With the election behind us and a new administration taking shape, many of you may be wondering what potential changes are on the horizon. While the professional pundits are busy making their predictions, we’ll be the first to acknowledge that nobody has a crystal ball. The trajectory of new policies will depend on a variety of factors, including political dynamics, economic conditions, and public sentiment. As always, we’ll navigate these changes together with a steady focus on your goals and your financial freedom.
Regardless of the uncertainty, there are some clear steps we can take right now to make the most of this year’s tax opportunities. Here are six strategies to consider before the year-end:
- Maximize Your Retirement Contributions
If possible, consider increasing contributions to your retirement accounts, such as IRAs* or 401(k)s. Doing so not only builds your future savings but also lowers your taxable income. If you haven’t reached the contribution limit for the year, now is the time to act.- *Contributions to a traditional IRA may be tax-deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
- Explore Tax-Loss and Tax-Gain Harvesting
Review your investment portfolio for opportunities to offset gains with losses. Selling investments that have lost value can reduce your tax bill, while realizing gains now might make sense if tax rates increase in the future. As always, we’re here to help you review these options and consider the best option for your personal situation.
- Accelerate Charitable Giving
- Planned Donations: If you’re close to the standard deduction threshold, making additional donations now may allow you to itemize and maximize your deductions.
- Donor-Advised Fund (DAF): For larger contributions, a DAF provides an immediate tax deduction while giving you flexibility to decide on specific charities later.
- Qualified Charitable Distributions (QCDs): If you’re 70½ or older, you can make tax-free charitable gifts directly from your retirement account, up to an annual limit.
- Consider a Roth Conversion
A Roth conversion* lets you pay taxes now on a portion of your retirement savings, so any future growth becomes tax-free. When evaluating this option, consider these key questions:- Do you expect your tax rates to be higher or lower in the future?
- Is it more beneficial to pay taxes on your investment’s current value or its potentially higher future value?
Roth conversions can be complex, involving various factors unique to your situation. We’re here to help assess your personal circumstances and determine if this strategy aligns with your financial goals.
*Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.
- Take Required Minimum Distributions (RMDs)
If you’re 73 or older, ensure you take your RMDs before year-end to avoid penalties. If you’re charitably inclined, consider using the Qualified Charitable Distribution (QCD’s), mentioned above, to satisfy your RMD while supporting a cause you care about.
- Review Your Estate Plan
With estate and gift tax exemptions at historically high levels, now is a great time to review your estate plan and ensure you are maximizing your use of the current lifetime exemption limits. Additionally, you can gift up to $18,000 per recipient annually, which helps reduce your taxable estate.
With so many opportunities available today, taking small, proactive steps now can make a big difference for your financial future. From maximizing retirement contributions to reviewing your estate plan, these strategies can help you stay on track and make the most of today’s opportunities. We’re here to help you figure out what makes the most sense for you and your goals. Feel free to reach out if you’d like to chat or schedule a year-end review—we’re always happy to help!
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.