It’s hard to believe, but we’re already nearing the end of 2025, meaning now’s the perfect time to take a closer look at your year-end tax strategy. With some major tax law changes taking effect in 2026, the decisions you make in the next few months could have a meaningful impact on your tax bill come April.
Before the holidays set in, take some time to review your current tax picture and consider the three important tax planning decisions below.
Move #1: Address Your Current (or Future) RMDs
If you’re 73 or older, the IRS requires you to take required minimum distributions (RMDs) from your traditional IRAs or 401(k)s each year. Missing an RMD can trigger a tax penalty of up to 25% of the amount you should have withdrawn—making it an expensive (but thankfully, avoidable) mistake.
As a reminder, these withdrawals, including your initial contributions and earnings within the account, are subject to income tax.
If you’re not yet 73, however, the year-end still presents a potential tax-planning opportunity—one that could help you reduce your tax burden throughout retirement.
Your RMDs are based on the end-of-year account balance the year prior, so lowering that balance ahead of time can help reduce your RMDs in retirement. Consider whether pre-RMD withdrawals make sense for your financial and tax situation. Once you turn 59.5, you can start taking penalty-free withdrawals from your retirement accounts, just keep in mind, withdrawals will still be subject to ordinary income tax.
Strategically drawing down assets earlier, before RMDs kick in, may help spread some of that taxable income across more years. In doing so, you can potentially lower your overall lifetime tax burden.
If you have an especially large balance in your tax-deferred retirement accounts, strategically drawing down (and paying the tax incrementally) could help smooth out future RMD-induced tax spikes and make your retirement income more predictable.
Another Option? Qualified Charitable Distributions
Even if you’re not yet subject to RMDs, philanthropic taxpayers age 70½ or older can make Qualified Charitable Distributions (QCDs) directly from an IRA. This allows you to give pre-tax dollars before RMDs even begin.
For 2025, you can donate up to $108,000 per person via QCD, which may be more or less than your actual future RMD. While QCDs can be used to satisfy RMDs once they begin, they are not limited to your RMD amount.
Potential benefits include:
- Keeping the distribution entirely off your tax return (which is often better than a deduction)
- Preventing or minimizing IRMAA Medicare surcharges by keeping AGI lower
- Making charitable giving more tax-efficient compared to donating after-tax dollars
Move #2: Consider a Roth Conversion
If you do choose to intentionally lower the size of your traditional IRA or 401(k) to mitigate future tax liability, the question becomes: What do you do with the funds?
If you have time on your side (meaning you won’t need the money for at least five years), a Roth conversion is certainly worth considering.
A Roth conversion allows you to move pre-tax retirement dollars into a Roth account, where qualified withdrawals could be tax-free in retirement. This can be done in one of three ways:
- Converting a traditional IRA into a Roth IRA
- Using an “in-plan” Roth conversion inside a 401(k), if your employer allows it
- Rolling over a 401(k) in full or in part to a Roth IRA after leaving your employer
Whatever the path, any pre-tax portion you convert is taxed as ordinary income in the year of the conversion, but any future growth and withdrawals may be tax-free, assuming you follow IRS rules.
A Roth conversion can be a powerful strategy, but it’s not always straightforward, it intentionally triggers taxable income now in exchange for potentially tax-free withdrawals later. The decision often comes down to timing and tax bracket management, which is why conversions are commonly spread across multiple years and coordinated with lower-income periods. Because eligibility, tax impact, and long-term benefit can vary widely, it’s important to work with an advisor to determine if a Roth conversion makes sense, and how much, when, and from which account to convert.
Move #3: Take Advantage of Current Charitable Giving Tax Laws
Between now and December 31, 2025, you can still take advantage of the old charitable deduction tax laws. Starting on January 1, 2026, however, changes introduced in the One Big Beautiful Bill Act (OBBBA) will go into effect and impact how much taxpayers can deduct.
For now, there is no above-the-line option for charitable giving deductions, meaning you must itemize to claim your charitable contributions on your 2025 tax return. You can donate and deduct up to 60% of your AGI, or up to 30% for appreciated assets (like stock).
Beginning next year, the rules are changing. Those who take the standard deduction will be able to deduct up to $1,000 per person in above-the-line charitable deductions. If you choose to itemize, your deduction will need to exceed 0.5% of your adjusted gross income, and you can only deduct the portion above this threshold. For example, if your AGI is $300,000, the minimum threshold for taking an itemized charitable deduction is $1,500 (that’s 0.5% of $300,000). Say you donate $2,000, only $500 of your donation can be deducted (if itemizing).
But between now and December 31, 2025, the old tax laws still apply, meaning there is no above-the-line option, but you do not have to meet the 0.5% threshold to take an itemized charitable deduction.
These charitable deduction tax law changes don’t just apply to direct donations. If you have a donor-advised fund (DAF), you can make tax-deductible contributions to that as well. In fact, a DAF can be helpful for executing certain charitable giving strategies, such as “bunching” multiple years’ worth of charitable donations together to maximize the value of an itemized charitable deduction.
A Note About Donating in December
December is the month most people give, and charities tend to get overwhelmed with donations. In fact, 30% of people who give annually do so in December, with 10% of those donations occurring within the last three days of the year.¹
If possible, try to get your charitable donations done before the last week of the year. Doing so can better ensure all the necessary paperwork is completed and the donation is processed before the end of the year.
Move #4: Decide If Estimated Tax Payments Are Necessary
You can make estimated tax payments for the 2025 tax year through January 15, 2026. While there’s still time to meet “safe harbor requirements” to avoid potential penalties, now is a good time to determine if a Q4 payment is necessary.
Estimated tax payments are generally required if you expect to owe more than $1,000 in federal taxes for 2025 after accounting for withholding and credits. While they’re common for business owners and 1099 contractors, many retirees or anyone with irregular or newly non-W2 income are often surprised by this rule. Take a moment to review how your income has shifted this year, especially if you received income without automatic tax withholding. For example, withdrawals from a taxable investment account may trigger capital gains taxes, and if you retired mid-year and began freelancing, that income is typically not taxed automatically.
The IRS offers a simple tax withholding calculator, which can help you decide if 2025 estimated tax payments are necessary. If you’re working with an advisor or tax professional, they can help you determine your tax liability as well.
Don’t Overlook These Two Additional Year-End Planning Opportunities Before December 31:
- Tax-loss harvesting — If you hold taxable investments, work with your advisor to determine whether realizing capital losses could offset gains and reduce your 2025 tax bill.
- Retirement plan funding — Review your final paystub to confirm whether you’re on track to fully max out your 401(k), 403(b), or HSA before year-end, and adjust automatic contributions now if needed.
Have Questions About Your 2025 Tax Strategy?
While we’re only a few weeks out from the end of the year, you still have time to make some impactful changes to your tax landscape—whether that means lowering your tax bill this year or making strategic moves to address your future tax liability.
If you’d like to review your current tax plan and consider the best options for your financial circumstances, don’t hesitate to schedule a time to talk with our team. We can review your existing strategy, identify potential opportunities, and talk through what tax changes are coming in 2026.
Sources:
¹ https://nonprofitssource.com/online-giving-statistics/
