If you’ve noticed that Mother Nature has decorated your neighborhood for autumn, this may remind you that a calendar change is coming around the corner soon.
Whether your fall pastimes include enjoying pumpkin lattes or cheering on your favorite football teams, you should also set aside time for year-end planning. The following are some financial strategies to consider.
Income tax
If you anticipate being in a lower taxable income bracket:
• Defer income and the sale of capital gains property to postpone taxable income to the following year
• Bunch your itemized medical expenses in the current year to meet the threshold percentage of your adjusted gross income to claim such deductions
• Make your January mortgage payment in December so you can deduct the interest
If you anticipate being in a higher taxable income bracket:
• Accelerate income and the sale of capital gains property to receive taxable income in the current tax year
• Make your January mortgage payment after January 1 so you can deduct the interest on your next year’s tax return
Additional income tax considerations:
• Increase your W-2 federal withholding amount in preparation for a significant tax bill or to avoid the under-withholding tax penalty
• Determine if you are subject to the alternative minimum tax by speaking with your tax advisor before deferring or accelerating income and/or deductions
Retirement investing
• Maximize your IRA contributions—if you are 50+, take advantage of catching up on IRA contributions
• Increase or maximize your 401(k) and other retirement account contributions
• Confirm with your tax advisor that you have withdrawn the appropriate amount as required minimum distributions (RMDs)—note that the required beginning date for RMDs increased to age 73 on January 1, 2023
• If you’re between your 20s and 40s, you’ll want to focus on building your wealth by increasing your savings, lowering your debt and taking advantage of compounding interest—also, see the New Investors’ Nook elsewhere in this newsletter for more tips.
Gifting strategies
Gifting to loved ones:
• Consider making gifts up to $18,000 per person as allowed under the federal annual gift tax exclusion, using assets likely to appreciate
Gifting to charity:
• Make charitable donations before December 31, keeping all your receipts
• Use appreciated stock instead of cash to contribute to nonprofits to help avoid income tax on the built-in stock gain while maximizing your charitable deduction
• If you are over 70 1/2, consider donating from your IRA as you can gift up to $100,000 annually to qualified charities using a qualified charitable distribution (QCD)—you can avoid taxes through a direct transfer of funds from your IRA custodian to qualified charities, which is a particularly effective way to direct your RMDs
• Set up a donor-advised fund (DAF) for an immediate income tax deduction and providing immediate and future benefits
• Consider bunching several years of charitable contributions into one year with a gift to a DAF to make your contributions more tax efficient
• Annual gift exclusion for 2024 is $18,000 and the QCD limit for gifts from your IRA is $105,000
These are only some items to consider. For more year-end tips fitting your situation and goals, contact your financial advisor.
Contact your financial advisor for help and remember to ask about the sunsetting tax acts.
New Investors’ Nook
Priorities for now and later
You probably know what your own financial goals are, but have you ever wondered what others prioritize? A recent RBC Wealth Management – U.S. survey of high-net-worth and high-earning millennials showed that 72% listed their top financial priorities as:
1. Paying off debt
2. Establishing an emergency fund
3. Maxing out an employer-sponsored 401(k)
These are fundamental steps toward a fulfilling financial future. It is an unfortunate reality, however, that finances can become more complex as life changes. Buying a house, starting a family and caring for aging parents can all have an impact.
Whether you’re encountering big changes to your finances in 2024 or not, year-end is a good time to talk to your financial advisor about these and other goals you want to work toward in 2025.