Is Your Retirement Plan Ready for Year-End? A Q4 Checklist for Retirees

Is Your Retirement Plan Ready for Year-End? A Q4 Checklist for Retirees

December 31st is fast approaching, and with it comes a flurry of year-end financial deadlines that could cost you thousands if missed. While younger workers might focus on maximizing 401(k) contributions, retirees face a different set of critical tasks that can make or break their tax situation.

Missing required minimum distributions, overlooking tax withholding adjustments, or failing to complete strategic moves like Roth conversions can trigger penalties that dwarf any investment gains you might have made this year. The good news is that most year-end mistakes are completely preventable with proper planning. Here’s your essential Q4 checklist to ensure your retirement finances are optimized before the calendar flips to 2025.

Key Takeaways

• Required minimum distributions must be taken by December 31 or face a 25% penalty on the amount not withdrawn
• First-time RMD takers age 73 can delay until April 1, 2025, but will owe two distributions in one tax year
• Qualified charitable distributions can satisfy RMD requirements while providing tax benefits up to $105,000 in 2024
• Tax withholding adjustments must be made before year-end to avoid underpayment penalties
• Roth conversions and tax-loss harvesting strategies have December 31 deadlines
• Medicare and Social Security decisions made now affect 2025 benefits and tax situations

Required Minimum Distributions

Know Your RMD Deadline

If you’re 73 or older, your required minimum distribution must be completed by December 31st. The penalty for missing this deadline is severe – 25% of the amount you failed to withdraw. On a hypothetical $50,000 RMD, that’s a $12,500 penalty that can be reduced to 10% only if corrected within two years.

First-time RMD takers have a choice. If you turned 73 in 2024, you can delay your first distribution until April 1, 2025. However, this means you’ll need to take two RMDs in 2025, one for 2024 and another for 2025, potentially pushing you into a higher tax bracket.

Calculate Your RMD Correctly

Your RMD equals your December 31, 2023 account balance divided by your life expectancy factor from IRS tables. If you have multiple retirement accounts, calculate each separately but you can take the total from whichever accounts you choose.

Most custodians calculate RMDs for you, but you’re ultimately responsible for taking the correct amount. Double-check their math, especially if you’ve made rollovers or had account changes during the year.

Tax Withholding and Payments

Review Your Withholding Strategy

Many retirees discover too late that their tax withholding doesn’t match their actual liability. If you have income from multiple sources – Social Security, pensions, RMDs, and investment accounts – your withholding picture can get complicated quickly.

To avoid underpayment penalties, you need to pay either 90% of this year’s tax liability or 100% of last year’s liability (110% if your prior year adjusted gross income exceeded $150,000). Review your year-to-date withholding and make adjustments to your final RMD or pension payments if needed.

Quarterly Estimated Payments

The fourth quarter estimated payment is due January 15, 2025, but making it by December 31st can help if you’re behind on payments. This is especially important if you have significant investment income or took large distributions earlier in the year.

Strategic Tax Moves

Qualified Charitable Distributions

If you’re 70½ or older and charitably inclined, qualified charitable distributions offer a powerful tax strategy. You can transfer up to $105,000 directly from your IRA to qualified charities in 2024, and these distributions count toward your RMD requirement.

The money never appears on your tax return as income, effectively making your charitable giving tax-free. This strategy works particularly well if you don’t itemize deductions or want to reduce your adjusted gross income for Medicare premium calculations.

Roth Conversions

The window for 2024 Roth conversions closes December 31st. If you’re in a lower tax bracket this year due to reduced income or market losses, converting traditional IRA funds to Roth accounts could save money long-term.

Consider your current tax rate versus what you expect in future years. With tax rates scheduled to increase in 2026 when the Tax Cuts and Jobs Act provisions expire, paying taxes now at today’s rates might be advantageous.

Tax-Loss Harvesting

If you have investments in taxable accounts, review your gains and losses for the year. Selling losing positions can offset gains and reduce your tax bill. You can deduct up to $3,000 in net losses against ordinary income, with excess losses carrying forward to future years.

Remember the wash sale rule – you can’t buy the same or substantially identical security within 30 days before or after the sale.

Healthcare and Insurance Reviews

Medicare Annual Enrollment

The Medicare Annual Open Enrollment Period runs through December 7th. Review your Medicare Advantage and Part D prescription drug plans to ensure they still meet your needs for 2025. Plans change their covered drugs, costs, and provider networks annually.

Check if your current medications are still covered and compare total costs, not just premiums. A plan with higher premiums might save money overall if it covers your specific medications better.

Health Savings Account Contributions

If you’re still eligible for HSA contributions (you have a high-deductible health plan and aren’t enrolled in Medicare), maximize your 2024 contributions by December 31st. The contribution limits are $4,300 for individual coverage and $8,550 for family coverage, with an additional $1,000 catch-up for those 55 and older.

Social Security Optimization

Coordinate Benefits with Taxes

If you’re receiving Social Security, review how your other income affects the taxation of your benefits. Up to 85% of Social Security can be taxable depending on your “combined income” – your adjusted gross income plus nontaxable interest plus half your Social Security benefits.

Strategic timing of withdrawals and Roth conversions can help manage this combined income and potentially reduce the taxation of your Social Security benefits.

Review Benefit Claims

If you’re considering claiming Social Security soon, review the claiming strategies available to you. Delaying benefits past full retirement age increases your monthly payment by 8% per year until age 70.

Estate Planning Updates

Beneficiary Designations

Review all beneficiary designations on retirement accounts, life insurance policies, and annuities. These designations override your will, so keeping them current is crucial. Consider whether your original choices still make sense given changes in family circumstances, tax laws, or your financial situation.

Required Minimum Distribution Inheritance

If you inherited retirement accounts, different RMD rules may apply. Most non-spouse beneficiaries must empty inherited accounts within 10 years, but some must also take annual distributions starting in 2025 after a temporary waiver period.

Investment Portfolio Review

Rebalancing Opportunities

Year-end is an ideal time to rebalance your portfolio back to your target allocation. If stocks have outperformed bonds, you might need to trim equity positions and add to fixed income.

Consider doing this rebalancing within tax-advantaged accounts to avoid triggering taxable events. In taxable accounts, use new contributions or dividends to rebalance when possible.

Asset Location Optimization

Review whether your assets are held in the most tax-efficient accounts. Generally, hold tax-inefficient investments like REITs and high-turnover funds in tax-deferred accounts, while keeping tax-efficient index funds and individual stocks in taxable accounts.

Work With Us

The fourth quarter brings a maze of deadlines and decisions that can have lasting impacts on your retirement finances. From avoiding the penalty on missed RMDs to optimizing your tax withholding and making strategic moves like Roth conversions, each item on this checklist represents an opportunity to save money or avoid costly mistakes. The key is acting before December 31st, when most of these opportunities disappear until next year.

At Avior, we help retirees coordinate all these moving pieces into a cohesive year-end strategy. Our team monitors RMD requirements, tracks tax withholding throughout the year, and identifies optimization opportunities specific to your situation. Whether you need help calculating distributions, evaluating Roth conversion opportunities, or coordinating Medicare decisions with your overall tax strategy, we help ensure nothing falls through the cracks. Contact Avior today to review your Q4 checklist and make sure your retirement plan is ready for year-end and beyond.

Investment management and financial planning services are offered through Avior Wealth Management, LLC, an SEC-registered investment adviser. Tax and accounting services are provided by Avior Tax and Accounting, LLC, a wholly-owned subsidiary of Avior Wealth Management, LLC.

Insurance products, including life, disability, long-term care, and annuities, are offered through Avior Insurance. Insurance and annuity products are not offered through Avior Wealth Management, LLC, and are not covered by SIPC. Avior Insurance operates independently to provide insurance solutions tailored to clients’ needs. Insurance products are subject to the terms and conditions of the issuing carrier.

All information contained herein is general in nature and is not to be construed as specific investment advice. Avior does not provide legal advice. Clients should consult their own legal, tax, and financial professionals before making any decisions. All investments involve risk, including the potential loss of principal. Past performance is not indicative of future results.