As the year comes to a close, it’s essential to stay on top of your 2024 year-end IRA reminders. From contribution deadlines to excess contributions and RMDs, overlooking these tasks could lead to penalties. Let’s review everything you need to keep your retirement strategy on track.
1. Take Your RMD to Avoid a Tax Penalty
For those who turned 73 this year or are older, RMDs are a key task to complete by December 31, 2024. If you don’t take your RMD on time, the IRS imposes a 50% excise tax on the amount you should have withdrawn—making this an expensive oversight! Keep in mind, Roth IRAs are exempt from RMDs during your lifetime, but traditional IRAs are not.
You must calculate the RMD separately for each IRA account you own (excluding Roth IRAs), but you can withdraw the total amount from one or more of your traditional IRAs. If you have multiple IRAs, this flexibility can make it easier to manage withdrawals and investments.
For more information about RMDs, see Retirement plan and IRA required minimum distributions FAQs ↗.
2. Check for Tax Withholding
When you take RMDs, you can opt to have taxes withheld from your distribution to avoid a large tax bill at filing time. This can help manage your tax liability and prevent underpayment penalties. Be sure to review your withholding preferences before you process any end-of-year withdrawals.
3. Maximize Your Contributions Before the Deadline
The IRS allows you to contribute to your IRA for 2024 until April 15, 2025. You can contribute up to $6,500 if you’re under 50, or $7,500 if you’re 50 or older. This deadline is crucial for maximizing your retirement savings and potentially reducing your tax bill for the year. Don’t forget to double-check whether you’re eligible to make a tax-deductible contribution based on your income and filing status.
For detailed information on IRA contribution limits, see IRA Contribution Limits ↗.
4. Fix Excess Contributions Before Penalties Hit
If you’ve contributed more than the allowed limit for 2024, you’ll want to take action before the tax deadline. The IRS imposes a 6% penalty on the excess contribution for each year it remains in your account. However, if you withdraw the excess before the tax deadline, including any earnings on the excess, you can avoid the penalty. If you need an extension to file your taxes, remember that the deadline for correcting excess contributions extends as well.
For more information, see Tax on excess IRA contributions at Retirement topics – IRA contribution limits ↗.
5. Consider a Roth Conversion
If you’re in a lower tax bracket this year or expect higher taxes in the future, converting part of your traditional IRA to a Roth IRA could be a smart move. While you’ll pay taxes on the amount you convert, future Roth withdrawals will be tax-free, and Roth IRAs aren’t subject to RMDs. Just make sure any conversions are done by December 31 to count for 2024.
For more information about Roth IRAs, see:
- Roth IRAs: What You Need to Know About Withdrawals
- Delaying Social Security with Roth Conversions: A Step-by-Step Guide
6. Don’t Forget Beneficiary Designations
It’s always a good idea to review and update the beneficiary designations on your IRA accounts, especially if you’ve had significant life changes like marriage, divorce, or the birth of a child. This ensures that your assets go to the intended person without complications or delays.
7. Review Your Retirement Strategy
As you approach the year-end, it’s a great time to reassess your overall retirement strategy. Are you on track to meet your retirement goals? Are your investments still aligned with your risk tolerance? Take advantage of this time to adjust contributions, rebalance your portfolio, and ensure your financial plan is optimized for long-term success.
Final Thoughts
The end of the year is packed with important financial to-dos, but with these reminders, you can ensure your IRAs are properly managed, and you’re making the most of your retirement savings. And if you’re unsure about any aspect of your retirement plan, meeting with a financial advisor can help ensure you’re on the right track for 2025 and beyond.
Make sure to consult with a tax professional or financial advisor for personalized advice!