Year-End Financial Planning Tips

The end of the year is a good time to make sure you’re on track toward your financial goals. Here are some strategies you may want to consider now related to estate planning, charitable giving and your investments. 

Watch the sunsets 

The 2017 Tax Cuts and Jobs Act (TCJA) has many provisions that are scheduled to sunset at the end of 2025. Some of the most notable sunset provisions include:  

The lifetime gift and estate tax exemption is $12.06 million (doubled for married couples). This historically high exemption is set to decrease to $5 million, adjusted for inflation, in 2026. There are strategies that currently exist to help maximize your use of the exemption between now and 2026. We recommend starting those conversations now. 

Unless Congress extends the TCJA or makes other changes, the top Federal tax bracket for individuals, estate and trust income will increase from 37% to 39.6% in 2026. 

While it’s possible some changes could happen sooner, we don’t anticipate that in the short term. 

Year-end planning opportunities 

As the end of the year approaches it’s a good time to think about financial planning strategies: 

With down markets and high inflation, now is the time to assess your risk tolerance. Are you comfortable with your current asset allocation?   

If you have a traditional retirement account that has lost value, consider if converting to a Roth IRA could be beneficial. The current tax rates and brackets, combined with the dip in the market have made this strategy attractive for some. This strategy tends to make the most sense if you think your future income tax rates will be higher than your current rate and you can pay the associated income taxes. 

If you are 72 years of age or older, you have until the end of this year to take your required minimum distributions (RMDs). If you don’t, you are subject to tax penalties.  

Charitable thoughts 

Here are a handful of strategies to consider if you are looking to maximize your impact before the end of the year:   

Qualified charitable distributions are a direct transfer of funds from your IRA to a qualified charity. These can be counted toward satisfying your RMDs if certain requirements are met.  

In certain cases, it may be more beneficial to prefund or “bunch” charitable contributions into a single tax year as opposed to spreading out donations over several years. “Bunching” is done to itemize your deduction in the year of the gift and take the standard deduction in following years.  

Charitable remainder trusts (CRTs) are becoming more popular because of rising interest rates. CRTs may be a smart way to provide cash flow for you or a family member while still working towards your charitable goals. 

As always, if you have questions, please reach out to your 1834 relationship team.