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Over the last 20+ years, I’ve had the privilege of working with countless financial advisors, planners, CPAs, and attorneys across the country. If I had a nickel for every year-end tax strategy shared with me, I’d be well on my way to an early retirement. These conversations have given me a front-row seat to some of the most impactful strategies for keeping more hard-earned money in your pocket.
Below, I’ve compiled a list of 10 common strategies shared with me over the years. While these are valuable concepts, it’s essential to note that proactive planning tends to lead to better outcomes. And as obvious as it sounds, it’s worth repeating: collaborate with a team of financial and tax professionals to ensure you implement the most applicable and effective strategies for your unique situation.
Year-end is a particularly opportune time to revisit these strategies as financial circumstances often become clearer. Let’s dive into the list:
Tax Diversification
Diversifying investments across pre-tax, taxable, and Roth accounts can offer flexibility for tax-efficient withdrawals in retirement. While Roth conversion is a potential late-career strategy, starting early with varied contributions can significantly reduce taxes over a lifetime.
Roth Conversions
Consider a partial or full Roth conversion to lower lifetime taxes and potentially grow your wealth without any tax-drag. With the Tax Cuts and Jobs Act to sunset in December of 2025, this could be a prime time to implement these conversions at lower rates.
Tax-Loss Harvesting and Gain Realization
End-of-year reviews with your financial and tax professionals are ideal for identifying tax-loss harvesting opportunities to offset capital gains. Taking advantage of favorable long-term capital gains rates for specific income levels can further reduce liabilities and enable systematic, tax-efficient asset sales.
Benefit Plan Review
Year-end is an excellent time to assess benefit plans. Beyond standard 401(k) options, consider strategies like non-deductible 401(k) contributions or deferred compensation plans, which can provide strategic advantages for high earners. For those business owners, you may want to consider other strategies that allow you to favor owners and other key members of your team.
Maximize Retirement Contributions
Maximizing your retirement plan contributions, including catch-up contributions if eligible, is another way to help mitigate taxes for this year. With increased contribution limits in 2024, the potential tax benefits are greater than ever. Roth 401(k) contributions may also be worth exploring, especially if your portfolio is down.
Utilize Health Savings Accounts (HSAs)
HSAs provide triple tax benefits—contributions, earnings, and qualified medical expenses are tax-free. In 2024, individuals can contribute up to $4,150, while families can contribute up to $8,300, making this an excellent tool for retirement strategies.
Distribution Strategies
If Required Minimum Distributions (RMDs) are approaching, consider working with your financial and tax professionals to create a tax-efficient distribution strategy that aligns with your tax brackets.
Annuities and Qualified Longevity Annuity Contracts (QLACs)
High interest rates have made annuities more favorable and worth reviewing. QLACs, for example, can allow one to allocate up to $200,000 tax-free, and defer distributions, reducing the balance of tax-deferred assets.
Charitable Giving
Charitable contributions can help reduce taxable income, especially for those near the standard deduction threshold. Gifting highly appreciated securities is an effective way to avoid capital gains taxes. Additionally, individuals over 70½ can use Qualified Charitable Distributions (QCDs) from their IRAs to further reduce taxes while making a meaningful impact in their community.
Estate Planning Strategies and Annual Gifting
Potential decreases in the lifetime estate tax exclusion make an estate plan review essential. Annual exclusion gifts ($18,000 per person in 2024) can help reduce the value of an estate, while advanced strategies like Qualified Personal Residence Trusts (QPRTs) and Charitable Remainder Trusts can provide significant benefits for those with substantial wealth.
Closing Thoughts
An ounce of prevention is worth a pound of cure—a principle that applies to both health and wealth. Last-minute efforts are rarely as effective as a proactive approach. So what are you waiting for? Connect with your financial, tax & legal professionals today to explore strategies that can make the greatest impact. Your future self will thank you.
Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. WestPac Wealth Partners LLC is not an affiliate or subsidiary of Guardian. Insurance products offered through WestPac Wealth Partners and Insurance Services, LLC, a DBA of WestPac Wealth Partners, LLC. CA Insurance License Number - 0I79381 | 7364079.1 Exp. 11/26