Maximizing Your Retirement Savings Before Year-End

As the end of the year approaches, it’s the perfect time to take a closer look at your retirement contributions. If you’ve been contributing to your IRA, 401(k), or TSP (for federal employees), now’s the time to ensure you’re making the most of these accounts. Not only can you reduce your taxable income by maxing out contributions, but you’re also investing in your future financial security.

Why It’s Important to Maximize Contributions
Retirement accounts come with contribution limits that reset every year. Missing out on maximizing these contributions means missing a unique opportunity for tax-advantaged growth that you won’t get back. Contributions to accounts like IRAs and 401(k)s offer significant tax benefits—either immediate (traditional accounts) or in retirement (Roth accounts)—which can compound over time to build wealth for your later years.

Key Year-End Deadlines
• 401(k) Contributions: The contribution deadline for workplace plans, like a 401(k) or 403(b), is December 31. For 2024, the maximum annual contribution for most people is $23,000 (or $30,500 if you’re age 50 or older, which includes a $7,500 catch-up contribution).
• IRA Contributions: You have until April 15, 2025, to make IRA contributions for the 2024 tax year, but considering them now as part of year-end planning can help you budget and avoid scrambling later. The annual contribution limit for 2024 is $7,000 (or $8,000 if you’re 50 or older, which includes a $1,000 catch-up contribution).

Steps to Maximize Contributions
• Prioritize High-Impact Accounts: If you can’t contribute the maximum to all accounts, focus on those that offer the biggest immediate benefits. For example: Start with your 401(k) if your employer offers matching contributions—this is essentially free money you don’t want to leave on the table. Next, consider a Roth IRA if you’re eligible, as it provides tax-free growth and withdrawals in retirement.
• Consider a Roth Conversion: If you have funds available and are in a lower tax bracket this year, converting some of your traditional IRA or 401(k) funds to a Roth account can be a strategic move. You’ll pay taxes on the amount converted now, but future withdrawals from the Roth will be tax-free. This can be particularly beneficial if you expect your tax rate to rise in retirement. Consult with a tax professional to ensure the conversion aligns with your financial goals.
• Plan for RMDs: If you’re age 73 or older, you’re required to take RMDs from your traditional retirement accounts by December 31 (except for your first RMD, which can be delayed until April 1 of the following year). Missing an RMD can result in a hefty penalty—50% of the amount you failed to withdraw. Taking RMDs earlier in the year or in smaller increments can help manage the tax impact and avoid surprises at tax time.
• Increase Contributions Gradually: You don’t need a lump sum to make a difference. Even small increases, like 1-2% of your paycheck, can add up over time without straining your budget.
• Reallocate Unexpected Funds: Have a year-end bonus or a tax refund? Directing a portion of these windfalls toward your retirement accounts is an easy way to boost contributions without disrupting your monthly budget.

Federal Employee Perspective
For federal employees with a TSP, year-end planning can include adjusting contributions based on employer matching (if applicable) and reviewing the allocation of funds, especially if you haven’t revisited your choices in a while. The contribution limits for TSP accounts mirror those of 401(k)s, so maximizing these can help federal employees secure both tax benefits and future retirement income.

Benefits Beyond Tax Savings
End-of-year contributions aren’t just about taxes—they’re about building a strong foundation for future flexibility. Making the most of retirement contributions each year can give you more choices in retirement, reduce financial stress, and set you on a path to reach your goals.

Planning Ahead: Next Year’s Opportunities
As you finalize this year’s contributions, it’s also a great time to plan for 2025. The IRS has announced increased retirement contribution limits, offering even more opportunities for tax-advantaged savings. A significant change under the SECURE Act 2.0 will allow individuals aged 60 to 63 to make expanded catch-up contributions to workplace plans like 401(k)s. This means those in this age group can contribute an additional $10,000 or 50% more than the standard catch-up amount, whichever is greater.

For those considering a Roth conversion or planning for RMDs in 2025, early preparation can help you optimize your strategy while minimizing tax liabilities. Federal employees, in particular, should revisit their TSP contribution strategies now to ensure they’re positioned to maximize these benefits in the year ahead.