Top 7 tips: Your year-end financial checklist

1. Max out your retirement contributions for 2025

There's still time to make 2025 contributions to your retirement accounts. However, you might not want to wait until the deadline to contribute. The sooner you contribute, the more time your money can grow and benefit from the power of compounding. You have until:

• December 31, 2025, to contribute to your employer plan (SIMPLE and SEP-IRA contributions are allowed until the extension date if one is filed).
• April 15, 2026, to contribute to your traditional or Roth IRAs.

Additional considerations

Don't forget, your IRA contributions can't exceed either your earned income for the year or the IRS-imposed limits, whichever amount is less. Roth IRAs tend to have stricter income limit ranges. If you exceed Roth IRA income limits, you may be eligible to set up a backdoor Roth IRA. If you don't have income but are married to someone who does, you may be eligible to open a spousal IRA and have your spouse contribute on your behalf. Before you pursue these alternative options, make sure you explore the different Roth IRA rules and limits for each scenario.

Depending on your retirement account, you may be eligible for some additional tax deductions. Traditional employer-plan contributions generally come out of your pay on a pre-tax basis, which automatically reduces your taxable income. But IRA contributions work a little differently. While Roth IRA contributions are never tax-deductible, traditional IRA deductions vary based on your modified adjusted gross income and whether you're covered by a retirement plan at work.

Not sure how much you can contribute to an IRA? Calculate your contribution

2. Take your required minimum distribution (RMD)

If you're required to take your RMD, you'll want to act before the end of the year to avoid paying a penalty. If you turned 73 this year and are taking an RMD for the first time, you have until April 1, 2026, to take your RMD. After that, you'll need to take it before the end of each calendar year.

The IRS requires you to take RMDs from certain types of retirement accounts, such as traditional IRAs and qualified retirement accounts from a former employer. If you're required to take an RMD, Vanguard will automatically calculate your RMD amount each year.

If you inherited an IRA on or after January 1, 2020, you might be subject to the 10-year rule. This means the account must be liquidated by the end of the 10th year following the year of the original owner's death.

3. Reach your 529 education savings goals with a 2025 contribution

You have until December 31 to contribute to most states' 529 education plans to qualify for a 529 plan tax deduction or credit. However, plans administered in Georgia, Indiana, Kansas, Mississippi, Oklahoma, South Carolina, and Wisconsin allow you to contribute until April 15 of the following year. And Iowa allows for contributions through April 30 of the following year.

529 plans are a great way to give the gift of education while reaping tax benefits too.

• You can contribute up to $19,000 in 2025 for single filers ($38,000 if married filing jointly) per beneficiary without triggering the federal gift tax.
• You may be able to deduct your contributions from your state income tax (or get a state tax credit) depending on where you live.¹
• If you want to contribute more to a 529 account in a single year, you can "superfund" the account without it counting against your lifetime gift tax exemption. By superfunding a 529, you can make up to 5 years' worth of contributions ($95,000 for 2025) all at once to reduce your taxable estate.

You can also make unlimited payments directly to educational institutions on behalf of others for qualified expenses without incurring a gift tax or affecting your $19,000 gift exclusion. This method is a great way to help a loved one pay for their education.

For example, say you wanted to pay your grandchild's $50,000 tuition toward her medical degree. You could pay her tuition directly to the school and still give her an additional $19,000 tax-free. This strategy reduces your taxable estate and helps preserve your lifetime gift and estate tax exemption.

4. Complete a Roth conversion by December 31, 2025

You have until the end of this year to complete a Roth conversion for the 2025 tax year.

Roth IRAs offer many benefits, including tax-free growth and tax-free distributions, assuming you're age 59½ and you've held the account for at least 5 years. There are also no RMDs, making it easier to leave a tax-free inheritance to your heirs. But there are some additional tax considerations to keep in mind when considering a conversion.

A conversion is a taxable event

Since a conversion is a taxable event, there are a few things you might want to consider first. When converting assets from a traditional IRA to a Roth IRA, there are no income restrictions, and you don't have to convert the entire amount at once. Since you'll owe ordinary income taxes on any pre-tax amounts, partial conversions make it easier to spread out your tax payments over 2 or more years. To avoid paying a higher tax rate, you may want to consider converting an amount that keeps you in your current tax bracket. Depending on your home state, you may also have to pay state income taxes on a conversion.

Timing matters

Deciding when to convert often hinges on whether your tax rate will be higher now or in the future. If you believe your tax rate is lower now than it'll be when you start taking withdrawals, a conversion may be beneficial. You'll pay conversion income taxes now while you're in a lower tax bracket, and you'll enjoy tax-free Roth IRA withdrawals later when the higher tax bracket won't matter.

Ways to manage conversion taxes

If you're 73 or older, you'll need to satisfy your RMD before converting, which will result in a taxable event. However, taking advantage of a qualified charitable distribution (QCD) can help ease the overall tax burden associated with a conversion.

Tax deductions for charitable contributions and tax credits that might otherwise be carried into future years can also help offset the taxes generated by a conversion. The IRS requires you to use the combined total of all your IRAs, no matter which ones you're converting, to determine how much of the money is taxable.

5. Take advantage of charitable giving tax benefits

Charitable giving offers a way to financially support your favorite charities while enjoying tax benefits that accompany your generosity.

Charitable tax deductions

For charitable donations made by December 31, 2025, you can deduct up to 60% of your 2025 adjusted gross income (AGI) for cash gifts made to a qualifying charity (which excludes private foundations and supporting organizations). The deduction is usually limited to 30% of your AGI for noncash contributions such as appreciated stock gifts and donations to qualifying private foundations or organizations.

Qualified charitable distributions (QCDs)

If you're 70½ or older, you can take up to $108,000 annually from your traditional IRA to donate directly to a qualified charity without paying taxes—the QCD is simply excluded from your taxable income. If you're age 73 and don't need to live off your RMD income, the benefit is twofold—it can help you meet your RMD requirement and reap the tax benefits. You may have to withdraw more depending on your actual RMD amount.

Note: If you make a QCD, you won't be able to claim a charitable deduction with those same assets.

The Secure Act 2.0—signed into law in December 2022—includes a onetime election for a QCD to a split-interest entity. This allows you to make a QCD of up to $54,000 to fund either a charitable remainder unitrust (CRUT), charitable remainder annuity trust (CRAT), or charitable gift annuity (CGA). Consult your tax advisor and estate planner to see if this makes sense for you.

Interested in giving more? Check out Vanguard Charitable for additional ideas.

6. Assess your investment portfolio and asset mix

The end of the year is a good time to check your asset allocation and rebalance your portfolio if needed. Assess whether your current allocation is right for your goals or if you need to shift your portfolio to be more conservative or aggressive, depending on your risk tolerance and goal time horizon. You'll also want to check if there are opportunities to consolidate any similar investments within an account or add any investment types you might be missing to balance out your mix. While reviewing your asset allocation, consider whether you have any realized capital gains this year, as you may benefit from tax-loss harvesting.²

It's also a good time to check on other savings accounts you may have, like a health savings account (HSA) or emergency fund. If you have an HSA to save for medical expenses, it’s a good idea to max out your contributions. Investing early lets you take full advantage of tax-advantaged compounding. The biggest advantage of HSAs is their triple tax benefit: Contributions can be tax-deductible, your savings grow tax-free within the account, and qualified withdrawals are tax-free.³

If you haven't already, you might want to consider setting money aside as an emergency fund for unexpected events. It's also good to replenish your emergency savings if you've had to tap into them.

7. Review your insurance and beneficiaries

The end of the year is a good time to make sure you're up to date on the following:

• Update your beneficiaries if necessary.
• Review your insurance policies, like homeowners, auto, life, and more.
• Review your health insurance or Medicare elections and update them if needed during the open enrollment period.

If you're not sure whether the tax scenarios mentioned in this article are right for you, we encourage you to contact a tax professional or visit our tax center and review commonly asked tax questions.