2024 Year-End Financial Planning Checklist

The year 2024 is almost in the books. However, before the ball drops there are financial planning considerations that should be considered. This is especially true for high-net-worth families.

Below I have outlined 12 financial planning ideas to consider before year-end.

1. Required Minimum Distributions or RMDs:

RMDs apply to folks who are 73 or older. If you are subject to RMDs and if you don’t take them out before the end of the year, there will be a penalty. If you don’t need your RMDs to pay your living expenses, explore other options like giving to charity.

Planning Tip: Utilize Qualified Charitable Distributions, which allows you to give up to $105,000 from your IRA directly to charity without needing to pay tax on these monies and they count towards your RMD.

2. Charitable Giving:

When it comes to giving to charity there are a myriad of creative options this year.

Deduction for cash contributions: Under the Tax Cuts and Jobs Act, the deduction for cash contributions directly to charity increased from 50% of AGI to 60%, including for gifts to a donor-advised fund. If this Act sunsets, this limit will revert back to 50%, so donors should consider maximizing their cash gifts today.

Donate appreciated stocks: This is especially relevant in 2024 when stocks skyrocketed. It may also apply if you have a concentrated stock position with large unrealized capital gains. This may be through accumulating shares from working at a company for many years, the appreciation over decades of a long-held position, or investors having large gains in the big tech stocks that keep rising and want to “trim” their position. For all these scenarios they can consider donating these highly appreciated securities directly to charity, which helps avoid paying capital gains tax. It also allows you to minimize a large position, which helps derisk your portfolio.

Planning Tip: Utilize a Donor-Advised Fund or a DAF. A DAF is an account where you can deposit assets for donation to charity over time. The donor gets an immediate tax deduction when making the contribution to the DAF and can still control how the funds are invested and distributed to charity. A DAF can be extremely useful if you hold a security with no cost basis, a highly appreciated stock, or a concentrated position. In all of these scenarios, the tax liability can be circumvented by moving that position to a DAF.

DAFs are also useful when “bunching” your charitable contributions, which involves donating several years’ worth of charitable contributions all at once. Charitable contributions are only tax deductible to those who itemize their deductions. This year the standard deduction is $14,600 for single filers and those married filing separately. It’s $29,200 for those married filing jointly, and $21,900 for heads of household. To help your itemized deductions exceed the standard deduction amount, one can “bunch” multiple years’ worth of charitable donations. This allows the donor to exceed the standard deduction and take the itemized deduction, yet still distribute the funds over the current and subsequent years.

3. Roth IRA conversions:

Roth IRA Conversions is the process of transferring retirement funds from a traditional IRA, SEP, or 401(k) into a Roth account. Since a Traditional IRA is tax-deferred while a Roth is tax-exempt, the deferred income taxes due will need to be paid on the converted funds at the time of conversion. There is no early withdrawal penalty.

Evaluate your personal tax situation: This strategy may be beneficial if a saver believes that the postponed tax liability in the traditional account will be more onerous as retirement approaches. For example, if they think tax rates will go up if they move to a higher tax state OR if they will be earning a higher income in the future. This may also be an interesting opportunity for folks who were laid off this year and have a lower income than usual. Be mindful, that if paying the tax bill now is too burdensome, then this may not be a good option for you.

Planning Tip: Sit down with your tax advisors to determine how much income can be realized within the current tax bracket before “creeping” into the next tax bracket to assess how much in traditional retirement funds to convert to a Roth.

4. Review your beneficiary designations:

Retirement accounts and insurance policies have beneficiary designations that pass outside of one’s will. Therefore, even if you did estate planning, it’s important to review your various beneficiary designations to ensure that your money is passing according to your wishes.

Changing family dynamics: Did a family member who was a beneficiary on your account pass away this year? Did you want to alter beneficiaries because your family dynamics have changed? Be sure to reach out to your advisor to update them on your situation and discuss best practices.

The example I always give is regarding an ex-spouse inheriting your assets, which is a devastating misstep and not unheard of.

Planning Tip: In late 2019, Congress passed the SECURE Act, which eliminates the “stretch” option on distributions from inherited retirement accounts. Under the new rules, most non-spouse beneficiaries are required to fully distribute inherited account balances by the end of the 10th year following the year the account owner dies. Conducting annual beneficiary reviews is a great way to identify clients whose estate plans have been impacted by this change, and it may prompt discussions with clients and their heirs around efficient wealth transfer strategies, for example, utilizing a charitable remainder trust to replicate the benefits of the now defunct “stretch IRA.”

5. Estate planning considerations:

The federal unified estate and gift tax exemption for 2024 has been at an all-time high of $13.61 million, or $27.22 million per married couple. It will rise next year to $13,990,000 and $27.98 million, respectively. Additionally, the gift tax annual exclusion amount will increase from $18,000 per donee this year to $19,000 in 2025. Regular gifting is a wonderful method of getting money out of your estate for estate tax purposes.

My guess is the Trump administration will eventually extend the tax benefits under the TCJA, but anything can happen in Washington.

Planning Tip: High-net-worth families should make the most of these high exemption amounts TODAY because no one knows what the future holds. At this point in time, these amounts are scheduled to be reduced at the end of 2025 to a pre-2017 levels, which is about half of what they are today. Remember, the future is always uncertain, and you should plan accordingly.

6. Special Planning Considerations for Married Couples

Some planning considerations for married couples include:

Split Gifts: Both spouses should consider making use of their exclusion amounts before the 2026 decrease.

If neither spouse has used much or any of their exclusion amount, one spouse could make a gift of about $28 million. Then both spouses could make a “split gift” election that, for federal gift tax purposes, would treat the gift as having been made equally by both spouses. Note, though, that this approach does not work efficiently if one spouse has previously used much of their exclusion amount.

Ownership Changes: If one spouse has a significantly larger percentage of the assets than the other spouse. They might reallocate the assets so that each spouse can take advantage of the exclusion amount. Such changes could result in a significant shift of marital assets between spouses.

Spousal Lifetime Access Trusts: SLATs are irrevocable gifting trusts that move assets and future appreciation outside of one’s taxable estate, but include a spouse as a beneficiary so that the grantor has indirect access to the funds in case they are needed in the future. In order to have SLATs created by spouses for the benefit of the other recognized for gift tax purposes, it is often advised to create them at different times, even in different tax years. Therefore, to complete these prior to the sunset at the end of 2025, you would need to start before the end of 2024.

7. Planning in a changing interest rate environment

Interest rates are important for more than just lending and bond investments. There are several types of estate planning strategies that use numbers derived from the federal funds rate and may be beneficial in this changing interest rate environment.

Section 7520 Rate: The 7520 rate is a factor used in making various calculations such as remainder interests, charitable deductions, and minimum thresholds for sophisticated estate planning strategies.

Planning Tip: Consider “Rolling Grantor Retained Annuity Trusts” or GRATs, which can be helpful in a changing interest rate environment and in choppy market conditions. A GRAT is a type of irrevocable trust that allows the grantor to transfer assets and receive annuity payments for a set period of time. Rolling GRATs mean setting up multiple GRATs that can help grantors navigate interest rate fluctuations with greater confidence.

Given today’s still elevated interest rates, a single GRAT might struggle by not holding investments that outpace the 7520 rate. However, a series of short-term rolling GRATs funded with marketable securities like stocks is likely to thrive regardless of the interest rate backdrop. If the stocks in any one GRAT fail to outperform the applicable 7520 rate, that GRAT fails. In this situation, the donor simply receives their stocks back without penalty and without using much, if any, of their gift tax exclusion. If the stocks in a GRAT outperform the 7520 rate, the net proceeds flow to the donor’s beneficiaries, effectively transferring wealth.

8. 529 Contributions:

A 529 is a tax advantaged college savings account that may provide an opportunity for immediate tax savings if you live in one of the 30 states or more offering a full, or partial, deduction for your contributions to the home-state 529 plan. Most states require you to invest in the in-state plan to receive the deduction for your contributions. Though there are several states that are considered tax parity states, meaning you can use any state’s 529 plan to receive the deduction.

“Superfunding” 529 accounts: This strategy allows you to spread a tax-free gift to a 529 account over five years for gift tax purposes. So, a married couple not making any other gifts to the beneficiary during the five-year period can contribute up to $180,000 to a 529 plan for each child and, with the election, not run into gift tax problems.

Planning Tip: 529 assets are not currently factored in as assets for the purpose of determining federal financial aid under the FAFSA process if held by grandparents, opposed to parents where they are considered. This may be a wonderful way for grandparents to save for their grandkids higher education without jeopardizing their ability to qualify for financial aid.

9. Maxing out Health Savings Account (HSA)

Consider maxing out your Health savings account, or HAS, which allows you save and pay for qualified medical expenses with tax-free dollars.

In order to contribute to an HSA, you have to be enrolled in an HSA-eligible health plan. You can only contribute a certain amount to your HSA each year, but all contributions roll over from year to year. In 2024, you can contribute up to $4,150 for yourself, or $8,300 if you have coverage for your family. In 2025, you will be able to contribute up to $4,300 for yourself or $8,550 if you have coverage for your family. At age 55, individuals can contribute an additional $1,000.

10. Planning for business owner:

Transform net operating losses or NOLs into tax-free income with a Roth IRA conversion: Business owners who will record a net operating loss this year may be able to use it to their advantage. Unlike net capital losses, where taxpayers are limited to using only $3,000 annually to offset ordinary income, taxpayers can generally apply NOLs against 80% of taxable income. Clients carrying forward large NOLs can use those losses to offset the additional income from a Roth IRA conversion. The rules on calculating and utilizing NOLs are complicated, so it is critical to consult with a tax professional. It’s worth noting that more information on NOLs can be found within IRS publication 536.

Planning Tip: The Tax Cuts and Jobs Act created a new tax deduction for business owners known as the qualified business income, or QBI, deduction. It permits certain pass-through entities like sole proprietors, partnerships, and S corporation owners, to deduct up to 20% of their business income, subject to certain income thresholds and other limits. This deduction is also slated to sunset at the end of 2025. As a result, accelerating income to obtain the 20% deduction may provide significant tax benefits for business owners who qualify for this exemption.

11. Income tax planning ideas:

The first important item to consider is utilizing tax projections to help lower your tax bill in the future. These projections show what your tax future might look like based on a set of assumptions. They are most impactful for people who have control over the timing of their income, like a business owner.

In general, year-end income tax planning often involves trying to accelerate deductions and defer income while being sure to take advantage of lower marginal tax rates and avoid income bunching in future years.

A good starting point is using your income and deduction information from your last tax return and adjusting for anything you know about the current year, such as changes in income, tax rates, potential deductions, and so on. Then calculate what your taxes would be based on those conditions.

The more you know about your current year’s finances, the more accurate the projection will be. That’s why it’s important to wait until later in the year to run a projection.

Planning Tips: Here’s a cheat sheet of opportunities to keep in mind.

First, Opportunities in a higher-than-usual income year include:

• Maximize contributions to tax-advantaged accounts
• Accelerate income tax deductions AND
• Tax-loss harvesting

And Opportunities in a lower income year include:

• Converting pre-tax assets to a Roth IRA
• And Proactively taking distributions from your IRA account

12. Alternative Minimum Tax Considerations With Incentive Stock Options:

AMT is an alternate tax calculation that is computed by removing many of the typical income tax deductions.

The Tax Cuts and Jobs Act significantly increased the AMT exemption amount. Meaning it increased the threshold at which a taxpayer is subject to the AMT. However, this exemption amount will return to pre-Tax Cuts and Job Act levels in the event of a sunset, so more taxpayers may be subject to the AMT.

Planning Tip: The exercise of incentive stock options or ISOs aren’t considered to be income for regular tax purposes, but it is considered income for AMT purposes. This can result in AMT being due in the year of exercise. For people with ISOs that will be available to exercise pre-2026, it is advisable to take the potential change of exemption into account when developing an exercise strategy.

Final thought: A good reminder after reviewing a list like this is personal finance is PERSONAL. The goal of investing and financial planning is not about how to achieve the best return or the most optimal tax strategy. Rather, it’s about being able to reach your goals, while allowing you to sleep at night. Striking this balance is different for everybody. Hopefully some of the aforementioned ideas can help you achieve that level of serenity in your financial life.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. ParkBridge Wealth Management is not affiliated with Kestra IS or Kestra AS. Investor Disclosures: https://www.kestrafinancial.com/disclosures.