2024 Year-End Planning: Keep Calm and Plan On

Review your contributions to retirement plans and health savings account (HSA) contributions annually. Doing so can help your income tax situation for the year and enhance the state of your overall financial plan. 

If you have education expenses to pay for, a 529 education savings plan allows for tax-free growth of contributions, and tax-free withdrawals if used properly. 

You can also consider making annual exclusion gifts ($18,000 for individuals or $36,000 for married couples) before the end of each year without counting against your lifetime federal estate and gift tax exemption.  

Many provisions of the Tax Cuts and Jobs Act of 2017 (TCJA) are due to sunset (or expire) at the end of 2025, which means:

• Income tax rates on taxable income will increase for most taxpayers.
  
  
• You could also see the expiration the qualified business income (QBI) tax deduction of up to 20%.
  
  
• Absent new legislation, the high exemption thresholds ($13.61 million per individual or $27.22 million per married couple) could be significantly reduced to a pre-2017 level of $5 million, adjusted for inflation (approximately $7 million per person).
  
  
• Designated beneficiaries who inherited a retirement account from an account owner who died in 2020 or later may now have to start taking distributions from their inherited account, which will be taxable income to them (unless the account is a designated Roth account).

Higher-than-expected income for the year?

Look for opportunities to reduce some of that taxable income before the year is out. 

• Take advantage of investment losses by selling underperforming assets (known as tax-loss harvesting) to help offset some, or all, of the capital gains you have realized during the year. 
  
• Give to charity—provide several years of charitable contributions in one tax year (known as bunching) allows for a larger charitable donation in one year that may allow you to itemize your deductions to gain an income tax benefit.
  
• Make a qualified charitable distribution (QCD) from your IRA—if you are at least age 70 ½, the amount transferred ($105,000 in 2024) can be counted toward your required minimum distribution (RMD), if you are subject to it, without adding to your annual taxable income. 
  

Lower than expected income for the year?

It may be prudent to accelerate income into the current year.

• Lock in capital gains on stocks that performed well to help lower your overall tax.
  
• Proactively take distributions from your retirement plan (if eligible and not subject to penalty), which could be beneficial when you ultimately need to start your RMDs, effectively lowering your required distribution when the time comes. 
  
• Consider a Roth IRA conversion in a year with lower income. 
  
• Accelerate or delay certain tax deductions. For example, it may be beneficial to make large charitable contributions or improvements to your investment real estate in a higher taxable income year.

In 2024, many investors have benefited from positive market performance. That could mean your investment portfolio has become overweighted in some asset classes and perhaps underweighted in other asset classes. Year end is a good time to get together with your investment advisor to determine if there were any outperforming asset classes during the year, possibly harvest some capital gains, and reallocate your portfolio back to its target allocation. This should be implemented with your income tax situation in mind, and in conjunction with your overall financial plan. 

Over the last couple of years, interest rates have risen as the Federal Reserve attempted to tame inflation. However, as we approach the end of 2024, there is optimism that interest rates will begin to move in the opposite direction. The anticipation of interest rate cuts presents a chance to review your outstanding debt, particularly loans that were taken during a high interest rate period and evaluate whether a refinancing makes sense. Or, establishing a line of credit, which may have a variable rate tied to it, could prove beneficial as borrowing money becomes cheaper.  

An annual review offers opportunities to make adjustments for new circumstances.  For example, if your asset levels have increased a review can help ensure your bequests have the impact you intend. Or if you plan to leave a retirement account to a charitable beneficiary, is the value of that account now overfunding your philanthropic goals? 

It’s also important to review beneficiary designations. Any life changes, including marriage, divorce, a birth, or death to ensure that there are no unintended consequences such as an ex-spouse inheriting assets if they are still listed as a beneficiary post-divorce, or minor children inheriting assets directly.  

As the end of 2024 approaches, now is the time to engage in a year-end review of your current estate plan (or a perfect time to create an estate plan if you do not already have one in place) to help ensure it aligns with your personal, business, and financial needs and goals. Changes in personal, family, and financial circumstances amid an uncertain economic climate and a changing tax environment can have a direct impact on your estate plan. A planning strategy that was good for you in 2023 may not be the most suitable plan for you now. Revisiting your estate plan on an annual basis can help you identify planning opportunities that better suit your current situation and provide for as much flexibility as possible.