Year-End Tax Planning for Your 401(k), HSA, and Bonus Withholding

The end of the year is approaching, and if you’re a high earner with bonuses or retirement accounts, there are a few things worth reviewing before the calendar flips that can help set you up better for next year.

Can I lose my employer 401(k) match if I get a bonus?

If you’re contributing a percentage from every paycheck including your bonus, you could max out your 401(k) contributions partway through the year—sometimes as early as July or August. Once you hit the contribution limit, your contributions stop. In some 401(k) plans, when your contributions stop, your employer match stops too.

A client came to us confused by her pay stub change. When we reviewed it, we found she’d maxed out her 401(k) in July with her annual bonus. She was missing out on five months of employer contributions—close to $5,000 in her case. Since her 401(k) plan didn’t have true-up provisions at year-end, that matching was gone.

One approach we use with clients who receive bonuses is to contribute a specific dollar amount from each regular paycheck instead of contributing a percentage from their bonus. This spreads contributions evenly throughout the year and may help ensure you receive your full employer match.

If you’re thinking about making this change, year-end is a good time to set it up for January 1st.

Should I increase my 401(k) contribution?

Contribution limits for retirement plans have been increasing steadily—an average of about $600 per year over the past decade, with recent years seeing even higher increases.

If you set your contribution percentage several years ago and haven’t adjusted it, you could be missing opportunities to save more for retirement. While you’re reviewing your contribution strategy, it’s worth checking whether your current contributions are taking advantage of the higher limits.

Should I increase my HSA contribution?

If you have a Health Savings Account, there’s a similar consideration.

Your HSA might not seem as significant as your 401(k), but it’s one of the most tax-efficient accounts available. Contribution limits here have been increasing about $60 per year on average over the past decade. While that might not sound like much, compounded over time, those increases can add up to meaningful savings for healthcare costs.

The same bonus timing issue can apply to HSAs. If your employer matches HSA contributions and doesn’t have true-up provisions, front-loading from a bonus could mean missing matching for the rest of the year.

Why is my bonus withholding too low?

This is a question I hear from professionals who are surprised by what they owe the IRS in April.

Bonuses are often withheld at a flat supplemental rate—sometimes 22%—which may be well below your actual marginal tax rate if you’re a high earner. Your bonus feels great when it hits your account, but April arrives and you may be writing a substantial check to the IRS.

One strategy we use is to work with clients to model out their total tax picture for the year, including bonuses. Sometimes that means increasing withholding on the bonus itself. Sometimes it means adjusting withholding on regular paychecks. Sometimes it means setting up quarterly estimated tax payments. Sometimes it means setting up a separate tax savings account so you have funds set aside for your tax bill when you file.

The right approach depends on your specific situation, but the goal is the same: fewer surprises in April.

What should I review before year-end?

If you receive bonuses and contribute to retirement accounts, there are a few things worth thinking through before December 31st.

Review whether you maxed out your 401(k) partway through this year and missed employer matching. If that happened, consider whether a different contribution approach may make sense for next year.

Check your contribution amounts against the current limits. If you’re not taking full advantage of what you can contribute, now is a good time to adjust your payroll deductions.

Think about your total tax picture including bonuses. Consider whether your withholding strategy is appropriate for your situation, or if adjustments might help you avoid surprises next April.

Year-end tax planning for retirement accounts and bonuses isn’t the most exciting work, but reviewing these details can help you avoid leaving money on the table.

Working with a financial planner on year-end planning

If you’re dealing with bonuses, stock compensation, or multiple retirement accounts and you’re not sure what considerations apply to your situation, this is what we help clients work through.

At CapSouth Wealth Management, we work with clients on tax planning as part of comprehensive financial planning. This involves looking at how different financial decisions connect, and planning proactively throughout the year rather than reacting at year-end.

If you’d like to talk through your situation, let’s schedule a time: https://capsouthwm.com/connect-with-us/

Investment advisory services are offered through CapSouth Partners, Inc, dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable. CapSouth does not guarantee the accuracy or completeness of the information. This material has been prepared for planning purposes only and is not intended as specific tax or legal advice. CapSouth does not offer tax, accounting or legal advice. Please consult your tax or legal advisor to discuss your specific situation before making any decisions that may have tax or legal consequences. This article was produced with the assistance of Claude Sonnet 4.5 (Dec25), an artificial intelligence model developed by Anthropic PBC. CapSouth is not affiliated with Anthropic.