With the holidays right around the corner, it is a great time to explore tax-friendly ways to give money to loved ones or your favorite charities during the holiday season. The following are some great ways to transfer money to others before the end of the year:

Qualified Charitable Distributions (QCDs)

If charitable giving is already part of your financial plan, then qualified charitable distributions, or QCDs, are a great way to contribute to your favorite charities throughout the year. If you are 70 1/2, you can donate up to $105,000 to a charity directly from your IRA using a QCD in 2024. In 2025 this amount will expand to $108,000. By utilizing QCDs, the taxable portion of your RMD will be reduced dollar for dollar by the amount given to a charitable organization. This will reduce your federal and state taxes without having to itemize your deductions.

Gifting and 529 Plans

In 2024, individuals are allowed to gift up to $18,000 to another individual without having to report it to the IRS. By staying under the $18,000 limit, there will be no future tax implications for estate taxes. The $18,000 limitation is per gift to an individual, meaning you can make multiple gifts to different individuals before the end of the year as long as they are under the limitation. In 2025, the limitation per gift will increase to $19,000.

Gifting to 529 plans is a great way to plan for future education expenses. Gifts to 529 plans are eligible for a state tax deduction. In 2024, Ohio allows you to deduct up to $4,000 for each gift made to a different plan. This allows individuals to contribute to 529 plans for multiple children or grandchildren and receive a state tax deduction for each contribution made. Contributions to 529 plans grow tax-free, and distributions from the plan are exempt from federal income taxes if they are used for qualified education expenses. The expenses include tuition for K through 12 and college programs. They also include room & board, fees, and supplies. The benefit of 529 plans also recently expanded with the SECURE 2.0 ACT of 2022. The act now allows $35,000 of unused funds in a 529 plan to be rolled into a Roth IRA if the account has been open for over 15 years. This means that if your child or grandchild does not need the funds for education, you can move the money to a Roth IRA and avoid income taxes.

Charitable Contributions using Appreciated Securities

If you own securities in your portfolio that have greatly appreciated in value, donating the security to a charity directly instead of making a cash donation can provide great tax benefits. By donating appreciated securities that you’ve held for more than a year, you can save on capital gains taxes and potentially the net investment tax. Instead of selling the security yourself, paying income taxes on the sale, and donating the remaining cash, donating the security directly will result in lower taxes and a greater deduction. Individuals who donate securities are allowed a tax deduction equal to the fair market value of the security at the time of the donation. The amount of the deduction is limited to 30% of your adjusted gross income, but any unused amounts can be carried forward for 5 years.

These ideas and strategies mentioned above are just a few tax planning ideas for those planning to be charitable around the holiday season. There are more complex strategies, such as Donor Advised Funds, Charitable Remainder Trusts, and Charitable Annuity Trusts, that we often utilize for individuals who wish to set up charitable and gifting plans. If you want to establish one of these plans, we are always happy to help you create one.

The end of the year is also a great time to review your own savings and retirement contributions. The following is a highlight of changes made to retirement contribution limits for 2025:

• The annual contribution limit for employees who participate in 401(k), 403(b), governmental 457 plans, and the federal government’s Thrift Savings Plan is increased to $23,500, up from $23,000.
• The limit on annual contributions to an IRA remains $7,000. The IRA catch 11up contribution limit for individuals aged 50 and over was amended under the SECURE 2.0 Act of 2022 (SECURE 2.0) to include an annual cost 11of 11living adjustment but remains $1,000 for 2025.
• The catch-up contribution limit that generally applies for employees aged 50 and over who participate in most 401(k), 403(b), governmental 457 plans, and the federal government’s Thrift Savings Plan remains $7,500 for 2025. Therefore, participants in most 401(k), 403(b), governmental 457 plans and the federal government’s Thrift Savings Plan who are 50 and older generally can contribute up to $31,000 each year, starting in 2025.
• Under a change made in SECURE 2.0, a higher catch-up contribution limit applies for employees aged 60, 61, 62 and 63 who participate in these plans. For 2025, this higher catch-up contribution limit is $11,250 instead of $7,500.