Year-End Financial Planning: Navigating the Secure Act Changes in 2024

As we approach the end of another year, it's time to run through the checklist of time sensitive financial planning action items.

Year-end financial planning is a crucial practice for individuals, families, and businesses alike. It provides an opportunity to take stock of your current financial situation, review your financial goals, and make strategic decisions to optimize your financial health. Here are some essential steps to consider during your year-end financial planning:

1. Maximize Retirement Contributions:  For 2023, you can contribute up to $22,500; if you are over age 50 you can contribute up to $30,000.   Check your YTD contributions, and if you want to max-out consider increasing your contributions for the few remaining paychecks in the year.   
2. Maximize 529 Plan Contributions:  If you live in a state that allows you to deduct contributions to a 529 college savings plan then consider making contributions before the end of the year to take advantage of the deduction.
3. Manage Capital Gains Taxes:  There has been a lot of volatility in investment markets the last couple of years.   Fixed income (bond) investments, small-cap stocks and real estate are some areas where you may have unrealized capital losses.   Consider selling holdings that are at a loss and using those losses to offset gains in other areas of your portfolio.  It’s a great time to take winners off the table and offset the gains with losses.
4. Mutual Fund Capital Gain Distributions:  If you own mutual funds that invest in stocks, those funds might have generated gains from their trading activity.  The tax on those gains typically get allocated to shareholders in November and December.  It could make sense to sell mutual funds in your portfolio before they distribute the capital gains, allowing you to avoid the tax bill.
5. Tax deductible charitable contributions:  Charitable contributions must be made by 12/31 to be deductible for that tax year.   If you had a high-income year in 2023, charitable deductions could be more valuable to you this year vs. next.  If you are looking for a larger tax deduction this year but not sure when or to who you want to donate a donor advised fund can be great way to get a current year tax deduction for future gifts.
6. ROTH Conversions: You may want to consider converting money from pre-tax IRAs to a ROTH IRA if you will be in a lower tax bracket in 2023, are concerned about paying taxes at a higher rate on withdrawals in the future or as part of your estate plan.  Unlike direct ROTH IRA contributions there is no income requirement to do a ROTH conversion, but they must be completed by 12/31.
7. Estate tax planning with gifting:  If you are planning to pass assets to your children or others while you are still alive then you may want to take advantage of the annual gift tax exclusion.   Every individual is able to gift up to $17,000 per person, per year without having to file a gift tax return.

For larger estates, looking to avoid or minimize estate taxes you may want to gift more and take advantage of the higher lifetime gift exclusion, currently $12.92M per person before the limit is reduced in 2026.  The window to reduce your taxable estate is calendar years 2023, 2024 and 2025.

Every year is an opportunity to take advantage of opportunities that the tax code provides.   The list above is a partial list of those planning opportunities that adhere to a calendar year deadline.  We proactively help our clients with these items throughout the year.  Don’t let another year slip by where you aren’t taking advantage of these opportunities.