It’s not too late to review your tax liability for 2024, and follow these lessons from experts for next year. 

Between wages, pensions, dividends and interest and annuities, it’s not unusual for older Americans to have multiple sources of taxable income in any tax year. That can make tax time more complex, especially if you are at the age when you must take Required Minimum Distributions (RMDs) from you tax-deferred retirement accounts.

Start now, start early

That’s why good accountants and financial planners tell you that tax planning is a year-round process. Dropping by your CPA’s office with a box of receipts and tax records in April is not a good idea.

That said, there are things you can do to reduce your tax liability for the 2024 tax year, but many require that you act before the end of the tax year. Here are some suggestions from experts:

Understand your tax brackets

Robert Waskiewicz, partner at Wescott Financial Advisory Group in Philadelphia, says the group’s first focus, especially retirees, is determining the tax brackets and if they will be higher or lower going forward. They may be living off their investment portfolio, but once they start taking Social Security and RMD’s from their retirement accounts, they may be pushed into a higher tax bracket.

“We want to take advantage of that lower rate by actually accelerating income, which is something that may run counter to what people typically think, because you’re generating additional tax liability,” he says. “But the idea is, if you’re in a 12% bracket, it may make a lot of sense to do something like a Roth conversion, or to recognize capital gains or produce income, because it’s at a cheap rate. If you think in the future you’re going to be in that 24% bracket, you don’t want to expose that income to that that rate.”

In 2024 and 2025, the income tax rates for each of the seven brackets are: 10%, 12%, 22%, 24%, 32%, 35% and 37%.

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Look at gains and/or losses on your investments.

“A lot of my clients are trying to take advantage of the market being at all-time highs right now,” says Daniel Razvi, senior partner at Higher Ground Financial Group in Frederick County, Maryland. “The old adage is, buy low and sell high. It’s high right now, and there’s a lot of uncertainty about the market, but it is high right now. So, it might be a good time to take some of those capital gains, especially if you can spread some out in December and some in January, so you don’t have too much of a tax burden. That way, you’ve protected the money. You’re not going to lose money if you pull it out of the market and you’re spreading the tax out.”

Charitable contributions

If you regularly make charitable contributions, and you’re in a high tax bracket and expect to move to a lower bracket, you can group several years of charitable donations. “So, if somebody says, I like to donate $5,000 a year to a certain organization, we will recommend that maybe they do four- or five-years’ worth of donations in the current year to take advantage of that larger tax bracket and get more bang for your buck,” says Waskiewicz.

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Using that same bunching strategy, you might also, you might consider a donor advised fund, he says. Using that same $5,000 annual contribution example, put $20,000 into a donor advised fund and pull out $5,000 a year. You maximize your charitable contributions in a high-tax year.

Roth conversion

Unless they are extended, the tax cuts from the Tax Cut and Jobs Act of 2017 will expire next year. If taxes, and tax rates, are going up, it makes sense to convert traditional IRAs to Roth IRAs. When you convert, you are required to pay the taxes due on the traditional IRA, but it makes sense to do that when you are in a lower tax bracket.

“But you just make it tax free in a Roth account, then all the growth for the rest of your life is all tax free,” says Razvi. “There’s no required distributions on that money. You could leave it to the kids, tax free, and it doesn’t matter what tax law changes happen in the future, you’ll never be taxed again on that money.”

One important part of tax planning is estate planning; stay tuned to seniorplanet.org/classes for upcoming offerings of our lecture, “Introduction to Estate Planning Resources & Tools.” In the meantime, visit our Legacy & Planning video playlist on YouTube for more on the topic!

Rodney A. Brooks is an award-winning journalist and author. The former Deputy Managing Editor/Money at USA TODAY, his retirement columns appear in U.S. News & World Report and Senior Planet.com. He has also written for National Geographic, The Washington Post and USA TODAY and has testified before the U.S. Senate Special Committee on Aging. His book, “The Rise & Fall of the Freedman’s Bank, And Its Lasting Socio-economic Impact on Black America” was released in 2024. He is also author of the book “Fixing the Racial Wealth Gap.” His website is www.rodneyabrooks.com

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