- Tax-Loss Harvesting
- Rebalancing
- Beneficiary Review
- Retirement Account Contributions
- RMDs and QCDs
- FSA Utilization
- Gifting from an Estate Planning Perspective
- Charitable Giving Review
Year-End Wealth Strategies: Optimizing Taxes and Planning Ahead
As the year draws to a close, it’s the perfect time to fine-tune your financial strategy. At WealthFactor, we focus on helping you make the most of your wealth through smart, efficient planning. Below are key strategies to consider before the year ends.
1. Tax-Loss Harvesting
Lower your tax liability by offsetting gains in your taxable portfolio with losses. Tax-loss harvesting involves selling investments like stocks, bonds, or mutual funds at a loss to reduce taxable income. After offsetting capital gains, you can also apply up to $3,000 of excess losses to ordinary income each year and carry forward any remaining losses to future years. The goal is simple: defer taxes until you’re likely in a lower tax bracket, such as during retirement.
Remember, tax-loss harvesting applies to taxable accounts, not tax-advantaged ones like 401(k)s or IRAs. If you invest in mutual funds or ETFs, tax-loss harvesting may be limited, which is why we offer personalized indexing strategies to optimize tax efficiency. Learn more.
2. Rebalancing: Stay Aligned with Your Goals
Market fluctuations can shift your portfolio away from your target risk allocation. Use the year-end as an opportunity to review and realign your portfolio. Rebalancing ensures your portfolio reflects your preferred risk level and long-term goals. At WealthFactor, our technology automates rebalancing, so your investment plan stays on track without the need for manual adjustments. Learn more.
3. Update Beneficiary Designations
Life changes quickly—marriages, new children or grandchildren, and property acquisitions can all impact your estate plan. Review and update your beneficiary designations annually to ensure your assets go to the right people. This small step can prevent common issues, like an ex-spouse mistakenly remaining a beneficiary. Learn more.
4. Maximize Retirement Contributions
Boost your retirement savings and reduce your taxable income by contributing to tax-advantaged accounts. Even if you can't max out your 401(k), ensure you’re contributing enough to get your employer match. 401(k) contributions must be made by December 31, but IRA contributions can be made until the tax filing deadline in 2025. Learn more.
5. Required Minimum Distributions (RMDs) and Qualified Charitable Distributions (QCDs)
If you’re 73 or older (due to changes under the SECURE 2.0 Act), ensure you take your RMDs by December 31 to avoid a hefty penalty. RMDs apply to most retirement accounts except Roth IRAs. If you don’t need the cash flow, consider using Qualified Charitable Distributions (QCDs) to meet your RMD requirement while supporting a favorite charity. Donating directly from your retirement account reduces your taxable income while achieving your charitable goals. Learn more.
6. Use Your Flexible Spending Account (FSA)
FSA funds typically expire at year-end. Make sure to use these funds before they expire to avoid losing them. Check with your plan to see if any unused balance can be carried over into 2025, as some plans allow a limited carryover amount. Learn more.
7. Consider Gifting for Estate Planning
Annual gifting is a valuable estate planning tool, allowing you to transfer wealth tax-free while you’re alive. For 2024, you can gift up to $18,000 per recipient, with no limit on the number of people you can gift to. For larger gifts exceeding the annual exclusion, the difference will be applied against your lifetime exemption, which is currently $13.61 million. Learn more.
8. Charitable Giving: Smart Approaches
Year-end is an ideal time to assess your charitable giving. Consider donating appreciated stocks instead of cash to maximize the tax benefits. Stocks donated directly to a charity avoid capital gains taxes, allowing the full value of your gift to support the cause.
Remember, to benefit from charitable contributions, you’ll need to itemize deductions. The current standard deduction is $14,600 for individuals and $29,200 for married couples filing jointly. Learn more.
9. Keep Detailed Records for Charitable Contributions
The IRS requires specific documentation for charitable deductions. Keep receipts, acknowledgment letters, or appraisals depending on the type and size of the donation. This ensures you’re prepared when it’s time to file your taxes.
Plan Now for a Smoother Transition Into the New Year
Effective wealth management requires early planning. Schedule a conversation with us at WealthFactor to create a customized year-end strategy and start the new year with confidence!
By putting you in the center of the designs, we’ve removed component parts that hurt and enhance the parts of the industry that make sense - that’s the vision for WealthFactor.
Bill Woodruff, CAIA Wealth Factor, Founder
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