As the end of the year approaches, now is the perfect time to review your finances and make strategic moves that can strengthen your financial position heading into 2026. Our recent presentation, Before the Ball Drops: 7 Financial Tasks to Finish This Year, highlighted a few key ideas to review before December 31. Here’s a helpful recap to guide your year-end planning.
1. Maximize Retirement Contributions
Review your IRA, Roth IRA, and 401(k) contributions to ensure you’re taking full advantage of annual limits. Contribution caps vary by account type, and certain plans, like 401(k)s, must be funded by year-end. This is also a good time to consider SEP IRAs, Solo 401(k)s, or adding to 529 college savings plans.
Here’s some numbers to know when reviewing your 2025 contributions:
- IRA & Roth IRA Limits: $7,000 + $1,000 catch-up (for individuals over age 50)
- 401(k) Limit: $23,500 + $7,500 catch-up (for individuals over age 50)
- SEP IRA Limit: Lesser of $70,000 or 25% of compensation
- Solo 401(k) Limit: $23,500 EE + $7,500 catch-up | $70,000 max (limited 25% compensation)
- Indiana 529 Tax Credit Limit: $7,500, 20% IN credit
- Super catch-up bumps from $7,500 to $11,250 for Individuals aged 60 to 63 years old
- Starting 2026, catch-up contributions MUST be Roth if you earn more than $145,000
2. Take Required Minimum Distributions (RMDs)
If you’re age 73 or older, or you inherited a retirement account, make sure you’ve taken your 2025 RMD to avoid penalties. Rules differ for IRAs, 401(k)s, and inherited accounts, and qualified charitable distributions (QCDs) may offer a tax-smart strategy.
Who must take RMDs in 2025?
- Traditional IRAs. Anyone over the age of 73 must take an RMD by December 31, 2025. If you turned 73 in 2025, you have until April 1, 2026 to take your RMD.
- 401(k) Plans. If you are not currently working for the employer, and you are age 73 or over, you must take an RMD. This includes Roth 401(k) plans. If you are still employed, you may have an exception.
- Inherited IRAs, Roth IRAs, or 401(k)s. If you are not the spouse of the decedent, RMDs begin the year following death. The entire account must be distributed by the end of the 10-year following the death. Exceptions may apply for a surviving spouse.
3. Harvest Capital Gains or Losses
Review taxable investment accounts for opportunities to harvest losses to offset capital gains or even reduce ordinary income. Be mindful of the wash sale rule and remember that it does not apply to crypto assets.
Here are some rules to keep in mind when reviewing your investments:
- Deduct up to $3,000 of capital losses from ordinary income each year
- Capital Gain Harvesting – If taxable income is less than $96,700 (for married filing jointly), long-term capital gains are taxed at 0% Federal Tax
- Wash Sale Rule – Sell stock at a loss, buy the same or substantially identical security within 30 days before or 30 days after could disallow the loss
- Wash Sale Rule does not apply to crypto
4. Use FSA Dollars or Prepare HSA Contributions
Flexible Spending Accounts (FSAs) often have “use-it-or-lose-it” deadlines, typically December 31, unless your employer offers a grace period. Health Savings Accounts (HSAs) offer triple tax advantages and allow contributions through tax filing deadlines.
Here are the limits and some advantages of these accounts:
- FSA must be used by December 31st or March 15th with a grace period
- Healthcare FSA – can be used for qualified medical expenses incurred during the tax year
- Dependent Care FSA – can be used for dependent care expenses incurred during the tax year
- 2025 Healthcare FSA contribution limit: $3,300
- Dependent care FSA contribution limit: $5,000 (2025) increasing to $7,500 in 2026
- Health Saving Account contribution limit: $4,300 Self | $8,550 family + $1,000 catch-up (for those age 55 and over)
- All three accounts are pre-tax contributions
- The HSA is triple tax advantaged, meaning contributions are pre-tax, gains are tax deferred, and distributions are tax-free when used for qualified medical expenses
- HSAs can be invested and used towards future medical expenses
5. Evaluate Your Tax Withholding and Estimated Payments
Review your current withholding and estimated tax payments to avoid surprises at tax time. Using the IRS Safe Harbor rule, adjusting your W-4, or making a final estimated payment may help you avoid penalties or a large balance due in April.
The Safe Harbor Rule tells you the amount of Federal Tax you need to pay throughout the year to avoid penalties when you file your tax return. You must pay throughout the year either 90% of your current year tax liability, 100% of last year’s tax liability, or 110% of last year’s tax IF your AGI was over $150,000 ($75,000 if married filing separately). Reach out to your advisor and tax professional if you are unsure if you will meet the Safe Harbor Rule this year.
6. Complete Charitable Giving
Year-end charitable gifts can help reduce taxable income. Consider donating appreciated securities, funding a donor-advised fund, or making Qualified Charitable Distributions (QCDs) directly from an IRA if you’re eligible.
Working with your advisor to plan to strategically give to charity can help you to reduce your tax liability resulting in more money to help the causes you’re passionate about.
7. Revisit Your Goals & Update Your Financial Plan
Finally, year-end is a great time to review your progress for 2025 and adjust your financial plan for the coming year. Reassess savings goals, investment allocations, insurance needs, and beneficiary designations for any changes that may have happened through the year.
One way to measure your financial progress over the past year is tracking your Net Worth. Movements in your Net Worth can help you understand if you are headed in the right financial direction or if adjustments are needed.
Reach out to your financial advisor at Market Street if you have questions about how any of these strategies could impact your financial plan.
