5 Last-Minute Tax Moves Fit for Retirees

Last-Minute Donations

As December winds down, you can make last-minute charitable gifts using a credit card. The donation needs to be dated in this calendar year, but you can pay the credit card bill in 2019. Or donate by mailing in a check. It needs to be postmarked in 2018; for documentation’s sake, it’s best to mail the check to charity using registered or certified mail.

Itemizers might consider a year-end donor-advised fund contribution. That would give you a 2018 charitable write-off and allow you to postpone decisions about which charities to support.

In early December, you still have time to do a qualified charitable distribution. Those age 70½ or older can directly transfer up to $100,000 to charity from their IRA. The QCD can satisfy the required minimum distribution and won’t show up in adjusted gross income. (Note: A QCD can’t go into a donor-advised fund.)

Accelerate Deductible Expenses

If you’re itemizing, consider the potential benefits of pulling more deductible expenses into this tax year. For instance, you could pay your January 2019 mortgage payment by December 31 if you deduct mortgage interest.

If you are under the $10,000 cap for writing off state and local taxes, consider paying any state income or local property tax bills due next January by December 31.

Live in a state with no state income tax? Buy a new car or make another major purchase by December 31, and you can write off that purchase’s sales tax under the $10,000 limit this year. (In states with an income tax, you can write off the greater of state and local income taxes or sales taxes, but not both.)

Play Catch Up

Many people forget to make catch-up contributions to their retirement accounts in the year they turn 50, says Jeff Morrison, senior wealth strategist at PNC Wealth Management. If your 50th birthday is in 2018, even at year-end, you can squirrel away more cash. Workers age 50 and older can stash an extra $6,000 in a 401(k), for a maximum of $24,500, by year-end. They can also put an extra $1,000 in an IRA, for a maximum 2018 contribution of $6,500, by April 15, 2019.

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Do a Roth Conversion

At year-end, you can get a good idea of your tax bracket. If you have room before crossing into a higher bracket, consider converting money from a traditional IRA into a Roth IRA. For instance, a single filer with $75,000 in taxable income will be in the 22% bracket. But the top of that bracket is $82,500 for 2018, so he could convert up to $7,500 to a Roth IRA without boosting income into a higher tax bracket.

You can do a Roth conversion regardless of work status or income—you just need to pay tax on the conversion at your ordinary income tax rate. This move won’t trim your tax tab now, but the Roth money will grow tax-free and won’t be subject to required minimum distributions. You can no longer reverse a Roth conversion, but converting at year-end helps to fine-tune the conversion amount without spiking into a higher bracket. A bonus: If the conversion is also your first Roth, you’ll quickly rack up one year toward the five-calendar-year test for tax-free earnings.

Give to the Limit

Like a Roth conversion, using the annual gift-tax exclusion is a long-term tax-saving play. Gifting helps reduce a taxpayer’s estate to mitigate the risk of estate taxes. For 2018, you can give up to $15,000 per person to an unlimited number of people free of gift tax. Want to help your son and daughter-in-law with a house down payment? You and your spouse can give the couple a total of $60,000 without having to file a gift-tax return. Those who want to help with a grandchild’s education costs can stash up to five years’ worth of tax-free gifts in a 529 savings plan at one time, which means a couple can give up to $150,000 to one child in 2018, says Benjamin Sullivan, a certified financial planner in the Austin, Texas, office of Palisades Hudson Financial Group.