As the year draws to a close, it’s crucial to review your tax situation with the goal of identifying applicable tax-planning strategies. As a part of our annual service calendar to clients, TFG takes the time to review your portfolio and recommend many of these strategies if they are applicable to your situation. Now that the filing deadline for 2023 Tax Returns has passed, and 2024 tax circumstances are mostly finalized, now is a final opportunity to take advantage of these tax and estate focused planning strategies.
Here are ten key approaches that could help you minimize your tax burden and maximize your wealth over the long term:
Diversify Your Tax Exposure
Consider spreading your investments across different types of accounts: pre-tax (like traditional IRAs), after-tax (like regular brokerage accounts), and Roth accounts. This diversity gives you more control over your tax situation in retirement and can help reduce your lifetime tax burden.
Consider Roth Conversions
With tax rates potentially increasing after 2025 when the Tax Cuts and Jobs Act provisions sunset, now might be an optimal time to convert some of your traditional retirement accounts to Roth accounts. While you’ll pay taxes on the conversion now, future withdrawals will betax-free, potentially saving you money in the long run.
Strategic Investment Selling
Your advisor can help you strategically sell investments to minimize taxes. For married couples filing jointly in 2024, you may qualify for a 0% long-term capital gains rate if your taxable income is below $94,050, or a 15% rate if it’s below $583,750. This creates opportunities to realize gains at lower tax rates, and potentially chip away at large, concentrated stock positions.
Maximize Employee Benefits
During your company’s open enrollment period, review all available benefits. Many employers now offer both traditional and Roth 401(k) options, and some even allow for automatic daily conversion of after-tax contributions to Roth accounts. If you’re a high earner, investigate whether your employer offers deferred compensation plans, which can help manage your tax burden today, while providing you an income stream in the years immediately following your retirement.
Boost Retirement Contributions
In 2024, you can contribute up to $69,000 total to your 401(k) when including employercontributions. If you’re over 50, you can add another $7,500 in catch-up contributions.Consider maximizing these tax-advantaged opportunities, potentially including both traditionaland Roth options based on your situation.
Take Advantage of Health Savings Accounts
If you have a high-deductible health plan, an HSA offers triple tax advantages: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses.In 2024, you can contribute up to $4,150 for individual coverage or $8,300 for family coverage.
Plan Your Retirement Distributions
Work with your advisor to create a tax-efficient strategy for withdrawing from your retirement accounts. This might include coordinating between different account types, timing your SocialSecurity benefits, and planning Roth conversions to minimize your tax burden throughout retirement.
Evaluate Annuity Opportunities
With interest rates at their highest levels in years, now might be an excellent time to consider annuities, particularly Qualified Longevity Annuity Contracts (QLACs). These special contracts allow you to invest up to $200,000 from your retirement accounts and delay distributions until age 85, potentially reducing your required minimum distributions (RMDs) and providing guaranteed income later in life.
Consider Additional Charitable Giving
If you normally itemize your tax deductions (rather than taking the Standard Deduction, which is $29,200 in 2024), then charitable giving can be a great way to increase your current year deduction. Cash gifts are not the only available option. Most charities allow taxpayers to gift shares of highly appreciated stock directly to the charity, allowing the donor to avoid realizing capital gains tax from selling the shares.
Consider Estate Planning Strategies
Take advantage of annual gift exclusions ($18,000 per recipient in 2024, or $36,000 for married couples) to reduce your taxable estate. For larger estates, consider more sophisticated strategies such as:
- Qualified Personal Residence Trusts (QPRTs) for transferring your home to beneficiaries
- Spousal Lifetime Access Trusts (SLATs) for transferring assets while maintaining indirectaccess through your spouse
- Charitable Remainder Trusts for balancing charitable goals with income needs
- Grantor Retained Annuity Trusts (GRATs) for transferring appreciation on assets to beneficiaries
Next Steps
As your advisor, TFG is constantly evaluating which of these strategies might be most beneficial for your specific situation. If one of these strategies seems to be one that could be beneficial for your situation, feel free to reach out to our team to discuss it further. While tax planning can be complex, implementing the right strategies can significantly impact your long-term financial success. implementing the right strategies can significantly impact your long-term financial success.
