Written By: Jeff Campos, Wealth Manager
At Wheelhouse, we always want to stay on top of things for our clients through our holistic financial planning approach. As the year winds down, there are a few steps regarding retirement accounts that must be addressed before December 31st to optimize your tax situation and avoid penalties.
Roth IRA conversions – Roth conversions have become very popular due to the potential tax savings and legacy planning benefits. For example, someone who wants to leave money to their beneficiaries tax free, could benefit from converting their traditional IRA money to a Roth IRA. While the technical deadline is December 31st, we recommend completing them before December if possible because most custodians usually have a cutoff in early December and process Roth conversions on a best effort basis after their cutoff dates.
Required Minimum Distributions (RMDs) – If you are age 73 or older, RMDs apply to most pre-tax retirement accounts, including Traditional, SIMPLE, SEP, and Inherited IRAs, as well as employer-sponsored plans (if retired). These distributions are calculated based on the account value as of December 31st the prior year and need to be made by December 31st every year (April 1st of the following year for first time distributions). If the RMD has notbeen satisfied, you may have to pay a 25% excise tax on the amount not distributed or 10% if the amount is withdrawn within 2 years.
Qualified Charitable Distributions (QCDs) – Qualified charitable distributions are not suitable for everyone but can be beneficial for those who don’t need the income from their RMD, want to reduce the amount in their pre-tax accounts, want to reduce their tax liability, or would like to gift larger amounts than the standard gifting limitations. The 2025 annual limit is $108,000 for individuals and $216,000 for married couples filing jointly. The QCDs must be sent directly from the custodian of the IRA or other pre-tax accounts and can be sent in small increments throughout the year or a lump sum by December 31st. QCDs can also be made from one or multiple qualifying pre-tax accounts.
Please reach out to the Wheelhouse team as soon as possible if you would like to discuss a Roth conversion, plan your RMD, or implement a Qualified Charitable Distribution before the year-end deadline.
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