Top 3 Things Retirees Need to Check Before the End of the Year

The holiday season is a happy time of year, but you still need to finish the year strong. If you’re not careful, you could miss out on opportunities to save on taxes or avoid penalties. You’ll want to nail a few critical items so you can rest easy knowing you got the most out of the year.

Required Minimum Distributions

We recommend planning for required minimum distributions (RMDs) long before they’re, well, required. Depending on your age, account type, and account size, RMDs can be a major headache. If you don’t take your RMDs on time, you can get hit with steep penalties of up to 25%.

As a retiree, the days can seem to all blend together, but the IRS is unforgiving when it comes to tax season. December 31^st is an important deadline. To avoid overpaying on taxes or having an excise tax assessed, you need to make timely withdrawals.

Accounts Subject to RMDs

 It’s also essential to make sure you’re calculating your RMD for each account subject to RMDs. For the most part, this refers to any non-Roth retirement account, such as a traditional 401(k), 403(b), 457, IRA, SEP IRA, SIMPLE, profit-sharing plan, or other qualified retirement account.

Inherited Accounts

Inherited accounts have different, complex distribution rules. Only recently did the IRS give a final ruling on inherited accounts. The rules can change depending on whether the original account owner had started taking RMDs, and your relationship to the account holder.

Bottom line: most accounts inherited by non-spouse beneficiaries will need to start taking RMDs immediately and be emptied within 10 years.

Qualified Charitable Contributions

If you haven’t already made a distribution for the year, then you may be able to make a qualified charitable distribution (QCD) as your RMD. If you’re charitably inclined, this can be a fantastic way to achieve both goals. However, for your QCD to count as the RMD, it must be the first distribution of the year.

If you’ve already made a distribution for the year, you can still donate to charity, but any amount you have already distributed will be considered taxable income. The simplest way to ensure you’re covered is to complete your QCD first before any other distributions – especially if you want to use the QCD as your entire RMD.

Tax-Saving Strategies

Another important consideration before the end of the year is your tax-saving strategies. This is especially important for retirees age 65 or older through the end of tax year 2028. With the new changes from the One Big Beautiful Bill Act, seniors have a much higher standard deduction.

What does this mean to you? It could be an excellent opportunity to ramp up strategies like Roth conversions or make large purchases when tax treatment is more favorable. With the now permanent higher standard deduction, slightly expanded 10% and 12% tax brackets, and the temporary “enhanced” senior deduction of $6,000 for each taxpayer over 65, you can withdraw a lot more at a lower overall tax rate.

Roth Conversions

Roth conversions can be a very powerful tool for retirees. For a married couple where both spouses are over age 65, the additional $12,000 total deduction can make a real difference in the costs of converting some of your IRA to a Roth. A married couple could convert an additional $48,000 without adding additional taxes at the federal level.

Completing Larger Purchases

If you’ve been holding off on a large purchase, such as a new car or a kitchen remodel, the next few years might be the right time to make it. New car prices don’t seem to be coming down, but if the costs you’ll pay in taxes are lower, it could help out. The cost of building materials is a bit more volatile, but it seems to be leveling off.

Regardless, it’s a good time to evaluate any large purchases you’ve been putting off, which would require you to withdraw from your retirement accounts. If you’re going to have to withdraw the money for RMDs later anyway, you may as well do it “at a discount,” so to speak.

Charitable Giving

We already discussed QCDs, but regular charitable giving is still a worthwhile goal. If you’re interested in giving to charity, this can be a great way to offset taxes or reduce your tax burden later on. The QCD limit for 2025 is $105,000.

You can still itemize deductions and donate regardless. However, there are limitations.

Revisit and Reset Your Spending Plan

The last thing anyone wants to do is review their budget. However, the end of the year is the best time to reset your budget for the following year. You can start planning medical insurance coverage changes, travel, and set up your regular withdrawals. It may also be the best time to review your Social Security withdrawal strategy.

Medical Coverage

It’s always a good idea to shop around for things like Medicare supplemental coverage during open enrollment season. This can help you determine your costs next year. You don’t want to get any surprises if your insurance premiums increase.

Speaking of Medicare, if you’re coming up on age 65, you’ll definitely want to get prepared to apply for Medicare. There are permanent consequences to waiting too long to enroll.

Planning Out Travel

It’s also a good time of year to start planning travel and getting vacations on the calendar. You might even be able to lock in preferential prices for the year. At a minimum, you can start setting up Google alerts for deals on flights.

Revisiting Your Social Security Withdrawal Strategy

If you haven’t started drawing Social Security benefits yet, now is a great time to review your options. The way Social Security is calculated can be a bit confusing, so you want to give yourself plenty of time to think through what’s best for you.

If you want to create some “gap years” for other tax-saving strategies, you might want to wait a little longer to start withdrawing. Every person’s situation is different, so you’ll need to sort through the details and make the best decision for yourself.

Setting Your Withdrawals for Retirement Income

Now is the perfect time to adjust your withdrawals from your retirement accounts for your everyday living expenses. It’s better to have things set and ready so you always have the money you need.

Tying a Bow on the Year

As you turn the page on another lap around the sun, you want to have the peace of mind of knowing you didn’t leave any stone unturned. Although they may seem arbitrary, annual deadlines have real consequences. We want you to finish the year in a fun, joyful mood – not stressed about meeting a deadline or worried you missed something.

If this all seems overwhelming, you’re not alone. It’s never too late to reach out for help and make sure you’re on track for an efficient and fulfilling retirement. Engaging with a financial planner, accountant, or other financial professional can be immensely helpful.

Always keep your eyes open for new opportunities, both this year and in years to come. Cheers to a fantastic, tax-efficient, and well-planned year ahead!

This article reflects the insights and opinions of its author and is not a recommendation or endorsement of their views or services.

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