As the year winds down, investors step into one of the most valuable planning windows of the entire calendar. Taxes may not be due until April, but the most meaningful savings usually happen well before the champagne corks pop on December 31st. At EsqWealth, we work with clients throughout the year to position their wealth in ways that reduce taxes, increase flexibility, and strengthen long-term planning.
That said, the final weeks of the year offer a natural checkpoint. It is the moment to pause, take stock, and make sure every strategy is dialed in before we head into a new year.
Below are several high-impact opportunities that sophisticated investors should consider, especially if they have not evaluated these items yet, before the year draws to a close.
1. Maximize Retirement Savings Beyond the Basics
Many investors unintentionally leave value on the table by contributing only up to their employer match. In 2025, employees can contribute up to $23,500 to a 401(k), with an additional $7,500 catch up for those age 50 and older, bringing the total potential employee contribution to $31,000.
Clients ages 60 to 63 can take advantage of the special “super” catch up with an additional $11,250 instead of the standard catch up, which brings the total potential employee contribution to $34,750.
These limits apply to both traditional and Roth 401(k) contributions, as well as 403(b) plans and most governmental 457 plans.
IRA contributions follow a separate set of rules. The annual limit applies to the combined total of all traditional and Roth IRAs. You can contribute a total of $7,000 across both accounts, or $8,000 if you are 50 or older. You cannot contribute the limit to each account individually.
For clients with access to Roth 401(k) features or after tax contribution options, year-end is an ideal time to revisit the tax impact. Some plans allow additional after tax contributions that can be converted later to a Roth IRA through the “mega backdoor Roth,” potentially moving significant dollars into tax free growth.
Thoughtfully blending pre-tax and Roth contributions can create lasting tax diversification and enhance retirement income flexibility for decades.
2. Explore Spousal IRA and Backdoor Roth Opportunities
For high income households, IRA deductions and Roth eligibility depend heavily on whether you and your spouse are covered by a workplace retirement plan. The rules are more generous than many people realize, and the end of the year is an excellent time to revisit your options.
IRA deductibility rules
• If you are not covered by a workplace retirement plan, you can deduct IRA contributions regardless of income.
• If you are covered, deduction limits depend on your filing status:
– Single: full deduction if your Modified Adjusted Gross Income (MAGI) is $79,000 or less; partial between $79,001 and $88,999; no deduction at $89,000 or more.
– Married filing jointly and you are covered: full deduction if MAGI is $126,000 or less; partial between $126,001 and $145,999; no deduction at $146,000 or more.
– Married filing jointly where your spouse is covered but you are not: full deduction if MAGI is $240,000 or less; partial between $240,001 and $259,999; no deduction at $260,000 or more.
Roth IRA contribution rules
• Single: full Roth contribution allowed if MAGI is $150,000 or less; partial between $150,001 and $164,999; no contribution at $165,000 or more.
• Married filing jointly: full contribution allowed if MAGI is $236,000 or less; partial between $236,001 and $255,999; no contribution at $256,000 or more.
Because many high earners exceed these limits, the backdoor Roth remains a valuable strategy. High income clients can still build tax free retirement assets by contributing after tax dollars to a traditional IRA and then converting that amount to a Roth IRA. This allows them to bypass the income limits for direct Roth contributions while still benefiting from tax free growth and withdrawals in retirement.
How the backdoor Roth strategy works
• Contribute to a traditional IRA with a nondeductible, after tax contribution.
• Promptly convert the contribution to a Roth IRA.
• You may owe tax on any earnings between the contribution date and the conversion date, but not on the after tax amount you contributed. The strategy works best when conversion happens quickly to limit earnings.
Important considerations
• Pro rata rule: if you have any existing pre-tax money in any traditional IRA, the IRS treats all accounts as a single combined IRA. A portion of the conversion will be taxable based on the ratio of pre-tax to after tax dollars.
• Timing and tax planning matter. Conversions can be done at any time, but coordinating with your broader tax picture can reduce the total cost.
• If your employer offers a Roth 401k, it may be a simpler way to accumulate Roth dollars since there are no income limits for contributing.
Additionally, families with one non‑working spouse may benefit from spousal IRA contributions, a strategy that meaningfully expands overall retirement savings. By allowing both spouses to build assets in their own names, this approach not only promotes balance in retirement planning but also delivers valuable tax advantages. Over time, the compounding effect of these contributions can significantly enhance long‑term growth, making spousal IRAs a powerful tool for strengthening household financial security.
3. Use “Bunching” to Maximize Itemized Deductions
The strategy known as “bunching” deductions is a highly effective tax planning method for taxpayers whose total itemized expenses fall near the standard deduction threshold. By concentrating deductible expenses into a single year, clients can maximize their tax savings over a two-year cycle.
The core principle involves alternating between itemizing deductions one year and taking the standard deduction the next.
- Year 1 (Bunching Year): In this year, you group multiple years of deductible expenses together (such as charitable gifts, property taxes, and eligible medical expenses) to ensure your total itemized deductions exceed the standard deduction amount. This bunching allows you to itemize and receive a larger overall deduction for that specific tax year.
- Year 2 (Standard Deduction Year): In the following year, because the prior year’s expenses were intentionally accelerated, your itemized deductions will likely be low. You then take the standard deduction, which provides a significant deduction without needing to track individual expenses.
By strategically planning the timing of these expenses, the total deductions claimed over the two years can be significantly higher than simply taking the standard deduction every year.
4. Be Strategic With Capital Gains and Losses
Tax-loss harvesting remains a staple of disciplined year-end planning. Although it is most often used in December, it is a strategy that should be evaluated throughout the entire year. Selling underperforming positions can offset realized gains elsewhere, and up to three thousand dollars of excess losses can reduce ordinary income.
On the other side of the ledger, harvesting long-term gains may make sense in years when income is unusually low, especially before tax rules tighten in 2026. This strategy is less about “timing the market” and more about strategically controlling when income shows up on your tax return.
When engaging in tax-loss harvesting, investors must adhere to the IRS wash-sale rule, which disallows a loss deduction if a “substantially identical” security is repurchased within a 61-day window spanning 30 days before the sale, the day of the sale, and 30 days after the sale.
Key aspects of the wash-sale rule include the 61-day timeframe and the definition of substantially identical securities. The rule applies across all accounts owned by you or your spouse, including IRAs. While the immediate loss is disallowed, it is added to the cost basis of the new security. Reporting is done on IRS Form 8949 and Schedule D, and investors are responsible for tracking across accounts as brokerages may only track wash sales within the same account.
To avoid a wash sale, investors can wait at least 31 days before repurchasing the security or buy a different asset. Consulting a tax professional is advisable when coordinating larger or more complex harvesting strategies.
5. Accelerate or Optimize Charitable Giving
Charitable gifting is a powerful tool in the tax-planning toolbox. Several strategies deserve consideration:
- Donate appreciated securities: Avoid capital gains and deduct the fair market value.
- Use a donor-advised fund (DAF): Make a large gift this year for a current deduction, then recommend grants to charities over time.
- Gift loss positions: Sell at a loss, claim the loss, and donate the cash proceeds.
- Qualified charitable distributions (QCDs): For clients age seventy and a half or older, charitable donations can be made directly from IRAs, keeping the distribution out of taxable income entirely.
With higher-income years expected for many families and some tax provisions expiring after 2025, year-end charitable planning may provide exceptional leverage.
6. Review Flexible Spending Accounts and Health Savings Accounts
Flexible Spending Accounts and Health Savings Accounts offer valuable tax benefits, but each follows its own rules and deadlines. This time of the year is an ideal time to make sure no tax-advantaged dollars slip through the cracks.
Flexible Spending Accounts (FSAs)
FSAs are generally subject to the familiar “use it or lose it” rule. Unless your employer allows a limited carryover or a short grace period, any unused balance disappears at the end of the plan year. Health care FSAs are capped at $3,300 for 2025, and some employers allow up to $660 of unused funds to carry into the next plan year or offer a grace period of up to two and a half months, but they cannot offer both. Dependent-care FSAs are capped at $5,000 per household, or $2,500 if married filing separately, and can be used for childcare expenses or care for an incapacitated dependent.
Because of the forfeiture risk, it is important to schedule eligible medical, dental, vision, or dependent-care expenses before year-end if you have remaining funds. Even routine appointments or prescription refills can help avoid leaving pre-tax savings unused.
Health Savings Accounts (HSAs)
Clients with high-deductible health plans should also revisit their HSA strategy before year-end. HSAs offer true triple-tax benefits: contributions are deductible, growth is tax-free, and withdrawals for qualified medical expenses are also tax-free. Unlike FSAs, HSA balances roll over indefinitely, making them a powerful long-term planning tool.
For 2025, the HSA contribution limit is $4,300 for self-only coverage and $8,550 for family coverage. Individuals age 55 or older can make an additional $1,000 catch-up contribution. Contributions can be made up until the tax-filing deadline, typically April fifteen of the following year.
In summary, FSAs require timely year-end attention to avoid forfeiting benefits, while HSAs reward consistent funding and long-term planning. Reviewing both accounts before year-end can ensure you capture every available tax advantage.
A Final Word
Year-end tax planning is not a box-checking exercise, it’s an opportunity. The most effective strategies require coordination across investments, retirement accounts, cash flow, and charitable goals.
At EsqWealth, we help clients analyze these decisions through a high-net-worth lens, balancing tax efficiency with long-term planning and legacy objectives. If you’d like a personalized year-end strategy review, we’re here to guide you every step of the way.
