Episode Transcript
[MUSIC PLAYING]
OK, clock is ticking.
[ALARM]
What do I need to check off the list before the end of the year?
Workplace retirement accounts, flexible spending accounts, tax-loss harvesting.
Tax-loss harvesting. That's my favorite.
Not everything comes due in December. What else should I be thinking about throughout
the year?
There's tax deadlines in April, and then there's just getting organized around your finances.
Why is this checklist so important?
To really set you up for success now and in the future.
[MUSIC PLAYING]
End of the year is fast approaching, and we're going to add to your to-do list. But don't
worry, it's a list you want, your financial checklist. Welcome to Money Unscripted, a podcast
from Fidelity Investments. I'm Ally Donnelly. Today, we're going to map out some important
deadlines both for year end and tax time. We'll dig into money moves to consider for your
health care accounts, retirement accounts, or maybe you're thinking about a Roth
conversion.
To help us get our financial house in order, let me bring in Fidelity Vice President and Branch
Leader Leanna Devinney. You may recognize her as a regular contributor to the weekly
Fidelity show Market Sense. Leanna, thanks for being here.
Thank you. I'm really excited to be here.
Awesome. Let's get started. So end of year is so busy for people. There's so much to do, a lot
on their mind, particularly at year end. But there are some significant money moves you may
want to consider to try and keep more of that money you work so hard to earn.
It's very well said. It is such a busy time, but there's some great things you can do to really get
organized around your finances, set you up for success now and in the future. And it's just
good to be aware of the year-end deadlines and then the tax-time deadlines.
OK, so let's break it down one by one. First, workplace retirement accounts-- what should we
know there?
So these are-- think of your employer-sponsored workplace plans. So these are your 401(k)s,
your 403(b)s. So you have until year end-- so that's December 31-- to contribute and
maximize your retirement savings. So for many, they may have the opportunity to max out
these plans. And this is the time of year to take a look at how much you've contributed so far
and how much more you can. Also taking a look-- for many, they get year-end bonuses, and
you may be able to give more than you have in your regular paychecks.
You said max out. Why?
This is the opportunity to save for retirement. And now you have that long road ahead, for
many, to have the power of tax deferral, compounding, and growth over time. It makes a
significant difference. For 2024 tax year, the contribution limits are $23,000. And then, if
you're over 50, it's $30,500.
Terrific. OK, so let's look at some other retirement accounts. What about IRAs, Roth IRAs?
So these are your individual retirement accounts, so your traditional and Roth IRA accounts.
For these accounts, it's the tax-filing deadline, which would be April of 2025.
OK.
Like your employer-sponsored plans, these are great vehicles to have that tax-deferred
growth on your side and save for retirement.
All right, in the beginning, we talked about our health care accounts. What do we need to
know for FSAs and HSAs?
So Flexible Spending Accounts and Health Savings Accounts. I'll start with the Flexible
Spending Account because it's on my to-do list. I have two kids in daycare. These are use it
or lose it. And so they're generally for health care or child care expenses. So for year end,
you have til December 31 for the Flexible Spending Account.
For HSA accounts, it's not the use it or lose it. You do have-- that money stays with you. But
you want to look at the contribution limits, and you have until-- that's a tax-time deadline, so
generally, April of the next year. HSA accounts are just such a great vehicle because they give
you triple tax-savings advantages. So your contribution is generally tax deductible, your
growth is tax deferred, and then your withdrawals, when used for qualified health care
expenses, are tax free, so just an excellent vehicle for enhanced savings.
Yeah, and it hurts-- when you're talking about FSAs, it hurts when you leave money on the
table. That hurts.
Yes. So you don't want to lose that.
All right, so end of year can also be a great time to look at investments, to see if there's an
opportunity to keep more of your earnings, like we were talking about, not lose as much to
taxes. I love this strategy, tax-loss harvesting. Tell us more about it.
So tax-loss harvesting is really a mechanism where you're offsetting your gains and losses in
your taxable accounts. So think your non-retirement accounts, your brokerage accounts. And
so if you have investments that have a loss, you can offset them against gains. And why you
would do that is because you minimize the taxes you pay.
So just to bring it to life, simply, let's say that you have a gain in your account for $1,000, but
you have a loss for $500. You could net those against each other. So you're only paying taxes
on $500, $1,000 minus $500, instead of paying gain on the full $1,000.
And who wants to pay more in taxes than they have to?
No one.
[LAUGHS]
And tax-loss harvesting is so good to do all year round. But many will look at the end of the
year and just take a look at their portfolio and look at their gains and losses.
That's a good idea. Retirees. I'm sitting on my beach. I'm hiking my mountain. But there is an
important deadline to really bear in mind. I know you get a lot of questions on this topic,
RMDs.
Yes, required minimum distributions. So it's an important one for retirees because, for many,
this is part of their income, their lifestyle income in retirement. So you have-- if you're 73 or
over, you're required to take these minimum distributions. You have until the end of the year
to do so, unless it is your first year of your required minimum distributions. There are certain
nuances where you can defer it one year.
But generally speaking, many will use this as their monthly income. Some will take it as a
lump sum. But you need to take your required minimum distribution by the end of the year,
or there may be potential tax penalties, and that's up to 25% of your missed distribution.
OK, no small thing. As you're working with clients, is there a best way to manage RMDs? I
mean, is it better to take it in a lump sum? Is it better to manage it in installments?
It really depends on preference. So many take it monthly as part of their retirement
paycheck, if you will. It's their monthly income they're getting to support their needs. Some
want to keep it invested as long as they want, and they take it as a lump sum, and then they
reinvest it in another account. Others may save it for big time purchases they have. So it
really is preference.
Awesome. OK, this is another one I know you get a lot of questions on, Roth conversions.
Yes. This is the big one. So Roth conversions also need to be done by the end of the year, so
December 31. And if you are 73, you do need to take your required minimum distribution
before a Roth conversion.
But what a Roth conversion is, it is transferring money from a traditional IRA account to a
Roth. So because you're paying taxes on that conversion, we do recommend consulting with
a tax advisor.
All right, so what's the benefit of a Roth conversion?
So the big benefit of a Roth conversion is you are paying taxes now so you don't have to in
the future. So you transfer that money from the traditional IRA to a Roth IRA and then your
conversion grows, tax deferred. And then when you withdraw, it's tax free.
OK, what about timing?
So you do have to do the conversions by year end, so that would be December 31. Just one
note-- if you are taking your required minimum distribution, you do need to take that first
before you can do the conversion.
OK, OK. Let's switch gears a little bit. The end of the year, for many of us, is the season of
giving. So what do we need to know about our charitable contributions at the end of the
year?
So for those that are charitably inclined, there's great ways to give. And so many will donate
cash. And so you're eligible to-- if you itemize, you're eligible to donate 60% of your adjusted
gross income in a cash donation.
But for many who have brokerage accounts or those non-retirement accounts we spoke of, if
you have appreciated securities, so stocks that have grown, as an example, you can also
donate stock. And that's a great way to give, as well, because you're getting the deduction
on the charitable contribution, and then you're also negating having to pay that tax on the
gain as well. So two great ways to give.
OK, what if we're looking to extend that generosity to the people we love? Talk to me a little
bit about gifting. Mom, pay attention.
[LAUGHS] We see this a lot. So many want to give while they're living, as part of their legacy,
to give to their loved ones. So in 2024, it's $18,000 per individual that you can gift without the
federal gift tax liability. And it's per individual, so get your mom going there.
[LAUGHS] Sure she'll be thrilled to hear that for all of her six kids and 16 grandchildren.
[LAUGHTER]
All right, so no limit on how many people you give to?
Yes.
So whether it's the end of the year or the start of a new year, what are the questions you get
from clients the most around this time of year?
So many of our clients come in who are looking to get organized financially, they're just
asking where to start. And one-- a great place we start is just taking a look at all of your
accounts, making sure your beneficiaries are listed on every account, making sure those are
in order and that they're accurate.
We are always talking about beneficiaries. Tell me why that is so important.
Well, because it can be very time-consuming and costly for your loved ones if they're going
through a probate process or dealing with the courts. So it's really important to have your
beneficiaries listed on the accounts.
Because if they're not, the court's going to sort it out.
Correct.
OK, what else?
So we want to take a look at your spending and understanding, really, your cash flow and
your budget, because that helps dictate how much we can contribute more to our retirement
accounts, as an example. We also take a look at your emergency fund and making sure you
do have enough tucked away for those rainy days.
Enough in our emergency fund-- what does enough mean?
So a general suggestion is having three to six months of your expenses in that emergency
account. But many of our clients say, hey, I have this sleep-at-night number. This is what I
want tucked away. So there can be preferences there. But that's just a general suggestion.
And then on that note, it is taking a look at those contributions. So often we see our investors
come in and they had put their contributions in their retirement account from years prior.
And their income and spending is different. So they can contribute more. So it's just a great
opportunity to take a look at the contributions you have.
And then when it comes to your investments, it's taking a look at your investment strategy
and really making sure it's aligned to the goals that you have. So let's make sure our
retirement money matches the retirement goal. Let's make sure our conservative money
matches the conservative goal.
And I have to say, I always feel so good when I get these things done. And the 1% on my
401(k), I didn't do that years ago. And now I'm consistent about it. And it just-- it's awesome.
It's awesome, and I bet you don't miss it.
I don't. I don't.
And so many have an automatic 1% increase, so you don't even have to go in anymore. It
does it for you.
Yeah, yeah. Good thing to keep an eye on with your employer. If you were to leave people
with a final thought, or people were taking away one thing, what would you hope that to be?
So many of our clients come in and say, I wish I did this earlier, or I feel like I'm playing catchup. So for those listening, now's really the opportunity to get organized around your
finances, and you know the deadline, and keep chipping away. And also, it's just setting up
these financial healthy habits, if you will. And little by little makes a big difference over time.
Love it. Chip away, set yourself up for success. Leanna Devinney, thank you so much.
Thank you for having me.
If you're looking for more resources on organizing your finances, head to our website.
Fidelity.com/MoneyUnscripted. And check out Leanna and the MarketSense team on
Fidelity's weekly show focused on markets, investing, and retirement planning. You can
watch live every Tuesday at 2:00pm, Fidelity.com/MarketSense. We'll see you next time here
on Money Unscripted. It's your life. Get your money's worth.
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