings can be withdrawn tax-free, so long as you've held the account for five years, and Roth IRAs aren't subject to RMDs—potentially lowering your taxable income during retirement. Unfortunately, you can't contribute to a Roth IRA if your income is $161,000 or more ($240,000 for married couples), and the contribution limit is gradually phased out for those with income between $146,000 and $161,000 ($230,000 and $240,000 for couples).

A final word

No matter your level of wealth, we recommend working with a tax professional, a wealth advisor, or both to help determine which strategies can work for your situation and goals.

https://www.schwab.com/learn/story/year-end-portfolio-checkup-5-tax-smart-tips