Year-End Financial Planning Opportunity Checklist
As 2024 comes to a close, now is the perfect time to review your year-end tax strategies and plan for the year ahead. Below is a checklist of items to consider before year end:
Required Minimum Distributions (RMDs)
If you are over the age of 73 in 2024 or have an inherited IRA that you received before 2020, you are required to take your Required Minimum Distribution by year end.
Inherited IRA & Roth IRA RMDs (Under the 10-Year Rule)
Beneficiaries of inherited IRAs where the decedent passed after December 31, 2019 fall under the SECURE Act’s 10-year rule:
- Eligible designated beneficiaries (e.g., a surviving spouse, an individual not more than 10 years young than the decedent, a disabled or chronically ill individual, or a minor child) may choose to distribute using the lifetime distribution rules or elect to use the 10-year rule.
- Non-eligible designated beneficiaries: If the original owner reached their required beginning date, annual RMDs are mandatory. If the original owner had not reached their required beginning date, annual RMDs are not required. In either case the inherited IRA must be emptied by the end of year 10.
- Inherited Roth IRA: No annual RMDs are required, but the account must be fully withdrawn by the end of year 10.
In 2024, the IRS is waiving penalties for missed RMDs under the 10-Year Rule for 2024.
Year-End Gifting & Charitable Strategies
Evaluate your 2024 charitable and family gifting goals to ensure they’re being met in a tax-efficient manner. There are several strategies that a WESCAP advisor can recommend depending on your situation, such as:
Qualified Charitable Distributions (QCDs): If you’re 73 or older, consider making charitable donations directly from your IRA to satisfy RMD requirements while reducing your taxable income. In 2024, the limit for QCDs is $105,000. Remember QCDs cannot be made to either a Donor-Advised Fund (DAF) or to a private foundation (operating or non-operating).
Under the SECURE Act 2.0, you can also make a one-time QCD of up to $53,000 to a Charitable Remainder Unitrust (CRUT), a Charitable Remainder Annuity Trust (CRAT), or a Charitable Gift Annuity (CGA).
Itemized Deductions and “Bunching” Strategies: If you itemize deductions on your tax return, donating cash or appreciated stocks to a qualified charity will give you a higher tax deduction. Be sure to retain receipts and track your contributions accurately. For appreciated stocks, you can deduct their fair market value and avoid capital gains taxes.
To maximize tax benefits, consider a “bunching” strategy. This involves grouping multiple years’ worth of charitable donations into a single tax year to exceed the standard deduction. It’s effective if your total deductions typically hover near the standard deduction threshold.
Donor-Advised Funds (DAF): A flexible way to donate to charity which allows you to contribute to the fund in one year and decide the specific charitable recipients later. You receive an immediate tax deduction in the year you contribute to the fund.
Family & Friend Gifting: In 2024, you can gift up to $18,000 per individual ($36,000 for married couples) without using your lifetime gift exemption. For amounts over this threshold, file Form 709 on your tax return, though no taxes are due until your lifetime exemption is exhausted. For larger amounts, you may want to structure them as loans, which can be forgiven over time.
Direct Gifts of Appreciated Assets: Gifting appreciated assets, such as stocks, that have increased in value can minimize your capital gains taxes. These assets can be gifted to charities, Donor-Advised-Funds, or family and friends.
Roth IRA Conversions
If you expect to be in a low-income tax bracket this year, consider converting traditional IRA assets to a Roth IRA. This allows you to lock in tax savings and enjoy tax-free growth and withdrawals later.
Backdoor Roth Conversion: High-income taxpayers with little or no pre-tax IRA assets can take advantage of backdoor Roth conversions. This involves making a non-deductible IRA contribution and later converting to a Roth IRA. This conversion is tax-free, assuming you have no pre-tax IRA assets.
Year-End Investment Strategies
Harvest Losses: If you have investments with unrealized losses, consider selling to offset capital gains. Any unused losses can reduce up to $3,000 of ordinary income and can be carried forward to future tax years indefinitely.
Avoid Large Capital Gains: Review mutual fund holdings and look to avoid significant year-end capital gains distributions by selling these funds prior to the dividend record date. Additionally, you should avoid purchasing some mutual funds toward the end of the year in taxable accounts, instead using ETFs to avoid capital gains distributions.
Harvest Tax-Advantaged Capital Gains: If individuals have low taxable income, it may be prudent to harvest capital gains, as federal capital gains tax rates may be as low as 0%.
Further Planning Opportunities Before and After Year End
Retirement Projections: WESCAP Group offers retirement income projections to ensure you’re on track to meet your long-term goals. We recommend this for individuals who are currently concerned about their long-term financial security or are expecting significant life or financial changes.
Social Security Analysis: If you are approaching 62, WESCAP can help analyze when to begin Social Security benefits to maximize your income.
Education Funding: Contributing to a 529 education savings account for a child or relative allows you to fund education tax-free. In 2024, you can contribute up to $18,000 per donor, per child, or use a lump-sum contribution of up to $90,000 (with five years of gifting allowed in advance).
Plan for Expiring Tax Rates in 2026: The majority of the Tax Cuts and Jobs Act (TCJA) provisions will revert to the former tax rules in 2026, barring new Congressional action. This will increase the current federal marginal tax rates starting in 2026. Realizing ordinary income in advance of the TCJA sunset in 2026 may be prudent, depending on your income outlook.
Contact WESCAP Group if you would like to schedule a time to talk about your specific situation.