Key Year-End Financial Moves for W-2 Earners

Year-End Financial Moves for W-2 Earners

As the year comes to a close, it’s the perfect time for high-income professionals to review their finances and make sure they’re taking advantage of every opportunity to reduce taxes, boost savings, and finish the year strong.

Here are key year-end moves W-2 earners should consider before December 31.

1. Max Out Your Retirement Plan

If you’re contributing to a 401(k), 403(b), or 457 plan, make sure you’ve hit the maximum contribution limit for 2025:

• $23,500 if you’re under 50

• $7,500 catch-up contribution if you’re age 50 or older (total of $31,000)

• “Super” catch-up contribution available for those aged 60–63, allowing up to $11,250 in additional contributions (for a total of $34,750)

If you receive a year-end bonus or expect extra income, it’s worth increasing your final paycheck deferrals to hit the max before December 31.

2. Take Advantage of the “Super Backdoor Roth”

If your employer plan allows after-tax contributions beyond the standard 401(k) limit, you could use what’s known as the Super Backdoor Roth strategy.

Here’s how it works:

• You contribute after-tax dollars into your 401(k) (beyond your normal pre-tax or Roth contributions).

• Then, you roll those after-tax dollars into a Roth IRA or Roth 401(k), where they grow tax-free.

For 2025, the total combined employee + employer contribution limit for those under 50 is $70,000, which means high earners could move a significant amount into Roth accounts with the right setup.

If your plan allows for in-plan Roth conversions or after-tax rollovers, this is a strategy worth exploring before year-end.

3. Max Out Your Health Savings Account (HSA)

If you’re enrolled in a high-deductible health plan (HDHP), make sure you’ve contributed the full amount to your HSA before year-end.

For 2025, the HSA contribution limits are:

• $4,300 for individuals

• $8,550 for families

• $1,000 catch-up contribution if age 55 or older

HSAs are one of the most powerful tax-advantaged accounts available — contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free.

4. Review Your Tax Projection and Safe Harbor

Now’s the time to run a year-end tax projection to make sure you’ve withheld enough taxes to meet safe harbor rules.

Generally, you’ll avoid underpayment penalties if you’ve paid in at least:

• 90% of your 2025 tax liability, or

• 100% of your 2024 tax liability (110% if your income exceeded $150,000)

If you’re behind on withholding, you can adjust your W-2 withholdings before year-end or make an estimated payment by January 15, 2026.

This is also the time to review if Roth conversions, charitable contributions, or capital gains harvesting make sense before the year closes.

5. Use Up Flexible Spending Account (FSA) Funds

If you have a healthcare or dependent care FSA, review your balance and eligible expenses. Most plans have a “use it or lose it” rule by year-end or allow only a small carryover amount ($660 limit for 2025).

Check with your HR department to confirm your plan’s deadline and schedule any remaining appointments or expenses before December 31.

6. Check Charitable Contributions and Gifting

If you’re charitably inclined, consider donating cash, appreciated stock, or setting up a donor-advised fund (DAF) before year-end to secure 2025 deductions.

You can also give up to $19,000 per person in tax-free gifts to family members or loved ones without touching your lifetime exemption — a great way to reduce future estate taxes while supporting your family now.

7. Rebalance Your Portfolio and Review Cash Reserves

Market movements throughout the year can throw your allocation out of balance. Rebalancing your portfolio before year-end helps ensure it reflects your current goals and risk tolerance.

It’s also a good time to make sure your emergency fund and cash reserves are adequate. Ideally, 6–12 months of expenses if you’re still working, or more if retirement is approaching.

Final Thoughts

Year-end is your opportunity to make intentional financial moves that can strengthen your long-term plan and reduce next year’s tax burden. By maxing out your accounts, reviewing your tax situation, and wrapping up key benefit decisions, you’ll start the new year in control of your financial life.

- Steve Balch, CFP®

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Frequently Asked Questions About Year-End Planning for W-2 Earners

What is the 401(k) contribution limit for 2025?

In 2025, you can contribute up to $23,500 to your 401(k), 403(b), or 457 plan.If you’re age 50 or older, you can add a $7,500 catch-up contribution, bringing your total to $31,000.If you’re age 60–63, you qualify for the new “super” catch-up contribution of $11,250, allowing up to $34,750 in total contributions.

What is the total 401(k) contribution limit, including employer matches?

The total combined limit for employee and employer contributions in 2025 is $70,000 (or $77,500 if you’re age 50+ with a catch-up and $81,250 if you are 60-63).

What is the Super Backdoor Roth strategy?

The Super Backdoor Roth allows high-income earners to make after-tax contributions to a 401(k) beyond the regular pre-tax or Roth limits, then roll those funds into a Roth IRA or Roth 401(k). This creates additional tax-free growth opportunities. It’s best used if your employer plan allows after-tax contributions and in-plan Roth conversions.

How much can I contribute to a Health Savings Account (HSA) in 2025?

For 2025, HSA limits are $4,300 for individuals and $8,550 for families, plus a $1,000 catch-up contribution if you’re age 55 or older.

What is the safe harbor rule for estimated taxes?

You’ll generally avoid underpayment penalties if you’ve paid at least:

• 90% of your 2025 total tax liability, or

• 100% of your 2024 tax liability (110% if your income exceeded $150,000).

The final estimated tax payment is due January 15, 2026.

What happens if I don’t use my FSA funds by year-end?

Most Flexible Spending Accounts (FSAs) are “use it or lose it.” Unused funds may be forfeited unless your plan allows a small carryover (often around $660). Be sure to use your remaining balance before December 31 or check your plan’s grace period rules.

What other year-end planning steps should W-2 earners take?

Before year-end, you should:

• Review your benefits and insurance coverage during open enrollment

• Check your charitable contributions and gifting for tax efficiency

• Rebalance your portfolio and confirm your emergency fund is adequate