Finding Financial Freedom: Smart Tax Moves Before Year-End

Welcome back to Finding Financial Freedom!

Taxes can feel like a maze, but with a little guidance, they don’t have to be overwhelming. As the year draws to a close, it’s the perfect time to take advantage of strategies that can help you save money and set yourself up for long-term success.

At Fifr, we believe in keeping things simple and actionable. One of the ways to reduce your tax burden and grow your wealth? Leveraging tax-advantaged accounts.

Here’s some things you need to know to get started with these tools before the year ends.

Smart Tax Moves to Make Before Filing

1) 💰Max Out Retirement Contributions

Retirement accounts like 401(k)s and IRAs offer some of the most significant tax benefits available, but those benefits can often come with hard deadlines.

401(k):

• Offered by employers, these accounts allow you to contribute pre-tax dollars (reducing your taxable income this year) or post-tax dollars (for tax-free growth in retirement, via a Roth 401(k)). The 2024 contribution limit is $23,000.

Why it matters: Contributions to a traditional 401(k) reduce your taxable income right now, while Roth contributions mean your future withdrawals won’t be taxed — ideal if you expect to be in a higher tax bracket later in life.

Pro tip: If you have an end of year bonus, consider using some of that to top up your 401(k) - it can be a very impactful investment if you don’t need the funds available now.

IRA:

• If your employer doesn’t offer a 401(k), or you want additional retirement savings, consider an Individual Retirement Account (IRA). The 2024 contribution limit is $7,000 if you're under 50 years old or $8,000 if you're over 50.
• Traditional IRA: Contributions are tax-deductible if you meet income requirements, meaning they reduce your taxable income this year.
• Roth IRA: Contributions aren’t tax-deductible, but your investment grows tax-free, and withdrawals in retirement are also tax-free.

Pro tip: Be aware of the income limits for eligible IRA contributions. If you're a high earner, you may have to consider a 'backdoor Roth IRA' instead.

Even if you can’t contribute the maximum, contributing even small amounts early can lead to fantastic outcomes through compounding and tax-advantages! We actually have a calculator that can help you visualize how much tax savings IRAs can generate over your lifetime!

2) 💰Harvest Tax Losses

Tax-loss harvesting is a strategy that turns investment losses into a tax-saving opportunity. If you have stocks or other investments that declined in value this year, you may be able to sell them and use the losses to offset your taxable gains.

How it works:

• Identify investments currently valued lower than what you paid for them.
• Sell those investments to realize the losses.
• Use the losses to offset any gains you’ve made in 2024 — or up to $3,000 of ordinary income if your losses exceed your gains.

Important considerations:

• Tax-loss harvesting isn’t just for stocks — it can apply to mutual funds, ETFs, and even cryptocurrency.

This strategy can provide immediate tax relief while positioning your portfolio for better long-term growth!

3) 💰Maximize Contributions to a Health Savings Account (HSA)

HSAs are more than just a place to save for medical expenses — they’re one of the most powerful tax-advantaged tools out there and they offer investing opportunities.

The triple tax benefit:

• Contributions can be tax-deductible (lowering your taxable income this year).
• Investment gains within the account grow tax-free.
• Withdrawals are tax-free for qualified medical expenses before age 65, and after age 65 all withdrawals are tax free.

Contribution limits: For 2024, individuals can contribute up to $4,150, and families can contribute up to $8,300. If you’re 55 or older, you can make an additional $1,000 catch-up contribution.

Why it matters: Even if you don’t have immediate medical expenses, an HSA can act as a "stealth IRA." After age 65, withdrawals for non-medical expenses are taxed at regular income tax rates — similar to a traditional IRA.

Pro tip: Many HSA plans allow for 1-time contributions directly out of your bank account. If you haven't maxed out your HSA yet, consider contributing more by end of year.

Not sure if your health plan qualifies for an HSA? Fifr can help you figure it out.

4) 💰Spend Your Flexible Spending Account (FSA) Balance

Unlike HSAs, FSAs often come with a “use-it-or-lose-it” policy, meaning any funds you don’t spend by year-end may disappear. Pro tip: It’s already December!

Eligible expenses: FSAs can be used for a wide range of expenses, including prescriptions, medical equipment, glasses, and over-the-counter items like first-aid supplies.

Deadlines: Some FSAs offer a grace period or allow you to roll over a small portion of unused funds, but it’s crucial to check with your employer to understand your plan’s rules.

Even a quick check of your balance now can save you from losing money unnecessarily!

Ready to Take Action?

These strategies aren’t just about reducing your tax bill this year; they’re about building a foundation for long-term financial growth. Whether you’re contributing to retirement accounts, harvesting tax losses, or maximizing your HSA, small actions today can have a massive impact tomorrow.

At Fifr, we’re here to help. Schedule your free one-on-one meeting with a Financial Wellness Expert here.

Let’s make taxes work for you, not against you.

Disclaimer: The information provided is not financial, legal or tax advice. The steps and recommendations provided above are for educational purposes only, do not take into account the specific circumstance of the reader, and may not be suitable for everyone’s financial situation. Please refer to our full content disclosure here.