Stop putting money in 401(k)s, and other year-end advice from tax expert Ed Slott

The election and all its uncertainty is over. The end of 2024 is quickly approaching.

It's time to think about retirement tax planning before a new year and new administration sweep in. 

Better yet, time to check in with retirement expert Ed Slott and hear his thoughts.  

“It looks like a pretty good shot that the tax cuts will be extended for several more years,” said Slott, founder of Ed Slott and Company. “That gives people more time to pull money out of their retirement accounts at these historically low tax rates and big brackets.” 

That doesn’t necessarily mean one must complete a Roth conversion before the ball drops in Times Square. There is no deadline for a Roth conversion to be completed. Still, if one wants the conversion to count for this year, then the money needs to leave the IRA in 2024.

“Before the election we were saying that after 2025, the tax cuts go away. But now you may have a bigger horizon to start stockpiling in vehicles like Roths where they grow tax free,” Slott said. 

As for required minimum distributions (RMDs), Slott advises his clients to take more than the minimum. In fact, he’s a fan of pulling out the maximum amount whenever possible.

“If you don't use these low brackets, then they are wasted,” Slott said. “Even before RMDs start, which start at age 73, even in your 60s, even if it's voluntary.”

This is also the time of year when Americans think about giving to charity. And when it comes to qualified charitable distributions (QCDs), Slott said most people no longer receive tax benefits from their charitable donations because they take the standard deduction. He points out that by using the QCD, a charitably-minded person is able to transfer money out of an account without being taxed, once again taking advantage of low rates.

“The only downside about a QCD is that it's not available to enough people. It's only available to IRA owners who are 70.5 years old or older,” Slott added.  

Finally, on the topic of year-end retirement tax planning moves to avoid, Slott emphatically advises against contributing to 401(k)s and IRAs.

“Why would you keep building a taxable account where when we're in a low tax rate environment?” he said.  

“When I tell people to stop contributing to their 401(k)s, they always ask about the deduction. But it's not a real deduction. It's just a loan you're taking from the government to be paid back at the worst possible time, in retirement.”