4 year-end financial questions for retirees and pre-retirees to ask

As the year comes to an end, so too does the window for retirees and pre-retirees to make several strategic financial moves.

A thoughtful year-end review can help you uncover opportunities related to your Roth conversions, required minimum distributions, charitable giving, and broader financial goals.

Ask yourself these year-end financial questions to enter the new year with greater clarity and confidence in your retirement plan.

1. Should I be considering a Roth conversion this year?

Roth conversions allow individuals to move some or all of their pre-tax retirement savings into a Roth IRA.

The converted funds then grow tax-free, and qualified distributions are also tax-free.

The overall goal of a Roth conversion is to potentially decrease the lifetime taxes that you will pay the government.

Benefits of Roth Conversions

Especially as retirement approaches or even during the first few years of retirement, a person’s total income may be lower than during their prime working years.

Since individuals pay taxes on the converted amount, a Roth conversion allows you to convert at least a portion of your balance at a lower tax rate.

Roth conversions are especially ideal for retirees who have not yet reached required minimum distribution (RMD) age.

This timing may allow you to convert funds at lower tax rates, providing tax-free growth and reduced future RMDs.

Since pre-tax dollars are converted, it helps reduce the balance used to calculate RMDs, which in turn could lower the future tax bracket of an individual/household.

What To Do Before Year-End

Now is a good time to evaluate your overall income and determine how much, if any, you can convert.

Several factors affect how much a person or household can convert, such as:

• How much extra income you can realize before pushing into higher tax brackets
• Income-related monthly adjustment amount (IRMAA) surcharges (which look back two years)
• How much of your Social Security is taxable

Work with your financial advisor and tax professional to determine if Roth conversions make sense for you — and if they do, how much to convert.

2. Are my required minimum distributions on track?

With pre-tax retirement accounts, the IRS generally requires account owners to begin taking distributions once they reach a certain age.

The amount depends on your age and pre-tax retirement account balance as of December 31 of the previous year.

For individuals born between 1951 and 1959, RMDs begin the year in which the account owner turns 73. For those born in 1960 or later, RMDs begin the year in which you turn 75.

How To Calculate My Required Minimum Distribution

Each year, you are responsible for calculating your required minimum distribution and completing it before year-end.

If it is your first year, however, the IRS allows you until April 1 of the following year.

If you do not complete the distribution, the IRS may assess an excise tax of up to 25% on the amount not taken.

Often, your financial advisor or 401(k) provider will calculate your RMD for you.

What To Do Before Year-End

As year-end approaches, it is a good time to check in and, if you are subject to RMDs, make sure you complete your distribution before the deadline.

While checking, confirm that you are withholding the appropriate amount for taxes.

You can work with your financial advisor and tax professional to help avoid a surprise tax bill.

3. Could charitable giving reduce my tax bill?

If giving to your favorite charitable causes or organizations is important to you, doing so at the end of the year could help reduce your tax burden.

Qualified charitable distributions (QCDs) are an option for individuals who are at least age 70½.

With a QCD, you can choose a qualified charity to receive a gift directly from your IRA. Each individual can give up to $111,000 through QCDs for 2026.

Benefits of Qualified Charitable Distributions

The amount you give to a charity with a QCD is excluded from your taxable income, meaning this type of distribution will not increase your taxable income.

Because it is excluded, you also will not be able to claim a charitable deduction for the QCD amount.

An additional tax benefit is that QCDs can satisfy your RMD for the tax year, allowing you to meet your RMD without realizing additional income.

Individuals can use QCDs after age 70½ but before they reach RMD age to help reduce the pre-tax IRA balance used to calculate RMDs.

Similar to the Roth conversion strategy, using QCDs before RMD age can help lower future RMD amounts and, therefore, the taxes owed on those distributions.

If you own appreciated assets outside of a retirement account, you can also consider gifting them to your favorite charity.

If you itemize, you may generally deduct the fair market value of qualifying appreciated shares on the date of the gift, subject to applicable AGI limitations.

In doing so, you may avoid paying capital gains tax and possibly the Net Investment Income Tax. This allows you to give more to charity than if you had to sell the assets and pay taxes.

One important note is that you must hold the appreciated stock for more than 12 months to deduct its full market value.

What To Do Before Year-End

If you do not typically itemize deductions on your tax return, it may be worth bundling your charitable gifts into one tax year.

Bundling involves making multiple years’ worth of charitable gifts in one tax year, allowing you to itemize deductions in a single calendar year and take advantage of gifting appreciated stock.

Then, in subsequent years, you would return to using the standard deduction.

Your financial advisor and tax preparer may be able to help identify how much you can give, which assets to consider giving, and what the tax implications may be.

All QCDs and stock gifts must be completed before year-end.

4. Is my financial plan ready for what’s next?

Year-end is a good time to meet with your financial advisor.

A meeting gives you the chance to confirm that your portfolio still reflects your short- and long-term goals.

If your portfolio is not currently allocated according to your goals, time horizon, or risk tolerance, your advisor can help determine what changes may be needed.

It is also a good idea to review your estate plan and beneficiary designations each year.

An estate plan is drafted by your attorney and should be reviewed every few years.

Meanwhile, your beneficiary designations are specific to each of your financial accounts.

Has anything significant happened in the past year to warrant a change?

Reviewing your beneficiaries each year can help you ensure that your accounts pass on according to your wishes.

If you do meet with your advisor, use the time to ask any questions you may have. Make sure you understand the advisor’s investment philosophy and the services available to you.

Year-end financial questions for retirees and pre-retirees to ask

Whether you are just starting to think about retiring or have already made the transition, our Wealth Advisory team can help navigate these planning conversations.

If you have any questions or are ready to schedule a meeting, reach out to me!

Any comments, insights, or strategies discussed in this article are intended to be general in nature and, therefore, may not be suitable for you and your situation, whatever that may be. Before acting on anything written here, please consult with your attorney, CPA, and/or your financial advisor.