3 Financial Strategies You and Your Advisor Should Consider Before December 31st
At Keen Wealth, we often describe tax-planning as an ongoing process, not just something we help folks accomplish every spring. And while Tax Day is certainly circled in red on our annual planning calendars, the end of the year is also an important deadline for some moves that could lower your tax bill.
On today's show, we discuss three financial strategies that you and your advisor should consider before December 31st.
Please note that we recorded this episode before Election Day. We'll give you our thoughts on how the new U.S. political environment could affect your financial planning in the weeks ahead.
1. Contribute as much as you can to your retirement accounts.
Ideally, that means hitting the maximum allowable contributions to your employer-match 401(k), which is $23,000 in 2024. Your employer typically will deduct the contributions you make into retirement plans from your reported taxable income for the year, lowering your tax liability.
Folks 50 and older can contribute an additional $7,500 in "catch-up" contributions. Make sure you talk to your advisor or custodian about their specific requirements for catch-up contributions. In most cases you will need to make sure you have elected the catch-up contribution in addition to maxing out the $23,000.
Note that you can make 2024 contributions into a Roth IRA until Tax Day, which is April 15, 2025. The 2024 limits are $7,000 for folks under 50 and $8,000 for folks 50 and older. If you have the means and you’re maxing out your other retirement accounts, make a plan to top off your Roth as well.
2. Look for tax-loss harvesting opportunities.
If you have a loss on an investment you've made in a brokerage account, you can sell that investment and lock in a loss, which could lower your taxable gains for the year. You can then use those funds to reinvest in another security, or, after 31 days, reinvest in the same security.
The IRS allows you to use realized losses to offset realized gains as well as an additional $3,000 excess loss claim to lower your income. If you don't use all of your losses in a given year you can carry them forward and offset larger gains in the future.
3. Give strategically.
The 2017 Tax Cuts and Jobs act established a high standard deduction for taxes, so not as many folks itemize as they used to. Charitable giving counts as an itemized deduction, so unless you have high levels of itemized deductions you might want to consider some other tax-advantaged vehicles to sustain your giving.
One is establishing a donor-advised fund, essentially a charitable investment account. Multiple years of your charitable contributions of cash and appreciated assets can be made to this account where you can then process grants to qualified 501(c)(3) organizations over time.
Folks who are 70 1/2 and older can also make qualified charitable distributions (QCDs) from their IRAs directly to a 501(c)(3). These distributions count against your annual required minimum distributions (RMDs), again lowering your taxable income. In 2024, the maximum for a QCD is $105,000.
When you review your estate plan this year, you might also consider forming a family charitable organization or trust to incorporate giving goals into your legacy while also creating some additional tax benefits.
Finally, the gift tax exclusion allows you to give up to $18,000 per year to an individual without triggering any tax reporting consequences for you or the recipient. If you give more than that, you have to report the amount to the IRS against your lifetime giving allowance, which is $13,610,000 for 2024 for an individual. These gifts probably won't affect your taxes for 2024, but you could use gifts to transfer money out of your estate, which could lower your estate taxes down the line.
Remember, the main strategies that we discuss on this episode should be completed by the end of the year. Call up Keen Wealth and schedule your year-end financial review before you get too deep into the holiday rush.
Thank you, AEC PM Connect!
I'd also like to take a minute to thank Anthony Fasano for holding his first AEC PM Connect conference at Keen Wealth. This event brought together professionals in project management, engineering, and construction for an enriching day of learning, networking and collaboration. We were also honored to have Greg Graves, former Burns & McDonnell CEO and friend of the podcast, as a speaker. We're already looking forward to AEC PM Connect 2025!
About Bill
Bill Keen is a financial advisor with over 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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