Year-End Tax Tips: IRA Limit Hits $7,500—Moves Experts Say to Make Before December 31

Americans have until 31 December to complete several tax-planning moves that could affect their 2026 tax bills. Selling investments at a loss and converting traditional retirement savings to a Roth account may require year-end action. However, eligible IRA contributions can generally be made until the federal tax-filing deadline in 2027.

Understanding these deadlines could help taxpayers avoid penalties and make informed financial decisions before filing their 2026 returns.

1. Review Retirement Contributions

The individual retirement account (IRA) contribution limit for 2026 is $7,500, up from $7,000 in 2025. Eligible individuals aged 50 and over can contribute up to $8,600, including a $1,100 catch-up allowance. The employee contribution limit for 401(k) and 403(b) workplace plans is $24,500. Eligible workers aged 50 and over may contribute an additional $8,000, while those aged 60 to 63 may qualify for an $11,250 catch-up allowance.

In an episode of the Motley Fool Hidden Gems Investing podcast recorded on 3 October, Robert Brokamp and Amanda Kish discussed retirement contributions and other year-end tax decisions. Traditional IRA contributions may be deductible, depending on income and workplace retirement plan coverage. Roth IRA contributions are not deductible upfront, but qualified withdrawals can be tax-free. Eligible 2026 IRA contributions can generally be made until the federal filing deadline in 2027, excluding extensions.

2. Consider Tax-Loss Harvesting

Investors with taxable brokerage accounts may offset capital gains by selling investments that have fallen in value. This strategy, known as tax-loss harvesting, generally requires sales by 31 December to affect the 2026 tax year. If losses exceed gains, taxpayers can generally deduct up to $3,000 of net capital losses against ordinary income annually, or $1,500 if married filing separately. Unused losses can generally be carried forward.

The IRS wash-sale rule can disallow a loss if an investor buys substantially identical securities within 30 days before or after selling at a loss. Transactions involving a spouse's account or certain retirement accounts can also affect the tax treatment.

3. Check Tax Withholding and Estimated Payments

A job change, bonus, property sale, or freelance income can leave taxpayers facing an unexpected bill. Reviewing withholding before year-end may help identify a shortfall and reduce underpayment penalties.

The general estimated-tax safe harbour requires payment of at least 90% of the current year's tax liability or 100% of the previous year's liability. The previous-year threshold generally rises to 110% for taxpayers with adjusted gross income above $150,000, or $75,000 for married people filing separately. The fourth estimated tax payment for 2026 is generally due on 15 January 2027, not 31 December.

4. Understand Charitable Giving Rules

New federal rules for 2026 allow eligible taxpayers who do not itemise deductions to claim up to $1,000 for qualifying cash donations to eligible charities, or $2,000 for married couples filing jointly. Donations to donor-advised funds and supporting organisations do not qualify for this deduction. Taxpayers who itemise can deduct charitable contributions only to the extent that they exceed 0.5% of adjusted gross income, subject to other limits.

Donating appreciated shares held for more than a year may also offer tax benefits. Eligible donors can generally deduct the fair market value of qualifying shares, subject to applicable limits, and may avoid capital gains tax on the appreciation.

5. Assess Roth Conversions

Converting money from a traditional retirement account to a Roth account generally creates taxable income in the year of conversion. To count towards 2026, the conversion generally must be completed by 31 December.

A conversion may make sense during a year of temporarily lower income. However, additional taxable income can affect tax brackets, deductions, credits, and income-related benefits. Taxpayers should weigh the immediate tax cost against potential future benefits, including tax-free qualified Roth withdrawals.

6. Check Required Retirement Withdrawals

People subject to required minimum distributions (RMDs) should confirm that they withdraw the correct amounts by the applicable deadlines. The general starting age is 73, although exceptions apply.

Missing an RMD can trigger an excise tax, although relief may be available. People taking their first RMD can generally delay it until 1 April of the following year. Their next RMD remains due by 31 December, potentially resulting in two taxable withdrawals in one tax year.

Know the Deadlines

Tax-loss harvesting, Roth conversions, and many RMDs require attention before the end of 2026. IRA contributions generally have a later deadline, while the fourth estimated tax payment is usually due on 15 January 2027. Checking the relevant rules and keeping accurate records can help taxpayers avoid missed deadlines and unexpected costs when filing their 2026 returns.