ELISSA NADWORNY, HOST:
The end of the year can't all be holidays and hot toddies. There are also deadlines for a few money matters. And here with some tips is Laurel Wamsley, who covers personal finance for NPR. Hello, Laurel.
LAUREL WAMSLEY, BYLINE: Hello, Elissa.
NADWORNY: So just a few weeks left in 2024. What are some things we should do now to prep for taxes?
WAMSLEY: Well, I think the first thing you might want to look at is your 401(k). So that's the retirement account that's sponsored by your employer that you fund by making contributions from your paycheck. The reason I think you might want to take a look at it is that you can only contribute so much per year. There's a maximum. And this year, the annual contribution limit is $23,000, or a little more if you're over 50.
NADWORNY: So if you haven't hit that yet, you should try?
WAMSLEY: I think so. It's a good idea, if you can, because it keeps you from leaving money on the table that's sort of tax advantaged. So this is going to be an important part of your nest egg, and the more you fund your 401(k) now, the more it has time to grow before you retire. So if you do have the wiggle room in your budget, you could reach out to your plan's administrator and see if you could increase your contributions a little bit before the end of the year.
NADWORNY: OK. You just said part of the nest egg. Is there somewhere else folks should be putting money?
WAMSLEY: Yes. So your 401(k) is through your employer, but you could also set up an additional retirement account for yourself. And one of these - a Roth IRA, in particular - can be a good complement to that 401(k), because down the road when you take money out, it's tax free. And setting up one of these, or funding one, is another good year-end task because again, you can only put in so much per year. The max this year is $7,000, or $8,000 if you're 50 or older.
But just - I want to point out you can't just put the money in. You have to take this additional step and invest it. I made this mistake myself as a younger person. I thought I was doing everything right by putting the money in...
NADWORNY: Yeah.
WAMSLEY: ...But it basically sat there in cash because I hadn't selected an investment for it.
NADWORNY: You have to invest it.
WAMSLEY: Yes. But you do have a little bit more time for this. The deadline to contribute for this year is actually April 15.
NADWORNY: Ah, OK - tax time.
WAMSLEY: Right.
NADWORNY: What about year-end charitable contributions? Do those matter for taxes?
WAMSLEY: Well, it depends. But for most people, actually, the answer will be no.
NADWORNY: Wow.
WAMSLEY: Yes. So this is a little complicated. But most people these days, when they do their taxes, they take what's called the standard deduction instead of itemizing all the little deductions. That's because a few years ago, the standard deduction got a lot bigger. It's now over $14,000 for an individual. So if all your deductions together are less than that $14,600, it's going to make sense to take that standard deduction, 'cause that's going to save you more money. And that means you won't be claiming your charitable donations as deductions. So this is going to depend on your own tax situation. Some people will still be itemizing their contributions. They should hang on to their receipts. And I do want to say it's still a good idea to support the causes and organizations...
NADWORNY: (Laughter).
WAMSLEY: ...You believe in. Just know that it might not affect your tax bill.
NADWORNY: Right. Right. What about the 529 accounts that can be set up to pay for educational expenses?
WAMSLEY: Right. These plans are very popular since they're a great way to save up for your kids' or grandkids' education, and the earnings aren't subject to federal taxes. Plus, most states offer a state income tax deduction or credit for contributions to these plans. For example, I put money into a 529 for my child that will hopefully someday be used for college, and I can deduct up to $4,000 in contributions each year from my taxable income here in D.C. And in most states, to claim that deduction for 2024, you'll need to make your contribution by the end of the calendar year.
NADWORNY: So, wow - you've given me kind of a lot to think about, and hopefully our listeners too. Do you have one last parting tip for us?
WAMSLEY: Yeah, I just think this is a good time to sort of get your financial affairs in order and address some of the items on your to-do list. For some folks, that might be using sort of, like, an online financial platform that brings all their accounts together so they can see everything in one place and stay organized. For other people, that might be looking at the subscriptions they have to different streaming services that maybe they've forgotten about or never use. This might be a good time to sort of, you know, go through those and cancel the ones you don't really need.
NADWORNY: I love it. Thank you so much, Laurel.
WAMSLEY: You're welcome, Elissa.
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