Top 5 Things To Do Now!
- SRIDHAR KRISHNAN, CFP®, MBA
- Mar 17
- 4 min read
The tax deadline for filing 2024 taxes is April 15, 2025 (Tuesday). Besides filing taxes on time or filing for an extension, you should look into these five tasks to stay on course.
Adjust your payroll withholding with W-4. Depending on changes to your family situation, income-level, mortgage and other changes, make sure that the tax withholding is in line with the estimated taxes for the year. Typically, change of job or having multiple sources of income, increase in stock compensation such as RSUs, purchase of a new house will require you to update the IRS Form W-4 in the employer's payroll site. If you find that you owe a considerable amount to the IRS when you file your tax return, you will be better off increasing "extra withholding" in line 4(c) of W-4. A similar adjustment should be made to the state withholding such as California State Employee’s Withholding Allowance Certificate.
Do Backdoor Roth IRA Conversion. If you/your spouse do not have Traditional IRA accounts, you and your spouse each can contribute a non-deductible $7,000 ($8,000 if you are age 50 or over) for the year 2024 before the tax deadline and convert to a Roth IRA. This process is also called backdoor IRA conversion. You must file IRS form 8606 for any non-deductible contribution in your 2024 taxes. You can perform the conversion anytime later but there is no deadline. However, if your projected income (MAGI - typically line 11 on your IRS Form 1040) for 2024 is less than $230,000 for married filing jointly (MFJ) ($146,000 for single), you and your spouse can contribute to Roth IRA directly even if you/your spouse have an employer-sponsored such as 401(k) or 403(b) plans. There are two caveats to backdoor Roth: 1) you or your spouse must have earned income to the extent of the contributions and 2) each one performing the Backdoor Roth conversion should not have any IRA accounts in order to avoid triggering "IRS pro rata rule" resulting in additional taxes. There is a misconception that only a working spouse can contribute to IRA or Roth IRA. As long as the income exceeds the total contribution amount, both of you can contribute to their IRAs.
There are similar income (MAGI) limits for contributing to deductible IRA contributions i.e. contributing and taking a tax deduction. However, saving money in Roth IRA over deductible IRA for the tax-free growth of Roth IRA is far more advantageous in the long run.
Adjust Retirement Contributions for 2025. The limit for employer-based retirement accounts such as 401(k), 403(b), 457 plans have been increased to $23,500 for 2025. The catch-up amount for age 50+ remains $7,500 with a maximum contribution limit of $31,000 for 2025. If you are between ages of 60 to 63, you can maximize the catch-up contribution to $11,250 for 2025 thus saving $34,750 in your regular 401(k). If you need to make adjustments to maximize your contributions or increase the contributions, this may be a good time. If you had increased the contribution towards the end of the year to maximize 2024 contributions, you may want to scale it down so that your contributions are made throughout the year for consistent cash flow from your payroll. Also, this may be a good time to decide your ratio of Pretax 401(k) vs. Roth 401(k) contributions depending on your marginal tax bracket now vs. projected tax bracket in the future. If you tax bracket is 24% or less, you will be better off saving in a Roth 401(k) account for tax-free growth and withdrawals in your retirement.
Maximize After-Tax 401(k) Contributions. If your employer allows After-Tax 401(k) contributions that can be converted to Roth, also called Mega Backdoor conversions, you want to contribute to the extent your cash flow permits. Check if your employer has included this benefit if it did not exist in 2024. This is an excellent way to save for the retirement in a tax-free Roth account. The total contribution limit on both employee and employer contributions have been increased to $70,000 in 2025 for anyone under age 50, $77,500 for age 50 or over and $81,250 for ages 60-63.
Q1 Estimated Taxes: April 15, 2025 is also the deadline for paying the first quarterly estimated taxes for 2025. Estimated taxes are due not only for self-employed but also for people who sold stocks for gains between January to March (Q1), or received extraordinary income due to RSUs vesting or performed a Roth conversion. Typically, the income withholding from the RSUs is set to default of 22% by the employer. However, you/your spouse may have a joint income that is in the higher bracket for 2025 which will require you to pay estimated taxes. and avoid a penalty. Your tax accountant should be able to calculate the payment amount due each quarter. The very first quarterly payment is due on April 15 same day as the tax-deadline.
Having completed the above tasks, you may want to review your contributions to your HSA plan, College Savings (529-Plan) for your children, personal savings and other goals. If your goal is to get clarity on your finances and build a secure financial future, please schedule a no-obligation, free initial consultation.
Disclaimer: This write-up is for educational purposes only and it is not a personal advice.
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