The clock’s ticking—year-end is prime time to supercharge your financial strategy.
With the December 31st deadline for Roth conversions, tax-loss harvesting, and capital gains planning, this is your moment to make smart, impactful moves.
Whether you’re gearing up for a sabbatical or just want to fine-tune your savings for the future, these strategies can give your financial plan a serious edge. At Middleton & Company, we’ve got the experience to help you navigate these decisions with confidence and clarity.
Ready to take charge of your finances? Let’s dive into how you can make the most of this year—and if a sabbatical’s on your horizon, set you up for a seamless journey.
Make sure to save this post for later! 📌 You can go back to it every year!
Tax Rate Management: Pay Taxes When Your Tax Rate is Lowest
Tax rate management means strategically controlling your income. This includes directing savings to specific types of accounts and managing the tax impact of your investment portfolio.
By targeting the three tax “buckets” (pre-tax, tax-free, and after-tax), you can achieve more flexibility for when you need it most—whether that’s during your sabbatical or later down the road.
✈️ For Sabbatical Planning
Flexibility is key. Allocating savings to accounts with different tax treatments lets you draw income strategically, avoid penalties (especially if you plan to draw from accounts prior to age 59 ½), and optimize tax efficiency when it matters most.
By targeting the three tax “buckets” (pre-tax, tax-free, and after-tax), you can achieve more flexibility for when you need it most—whether that’s during your sabbatical or later down the road.
“Year-end strategy is about using all the information we know about this year’s income, comparing it to previous years and expected income in future years, and deciding whether we want to intentionally generate or offset income to manage the overall tax rate. The goal of tax rate management is to pay taxes when your tax rate is lowest.”
6 Ways To Effectively Manage Your Tax Rate Before December 31st
Table of Contents
1. Harvest Tax Losses: Turn Losses Into Wins
Tax loss harvesting involves selling investments at a loss to offset gains, reducing your total taxable income.
➡️ We target $0 net capital gains. Because you pay taxes only on the difference between gains and losses, having a $0 net capital gain means you don’t pay tax on any of the gain.
How It Works:
- Sell investments that are at a loss.
- Reinvest the proceeds from the sale in similar (but not identical) investment to avoid the “wash sale” rule.
- Any losses you generate are first used to net against realized gains in the current year.
- Up to $3,000 net losses can offset income from other sources (like wages!)
- Any net losses greater than $3,000 can be carried forward to offset income in future tax years
✈️ For Sabbatical Planning
If you’re planning to fund your sabbatical in the next few years, tax loss harvesting allows you to rebalance your after-tax portfolio without a heavy tax hit. You can maintain your target risk level so that your sabbatical savings is available when you want to draw from it.
✅ Key Tip: After-tax accounts are particularly useful for sabbatical planning since they don’t have early withdrawal penalties.
2. Generate Capital Gains on Your Terms
Selling investments at a profit allows you to lock in gains and reset your basis. You can choose when and how much gain you are willing to take (and pay tax on!).
➡️ This strategy makes a lot of sense if you have large positions in individual stocks and need to diversify your portfolio to manage risk. It also helps mitigate any one position having so much embedded gain in it that the sale would result in a big tax hit.
How It Works:
- Decide how much gain you want to realize and identify high-performing investments to sell.
- Make sure to coordinate your sales with other income sources and be mindful of capital distributions to avoid crossing income-based thresholds and unintentionally triggering additional taxes.
✈️ For Sabbatical Planning
You can use the proceeds from the sale to fund your sabbatical. By selling investments now, you can set aside your sabbatical savings so that you don’t rely on retirement savings, which could be subject to early withdrawal penalties —perfect for funding your trip around the world!
✅ Key Tip: As you get closer to your departure date, consider reducing risk in the investment accounts you plan to use to fund your sabbatical.
3. Leverage Stock Options or Vested RSUs
A sell-off strategy for stock options or vested RSUs can help you manage risk, especially if your portfolio is overly concentrated in a single company’s stock.
➡️ If you have accumulated company stock over multiple years, it’s possible that it makes up a sizable percentage of your total investments. We consider anything above 5% of your total portfolio to be a “concentrated position”. Sometimes selling at a gain, even a large one, is still a good idea. This is to manage your risk since a good portion of your assets is tied to a single company.
How It Works:
- Understand what type of equity compensation you have and the restrictions associated with it (vesting schedules, black out dates, expiration dates, and trading restrictions).
- Sell at long-term capital gains rates when possible, and pay attention to tax gotchas (like NIIT, AMT and Medicare additional tax) when you’re at the higher income levels.
- Remember that other sources of income can impact the tax rate that the proceeds will be subject to.
✈️ For Sabbatical Planning:
A lower income year, like a sabbatical year, may allow you to sell your company stock and stay within the 0% capital gains tax bracket. You can use the proceeds to fund your sabbatical or reposition your investments for future growth.
✅ Key Tip: A sabbatical could be an ideal time to sell concentrated stock positions while keeping taxes low.
4. Convert to a Roth IRA for Tax-Free Growth
Roth conversions mean you transfer funds from a Traditional IRA (pre-tax) to a Roth IRA (tax-free), paying taxes now so future growth is tax-free.
➡️ If your income this year is lower than what you expect it to be in the future, doing a Roth conversion could allow you to pay tax on some of those pre-tax dollars at today’s lower rate, rather than later on when your income might be higher.
How It Works:
- Understand your current tax rate and where you fall in your marginal bracket.
- Choose how much additional income you are willing to pay tax on at that marginal rate.
- Transfer securities in-kind from your pre-tax account to your tax-free account.
- Use outside funds to pay the taxes, preserving your tax-advantaged balance.
✈️ For Sabbatical Planning:
By doing Roth conversions during a low-income year, you minimize taxes owed on that money, and help diversify the tax-treatment of your total investment portfolio.
✅ Key Tip: If you are under age 59 ½, be mindful of the 5-Year Rule, which requires holding the converted funds in a Roth IRA for five years before withdrawing penalty-free. Each conversion has its own five-year clock.
5. Manage Inherited IRAs Subject to the 10-Year Rule
Some Inherited IRAs come with a 10-year distribution requirement, meaning the full balance must be withdrawn within a decade.
➡️ Make sure you know if you need to take RMDs from your Inherited IRA. If so, at a minimum, you need to distribute that amount each year to avoid a 25% excise tax.
How It Works:
- Take at least the Required Minimum Distributions (RMDs) annually, if applicable.
- Determine if this is a relatively low, high, or normal income year for you.
- Choose how much additional income you are willing to pay tax on this year, knowing that you have a maximum of 10 years to distribute the entire account.
- If you’re in a low-income year, consider accelerating your distributions to take advantage of a lower tax rate.
- If you’re in your highest earning years, and expect your income to go down in the next few years, it may make sense to stick to the RMD to avoid pushing into a higher tax bracket.
✈️ For Sabbatical Planning:
You can use your sabbatical to strategically draw funds from an inherited IRA. By accelerating distributions during your low income year, you can potentially reduce your overall tax burden. And even better, distributions from an Inherited IRA may be a great way to fund your time away!
✅ Key Tip: Since this money cannot go directly back into your own retirement accounts for tax-deferred growth, you could also choose to reinvest it in an after-tax account to save for future goals.
6. Gift Generously Without Tax Hassles
The annual gift tax exclusion allows you to give up to $19,000 per recipient in 2025 without triggering taxes or additional filing requirements. And there is no annual gifting limit to charities!
➡️ If you plan to give more than the annual gift tax exclusion amount to a single individual, you could bridge your gift over two tax years. For example, give $19,000 in December 2025, and then give another $19,000 after January 1st to stay under 2026 annual gift tax exclusion for that year.
➡️ You don’t have to worry about the gift exemption if you’re donating to a 501(c)(3) organization.
How It Works:
- Consider donating stock rather than cash to maximize impact and reduce taxes.
- Transfer a highly appreciated stock or investment position from an after-tax investment account to an account registered to the named recipient. The recipient inherits your cost basis.
- When the recipient sells the investment, they pay capital gains tax on the difference between the inherited cost basis and the current price at their own tax rate.
- Charitable organizations are exempt from paying tax on the donated stock – so they get the full amount of the gift.
✈️ For Sabbatical Planning:
Even while you’re on sabbatical with reduced income, you can still give gifts. You can use your investment accounts that you accumulated during your higher earning years to give without detracting from your own priorities
✅ Key Tip: Sabbaticals are a great time to give generously while taking advantage of smart tax strategies.
💡 There are also actions you can take at the beginning of the year
such as reviewing your contribution to your employer retirement savings plan. Learn more here.
✈️ For Sabbatical Planning:
You may also want to check out the following blogs. Financial planning can help you fund your break in a smart and efficient way.
🔗 What should I do with my 401(k) when I leave for my sabbatical?
🔗 Understand your current employer-sponsored benefits before you quit your job
Your Year-End Game Plan: Plan with Purpose
Year-end tax planning is essential for keeping your financial health on track. Whether you’re gearing up for a sabbatical or simply looking to save more, smart strategies can reduce your tax bill, optimize investments, and boost future flexibility.
At Middleton & Company, we specialize in making your sabbatical dreams a reality. From planning and enjoying your time off to navigating the return, our expertise ensures you’re financially ready. Let’s make the most of low-income years and craft a strategy for sabbatical success—together.
📩 Email us at clientservices@middletonand.co
📅 Schedule your free discovery call today!
Let’s make your dream sabbatical a reality, while giving you peace of mind knowing your finances are in expert hands!
Originally published: December 2024. Last updated: November 2025.
KAILIE ABASCAL
Kailie is a Certified Financial Planner (CFP®) with a passion for helping clients navigate their financial strategies with creativity and confidence. Having lived in Cuba and Mexico, she brings a global perspective to her work, combining her diverse experiences with a deep understanding of financial goals. Kailie is dedicated to helping clients plan for sabbaticals and career breaks, ensuring these life changes are enriching without compromising long-term financial security.