Monthly Archives

October 2024

Oct 30
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10 Considerations for Year-End Tax Planning

By | Tax Planning

As we head into the holiday season, another season looms in the distance: tax season. Don’t wait until March to see how 2024 shook out for you tax-wise.

Before the year draws to a close, it’s an ideal time to evaluate financial strategies and take advantage of year-end tax planning opportunities. Now is the time to proactively review, consult with professionals, and implement strategies that can potentially benefit you now and in the years ahead.

  1. RMDs (Required Minimum Distributions) Due In Retirement

Required minimum distributions (RMDs) must be withdrawn from traditional retirement accounts like 401(k)s and IRAs by December 31 each year beginning at age 73. There is no grace period to April 15 tax day; RMDs must be taken by December 31.

  1. Calculate RMDs (Required Minimum Distributions) Before Retirement

Even if you are not 73 or older, remember, all the money you have socked away in traditional 401(k)s, IRAs, and similar qualified retirement accounts will require annual withdrawals, and ordinary income taxes will be due on the amounts withdrawn. According to the Social Security Administration, around 40% of Americans must pay federal income taxes on their Social Security benefits—up to 85%—because they have substantial income, like the income created by required minimum distributions.  

  1. Strategic Timing for Roth Conversions

Converting traditional IRAs or other tax-deferred accounts to Roth IRAs can be a strategic move, particularly if you anticipate being in a higher tax bracket in the future. Roth accounts contain already-taxed money, so they offer tax-free growth and withdrawals, meaning you can access your money in retirement without owing any federal taxes provided the account has been in place five years and all other IRS rules are followed. They are also tax-free to your heirs.

While there are no limits on the amounts you can convert, it’s essential to remember that the converted amount will be added to your gross income for the year, potentially affecting your overall tax situation. And since Roth conversions cannot be undone, it’s important to seek professional tax advice.

  1. RMDs (Required Minimum Distributions) Due On Inherited Accounts

This July, the IRS finally issued clarifications about the SECURE Act 1.0 changes on the rules for non-spousal inherited traditional accounts, stating that enforcement will begin in 2025 on accounts inherited after 2019. If you inherited a traditional IRA or 401(k) or similar account, check with your CPA or tax professional now because RMDs will be due or you may owe penalties.

  1. Maximize Retirement Account Contributions

If you are still working, contributing the maximum allowable amounts to tax-deferred retirement accounts like traditional 401(k)s and IRAs can offer a significant opportunity to grow your retirement savings while reducing your taxable income for the tax year. The contribution limit for 401(k) plans for 2024 is $23,000 for individuals under 50, with an additional catch-up contribution of $7,500 for those 50 and older, bringing the total to $30,500. For IRAs, the limit is $7,000, or $8,000 with the catch-up provision for those 50 and older.

  1. Implement Tax Loss Harvesting

If you’re seeking to reduce your taxable capital gains in 2024, tax loss harvesting may be a strategy worth considering. This involves selling underperforming investments, such as stocks and mutual funds, to help realize losses that can offset any taxable gains you may have accrued throughout the year.

  1. Charitable Contributions

A charitable donation is a gift of cash or property given to a nonprofit organization to support its mission, and the donor must receive nothing in return for it to be tax-deductible. Taxpayers can deduct charitable contributions on their tax returns if they itemize using Schedule A of Form 1040, and contributions may be deductible to up to 60% of adjustable gross income for 2024.

  1. Defer Income

Another way to help reduce your tax burden is by deferring, or shifting, income to the next year. If you’re employed, you won’t be able to defer your wages; however, you could delay a year-end bonus to the following year, so long as it’s a standard practice at your company.

  1. Be Mindful of the Alternative Minimum Tax (AMT)

The alternative minimum tax (AMT) is designed to ensure that high-income individuals pay a minimum level of tax, regardless of how many deductions or credits they claim under the regular tax rules. The AMT is calculated by adding back certain deductions, such as state and local taxes, that are allowed under the regular system but not under AMT rules. In 2024, the AMT tax exemption for individuals is $85,700, and for married couples it’s $133,300.

  1. Utilize Flexible Spending Accounts (FSAs) and Other Tax-Advantaged Accounts

For 2024, flexible spending accounts (FSAs) offered an increased contribution limit of $3,200, up from $3,050 in 2023, allowing employees to use pre-tax dollars for eligible medical expenses. Contributions to FSAs reduce taxable income, as funds are deducted before federal, Social Security, and Medicare taxes are applied. However, it’s essential to use all FSA funds before year-end to avoid forfeiture under the “use it or lose it” rule. Some employers offer a grace period, extending the deadline to use 2024 funds until March 15, 2025. Exploring other tax-advantaged accounts for 2025, such as dependent care FSAs, might further reduce future taxable income while maximizing the benefit of pre-tax dollars for qualifying expenses.

Don’t let time pass you by, start planning for this upcoming tax season today! If you’re not sure how these tips could be plugged into your overall financial plan, let’s meet together with your tax professional. We’re here to help you end the year strong financially. Give us a call today!

This article is provided for general information only and is believed to be accurate. This article is not to be used as tax advice. In all cases, we advise that you consult with your tax professional, financial advisor and/or legal team before making any changes specific to your personal financial and tax plan.

Sources:  

  1. https://rodgers-associates.com/blog/your-2024-guide-to-year-end-tax-planning/
  2. https://turbotax.intuit.com/tax-tips/tax-planning-and-checklists/top-8-year-end-tax-tips/L5szeuFnE
  3. https://www.tiaa.org/public/invest/services/wealth-management/perspectives/5-year-end-tax-planning-strategies-to-consider-now
  4. https://smartasset.com/taxes/can-short-term-capital-losses-offset-long-term-gains
  5. https://www.investopedia.com/articles/personal-finance/041315/tips-charitable-contributions-limits-and-taxes.asp#
  6. https://www.schwabcharitable.org/giving-2024
  7. https://www.fidelitycharitable.org/guidance/philanthropy/qualified-charitable-distribution.html
  8. https://www.investopedia.com/terms/a/alternativeminimumtax.asp
  9. https://fairmark.com/general-taxation/alternative-minimum-tax/top-ten-things-cause-amt-liability/
  10. https://www.irs.gov/newsroom/irs-2024-flexible-spending-arrangement-contribution-limit-rises-by-150-dollars
  11. https://turbotax.intuit.com/tax-tips/health-care/flexible-spending-accounts-a-once-a-year-tax-break/L8hwzKu7r
  12. https://www.schwab.com/learn/story/rmd-reference-guide
  13. https://www-origin.ssa.gov/benefits/retirement/planner/taxes.html
  14. https://www.usatoday.com/story/money/personalfinance/2024/09/04/inherited-ira-new-irs-tax-rules/75063675007/
  15. https://www.fidelity.com/learning-center/smart-money/inherited-401k-rules
  16. https://www.schwab.com/learn/story/why-consider-roth-ira-conversion-and-how-to-do-it
  17. https://www.irs.gov/credits-deductions/individuals/deducting-charitable-contributions-at-a-glance
  18. https://www.irs.gov/pub/irs-pdf/p561.pdf
  19. https://www.goodrx.com/insurance/fsa-hsa/hsa-fsa-roll-over
Oct 23
0

Now Is the Time To Do Your Year-End Planning

By | Tax Planning

Don’t wait until it’s too late. Some important deadlines loom on December 31, 2024, and many other things should be reviewed, so be sure to meet with your financial advisor as soon as possible.

As the year wraps up, it is important to meet with your financial advisor to make sure you meet all IRS year-end requirements and take steps to plan ahead for 2025. The end of the year is a busy time for everyone and critical due dates are fast approaching. It’s crucial to stay on top of your financial deadlines to avoid last-minute issues!

  1. RMDs (Required Minimum Distributions) Due In Retirement1

Required minimum distributions (RMDs) must be withdrawn from traditional retirement accounts like 401(k)s and IRAs by December 31 each year beginning at age 73. There is no grace period to April 15 tax day; RMDs must be taken by December 31.

Failure to adequately withdraw funds could result in a 25% excise tax in addition to taxes owed, and there are many rules to follow about amounts due as well as which accounts require withdrawals or can be aggregated for one withdrawal. This is why it’s recommended that you work with your tax and financial professionals to do the calculations and implement the withdrawals on your behalf.

  1. Calculate RMDs (Required Minimum Distributions) Before Retirement

Even if you are not 73 or older, at least five to 10 years before you plan to retire you should start working with your financial advisor to calculate your future RMDs in case there are strategies you can implement now that can help you lower your overall tax burden in the future.

Remember, all the money you have socked away in traditional 401(k)s, IRAs, and similar qualified retirement accounts will require annual withdrawals, and ordinary income taxes will be due on the amounts withdrawn.

According to the Social Security Administration,2 around 40% of Americans must pay federal income taxes on their Social Security benefits—up to 85%—because they have substantial income, like the income created by required minimum distributions.

  1. RMDs (Required Minimum Distributions) Due On Inherited Accounts3

This July, the IRS finally issued clarifications about the SECURE Act 1.0 changes on the rules for non-spousal inherited traditional IRAs (individual retirement accounts), stating that enforcement will begin in 2025 on accounts inherited after 2019.

The clarifications are as follows:

a.) If the original retirement account owner had started taking RMDs before passing away, non-spousal beneficiaries must continue taking annual RMDs based on the owner’s schedule and deplete and close the account completely by the end of year 10.

(According to the IRS, if you chose not to take a RMD while waiting for this clarification to come out, you won’t be subject to the typical 25% penalty on the amount you should have withdrawn based on the original account owner’s schedule. But when the rules go into effect next year, the 10-year clock will still begin the year you inherited the account.)

b.) If the original IRA account owner hadn’t taken any RMDs before passing away, annual RMDs are optional, but the account must be emptied by the end of the 10th year of inheritance.

  1. Inherited 401(k) Accounts4

Inherited traditional 401(k) accounts must also be closed and taxes paid within 10 years of inheritance. But keep in mind that each company’s retirement plan has its own set of rules which will also have to be followed; for instance, some companies will allow you to keep the account in their plan during the 10 years and others won’t.

  1. Inherited Roth Accounts

Roth accounts are created and contributed to with already-taxed money; therefore, taxes are not due as long as all rules are followed, but inherited Roth IRA and Roth 401(k) accounts must also be emptied and closed within 10 years of inheritance. Non-spousal inherited Roth 401(k) accounts do require RMDs.4

  1. Roth Conversions5

As part of your retirement plan, your tax and financial advisor may recommend that you do a series of Roth conversions—converting taxable accounts to tax-free Roth accounts—in order to mitigate taxes for the long-term.

If you decide to do these, ordinary income taxes will be due on the amounts converted, and Roth conversions they must be completed by December 31. These cannot be undone, so they must be undertaken very carefully following all IRS rules.

  1. Charitable Contributions6

Tax-deductible charitable contributions must be completed by December 31, and the fair market value (FMV) of non-cash items must be determined.7

  1. FSA (Flexible Spending Accounts), Spend It Or Lose It8

Flexible savings accounts (FSAs) through your employer allow you to have pre-tax funds deducted from your paycheck to spend on allowable expenses like healthcare and child care. Most FSAs don’t allow you to roll your excess funds into the next year. Some ideas to avoid losing funds left in your FSA include booking general wellness appointments like visits to the eye doctor, annual physicals and dental cleanings.

(If you are able to procure a high-deductible health insurance plan, you may be able to contribute pre-tax funds to an HSA (health savings account) which will not have to be emptied, but may be used for allowable healthcare expenses in retirement. Be sure to ask your financial advisor about this possibility.)

  1. Other Things to Review

It’s very important to review your named beneficiaries on retirement accounts, insurance policies, and your estate plan. Births, deaths, divorces, and marriages can change your family through the years, and it’s important to keep everything up to date.

You should also review your expected tax liability for 2025, your FSA/HSA contribution amounts for 2025, your paycheck withholding amount if you are still working, your monthly budget, and your investment portfolio.

As you get older, it’s important to start lowering your market risk in order to protect the assets you have accumulated. It’s important to know that diversifying with different asset classes can help protect your overall portfolio, especially important during times of increased market volatility and as you get closer to retirement.

We’re here to help you with year-end planning as well as meeting IRS deadlines in conjunction with your tax professional. Call us as soon as possible if we haven’t spoken already! You can reach Bulwark Capital Management at 253.509.0395.

 

Sources:

  1. https://www.schwab.com/learn/story/rmd-reference-guide
  2. https://www-origin.ssa.gov/benefits/retirement/planner/taxes.html
  3. https://www.usatoday.com/story/money/personalfinance/2024/09/04/inherited-ira-new-irs-tax-rules/75063675007/
  4. https://www.fidelity.com/learning-center/smart-money/inherited-401k-rules
  5. https://www.schwab.com/learn/story/why-consider-roth-ira-conversion-and-how-to-do-it
  6. https://www.irs.gov/credits-deductions/individuals/deducting-charitable-contributions-at-a-glance
  7. https://www.irs.gov/pub/irs-pdf/p561.pdf
  8. https://www.goodrx.com/insurance/fsa-hsa/hsa-fsa-roll-over

 

This document is for informational purposes only. All information is assumed to be correct but the accuracy has not been confirmed and therefore is not guaranteed to be correct. Information is obtained from third party sources that may or may not be verified. The information presented should not be used in making any investment decisions. It is not a recommendation to buy, sell, implement, or change any securities or investment strategy, function, or process. Any financial and/or investment decision should be made only after considerable research, consideration, and involvement with an experienced professional engaged for the specific purpose. All comments and discussion presented are purely based on opinion and assumptions, not fact. These assumptions may or may not be correct based on foreseen and unforeseen events. Past performance is not an indication of future performance. Any financial and/or investment decision may incur losses.
Investment Advisory Services offered through Trek Financial LLC, an investment adviser registered with the Securities Exchange Commission. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed, and past performance is no guarantee of future results. For specific tax advice on any strategy, consult with a qualified tax professional before implementing any strategy discussed herein.
Trek 24-358.