Take Action on Year-End Financial Strategies
Posted on November 26, 2024
The fourth quarter offers many opportunities to fine-tune your finances and set yourself up for success in the coming year. For clients of The Trust Company, know that these first two topics are managed automatically by your portfolio manager.
Capital Gains and Losses
A strong year in the financial markets may present investors with substantial long-term realized gains. Tax loss “harvesting” can help you reduce your tax liability by selling investments that have lost value to offset realized gains from other investments. Review your portfolio with your investment manager to identify potential losses for harvest.
Concentrated Stock Positions
If you have a significant portion of your portfolio tied up in a single stock or a few stocks, the fourth quarter is a good time to evaluate this concentration risk. Diversifying your holdings can reduce your portfolio’s risk and improve long-term stability. If possible, consider selling the overweight positions in retirement accounts (IRAs) first to minimize capital gains. Assess your portfolio for concentrated stock positions and consider diversification strategies.
Gifting Strategies
To reduce your taxable estate in 2024, you can gift up to $18,000 per person without incurring gift taxes. You may also make unlimited direct payments on behalf of others for expenses such as tuition and medical expenses. Strategic gifting can be an effective way to transfer wealth to loved ones while decreasing your tax burden. December 31st is the deadline! Identify recipients now and complete gifts before year-end to utilize this year’s exclusion.
Charitable Giving
Charitable donations can provide significant tax benefits. Donating appreciated securities rather than cash allows you to avoid capital gains tax and claim a deduction for the full market value. If you are over age 70½, consider making a Qualified Charitable Distribution (QCD) from your IRA, which can satisfy your Required Minimum Distribution (RMD) and reduce your taxable income. Review your charitable giving strategy with your tax professional to maximize tax savings.
Retirement Accounts
Ensure that you are maximizing contributions to your 401(k)s, IRAs, or Roth IRAs. These contributions can reduce your taxable income while investing for a secure financial future. Be sure to make the maximum annual contributions into the right types of accounts for you.
Roth Conversions
If you anticipate being in a higher tax bracket in retirement, a Roth conversion may be right for you. By converting a portion of your traditional IRA to a Roth IRA, you pay taxes now at your current rate, potentially reducing your future tax liability. Additionally, Roth IRAs offer tax-free growth and withdrawals in retirement. Evaluate your income and tax situation to determine if a Roth conversion is beneficial this year.
Health Savings Plans
If you have a high-deductible health plan, contributing to a Health Savings Account (HSA) is a tax-efficient way to save for future medical expenses. Contributions are tax-deductible, and withdrawals for qualified expenses are tax-free. Unlike flexible spending accounts (FSA), which you must “use or lose” by year-end, the HSA funds roll over year to year, making them a powerful long-term savings tool. Contribute the maximum amount to your HSA and consider investing the funds for growth.
Estate Planning Documents
Year-end is also a good time to review and update your estate documents to align with any changes in your financial situation or family dynamics. Regular updates help protect your assets and ensure your wishes are carried out. Schedule a review of your estate plan to ensure everything is current.
By taking these steps, you can optimize your tax situation, enhance your financial security and enter the new year on a strong footing. We’re here to help you navigate these strategies and take the actions that are most beneficial to you. Contact us today.
Craig Holston | Senior Portfolio Manager
Tiffany Windish, CFP® | Client Advocate
LEGAL, INVESTMENT AND TAX NOTICE: This information is not intended to be and should not be treated as legal advice, investment advice or tax advice. Readers, including professionals, should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific legal or tax advice from their own counsel. Not FDIC Insured | No Guarantee | May Lose Value
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