As the year comes to a close, retirement planning deserves a spot on your financial to-do list. The final months of the year can present valuable opportunities to strengthen your retirement strategy, reduce taxes and ensure your estate plans remain aligned with your wishes.
Whether you're already retired, approaching retirement or still building your nest egg, reviewing a few critical areas before December 31 can help you start the new year with confidence. Here's an end-of-year retirement planning checklist to consider.
Take Required Minimum Distributions (RMDs)
One of the most important year-end tasks for retirees is making sure required minimum distributions (RMDs) are taken on time. The IRS generally requires owners of traditional IRAs and many employer-sponsored retirement plans to begin taking RMDs when they reach age 73. Failure to withdraw the required amount can result in significant penalties.
If you're already subject to RMD rules:
It's important to remember that RMDs are generally taxable as ordinary income and can affect your overall tax situation, including Medicare premium surcharges and the taxation of Social Security benefits.
For individuals taking their first RMD, the IRS allows a delay until April 1 of the year following the year you reach the required starting age. However, delaying may result in two taxable distributions in the same year, potentially pushing you into a higher tax bracket. For more information on RMDs, check out our Money Matters blog.
Review and Update Beneficiary Designations
Many investors spend time updating their Wills but overlook beneficiary forms on retirement accounts—a potentially costly mistake.
Beneficiary designations on accounts such as individual retirement accounts (IRAs), 401(k)s and other retirement plans generally supersede instructions in a Will. If your beneficiary forms are outdated, your assets may not be distributed according to your current intentions.
A year-end review should include:
Even if no major life changes occurred this year, beneficiary reviews can help identify administrative errors and ensure your retirement assets transfer smoothly to your intended heirs.
Evaluate Your Tax Bracket Before Year-End
Tax planning and retirement planning go hand in hand. The final months of the year provide an opportunity to estimate your taxable income and determine whether strategic actions could reduce your lifetime tax burden.
Consider asking:
For retirees, managing taxable income can help minimize taxes while preserving flexibility for future years. Potential strategies include:
Roth Conversions
If your income is unusually low, converting a portion of a traditional IRA to a Roth IRA may be worth considering. While converted amounts are taxable in the conversion year, future qualified withdrawals from the Roth account can be tax-free.
Many retirees use lower-income years between retirement and RMD age to execute partial Roth conversions strategically.
Capital Gain Management
Investors in taxable accounts may have opportunities to realize capital gains or harvest losses before year-end. Reviewing investment gains and losses can help improve tax efficiency while maintaining an appropriate asset allocation strategy.
Maximize Retirement Plan Contributions
If you're still working, year-end is an excellent time to ensure you're taking full advantage of retirement savings opportunities. Review contributions to 401(k) plans, 403(b) plans, Traditional IRAs, Roth IRAs, SEP IRAs and SIMPLE IRAs.
If cash flow permits, consider increasing contributions during the final pay periods of the year. Individuals age 50 and older may also be eligible for catch-up contributions, allowing them to save additional dollars for retirement.
Even relatively small contribution increases can generate meaningful long-term growth through compound returns.
Review Your Investment Allocation
Market performance throughout the year may have shifted your portfolio away from its target allocation. Year-end is an appropriate time to review whether your portfolio still reflects your risk tolerance, time horizon, income needs and retirement objectives
Rebalancing doesn't guarantee profits, but it can help maintain a consistent level of risk and support disciplined investing over time.
Consider Qualified Charitable Distributions (QCDs)
For charitably inclined retirees, a Qualified Charitable Distribution can be an effective strategy. Eligible IRA owners can transfer funds directly from an IRA to qualified charities. In many cases, these distributions can satisfy all or part of an RMD while potentially reducing taxable income.
A QCD may be particularly attractive for retirees who do not itemize deductions, want to support charitable organizations and seek to manage taxable income. Because QCDs must meet specific IRS requirements, it's important to coordinate with your custodian and tax advisor before year-end.
Review Healthcare and Medicare Planning
Retirement planning extends beyond investments. Healthcare expenses remain one of the largest costs facing retirees. Before year-end, be sure to review Medicare coverage selections, examine your prescription drug costs, estimate next year's healthcare spending and consider the impact of taxable income on Medicare premiums.
Higher-income retirees may be subject to Income-Related Monthly Adjustment Amounts (IRMAA), which can increase Medicare premiums. Strategic income and distribution planning may help manage these costs over time.
Update Your Estate Planning Documents
An annual review of estate planning documents can help ensure that your financial affairs remain organized and up to date. Consider reviewing your Will, trust documents, powers of attorney, healthcare directives and beneficiary designations
Start the New Year on Strong Financial Footing
Year-end retirement planning is about more than checking administrative boxes. It's an opportunity to align your retirement income, tax strategy, investment allocation and legacy plans. Doing so can potentially improve both your financial efficiency and peace of mind.
The Busey Wealth Management team is here to help you build a strong financial roadmap. To learn more about our services and resources, visit busey.com/wealth-management.
This material is provided for informational and educational purposes only and should not be construed as legal, tax, accounting, investment, or other professional advice. The information presented is general in nature and does not take into consideration the specific objectives, financial circumstances, tax situation, or needs of any individual or entity.
Any discussion of U.S. tax matters is not intended or written to be used, and cannot be used, for the purpose of avoiding tax penalties under applicable law. Clients should consult their own legal, tax, accounting, and financial advisors regarding their specific circumstances.
This material is not an offer to sell or a solicitation to purchase any security, investment product, or service.