5 Year-End Moves to Help Retirees Trim Their Tax Bill
The end of the year is a great time to start thinking about next year's tax bill. Here are some strategies on how to reduce what you will owe Uncle Sam.


Just because you already filed your tax return doesn't mean you're done with taxes for the year. Smart taxpayers think about how to reduce their tax bill all year long. The end of the year is a particularly good time to cut next year's tax bill to the bone. Here are a few moves retirees and people nearing retirement should consider before 2022 arrives.

Max Out Retirement Savings Accounts
If you haven't retired, contribute as much as possible to your retirement accounts this year. If you're still working, you can contribute up to $19,500 to a 401(k) for 2021 ($26,000 if you're age 50 and older). But you need to do so before the end of the year.
This year's contribution limit for IRAs is $6,000 ($7,000 if you're at least 50 years old). When income exceeds $125,000 for singles or $198,000 for married couples filing jointly, the 2021 contribution amount for a Roth IRA is gradually reduced -- eventually to zero when income hits $140,000 for singles or $208,000 for joint filers. You have until April 18, 2022, to contribute to an IRA for the 2021 tax year, but why wait? Max out your IRA account by New Year's Eve if you can.
Contributions to a traditional IRA are generally deductible, too. The deduction is phased out if you participate in an employer's retirement plan and your 2021 income exceeds $66,000 (singles) or $105,000 ( joint filers) and is eliminated once your income reaches $76,000 or $125,000, respectively. You generally need earned income to put money in an IRA. If you're retired, a spouse who is still working can contribute to a "spousal IRA" for you.

Pay 2021 Taxes with RMDs
If you don't have taxes withheld from your traditional IRA withdrawals or Social Security benefits, or if you have taxable income from interest, dividends or some other non-wage source, wait until December to take your required minimum distribution if possible. Then have enough withheld from the RMD to cover taxes on other income. That saves you the hassle of making estimated tax payments during the year.

Donate with QCDs
If you're in a giving mood, consider using a qualified charitable distribution to donate IRA funds to charity. Seniors at least 70½ years old can transfer up to $100,000 directly from a traditional IRA to charity with a QCD without raising their adjusted gross income. A lower AGI can keep the tax on Social Security benefits in check and help you qualify for other income-based deductions. A QCD can count as your RMD, too. That makes it a powerful tool for generous retirees.

Sell Some Stock
There's no tax on 2021 capital gains for a married couple filing jointly with a taxable income below $80,800 ($40,400 for singles). If your income meets that threshold and you own stock that has increased in value, consider selling it to take advantage of the 0% capital gains tax rate for shares held at least one year. For example, if your joint income is $75,000, you can realize up to $5,800 in capital gains from the sale of stock and not owe any tax on that profit.
You might also sell stock that has decreased in value and use your losses to offset taxable capital gains to reduce your tax bill. Note that short-term gains are first offset with short-term losses, and long-term gains with long-term losses, but then any remaining losses can be used to offset the opposite kind of gain. After that, up to $3,000 of any losses left can be used to offset ordinary income. Any remaining losses can be rolled over to the next year.

Give Money to Family and Friends
You can give up to $15,000 to any person during the year without having to file a gift tax return. If you're married, your spouse can also give $15,000 to the same person. Whatever you give away this year (up to the $15,000 per person limit) won't be counted for estate tax purposes when you die. But you must make your gifts before the end of the year, and the gift checks must be deposited by Dec. 31.
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Rocky Mengle was a Senior Tax Editor for Kiplinger from October 2018 to January 2023 with more than 20 years of experience covering federal and state tax developments. Before coming to Kiplinger, Rocky worked for Wolters Kluwer Tax & Accounting, and Kleinrock Publishing, where he provided breaking news and guidance for CPAs, tax attorneys, and other tax professionals. He has also been quoted as an expert by USA Today, Forbes, U.S. News & World Report, Reuters, Accounting Today, and other media outlets. Rocky holds a law degree from the University of Connecticut and a B.A. in History from Salisbury University.
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