Less than a month remains for Americans to file their tax filings for the 2024 tax season. Looking ahead to next year, how should US taxpayers be handling their retirement accounts as workers are contributing more to these funds?
Yahoo Finance Columnist Kerry Hannon explains the top strategies for managing one’s retirement accounts to lessen the 2025 tax season’s bill, including making donations to charity and non-profit organizations.
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor’s note: This article was written by Luke Carberry Mogan.
Video Transcript
RACHELLE AKUFFO: This year’s tax deadline is right around the corner. But what can you do to start preparing for next year?
“Yahoo Finance’s” Kerry Hannon is here to break down how you can manage your retirement accounts in 2024. Good to see you, Kerry. So what do we need to know?
KERRY HANNON: Yeah. Great to see you, as well. Well, the last thing we want to start thinking about is next April, and next tax day. But you really need to do that. And most people who are taking required minimum distributions from their retirement accounts found out probably in January from their providers, people who the financial services companies who have their retirement accounts, what their required minimum distribution is likely to be.
But what you need to do is you realize that how this is calculated is you’re looking at what your year end balance was in your retirement accounts. And last year was a pretty darn good year. So that balance is going to be, for most people, a real pop up from how it’s been in the past, which will mean a bigger tax bill coming next year, because they take that– the IRS takes that amount of your year end retirement account value and divides it by your life expectancy.
And there’s a table they have. And so the older you are, the bigger chunk you have to take out. So here’s the deal. If you can start now, like, take a look– maybe, you talk to– it’s important. Just get some help. If you’re concerned about this, talk to your tax professional.
Usually, you can run calculators. AARP has a good one. So does the IRS has helped with this, Fidelity, the big firms have this that can help you figure out your withdrawal amount, if you don’t already know it.
But by all means, take action and see what that’s going to be, because you can stretch it out over the year, when you take those payments. You can automate it so that you don’t mess up and miss something and have a penalty. So do that.
But it’s also a chance to take a look at what are some of the other things you can do with that money. If you’re a charitable person, you like to give to nonprofits, you can offset your required minimum distribution with a charitable deduction. And these are called qualified– I’m trying to get it right– qualified charitable deductions– talk to your tax professional about this.
But you can just slide that money over to a nonprofit. And that takes away your withdrawal amount. You might also– this is one that nobody wants to think about, but why not ramp up how much you take? Why do you have to take the minimum? I talked to Ed Slott, who’s a real professional in the IRA world. And he said, he tells everyone, take more, because taxes today aren’t as high as they could be in the future.
Ten years ago, they were higher than they are today. So it’s a crystal ball thing. But if you’re comfortable and you know what your tax burden is going to be right now, it could be higher in the future, take out more.
And the fact that it is, Rachelle, you don’t have to spend that money. For gosh sakes, you can invest it. And the market is not a bad place. As we’re seeing today, lots of happening this year, so far. So might be an opportunity to reinvest that in an account that’s a non-retirement account. That’s another opportunity.
So the final tip is, really, take a look and balance things out. Take money from your taxable accounts, and the ones that have not been taxed has not been paid yet. So it’s a matter of figuring out the balance here and what your tax bill is likely to be.
But it’s important to really get a grip on this, because you don’t want the year to go sliding by. And you haven’t really paid attention to what this tax bill is likely to be. And, again, anytime you can automate this, you’re really going to be much happier at the end of the year.
RACHELLE AKUFFO: Indeed. Don’t want any nasty surprises at the end of that– at the end of that year. Appreciate you as always. Our very own, Kerry Hannon. Thanks so much.
KERRY HANNON: Thank you.