7 wealth strategies to review before NYE

With Dec. 31 coming quickly - these are the most time-pressing financial strategies you can review before year-end.

These can help if you manage your own finances, or even if you have an existing financial advisor you want to audit.

In this article, you'll find info on:

• 1) Gifting to Family

• 2) Gifting to Charities (“bunching” with Donor Ad …

• 3) RMD’s (Required Minimum Distributions)

• 4) QCD’s (Qualified Charitable Distributions)

• 5) Roth Conversions

• 6) IRA Withdrawals

• 7) Tax Loss Harvesting

• Work with an Advisor

In short, wealthy families always take full advantage of annual IRS limits or requirements per calendar year.

Here’s how you can take advantage.

1) Gifting to Family

Each year, any 1-person can give to any other 1-person up to $17,000 (in 2023) without needing to file any gift tax return (or pay tax of any sort). 

As a further example, a set of parents could gift $34,000 to their child in a calendar year and not worry about forms or taxes.  Some families choose to gift this amount annually, as part of their longer-term financial or estate plans. 

This amount jumps to $18,000 in 2024.

2) Gifting to Charities (“bunching” with Donor Advised Fund)

Some families can take tax deductions for their gifts to charities. 

For folks who are looking for all possible, legitimate tax deductions in a particular calendar year, they may choose to gift many years' worth of gifts all in one tax year. 

This is most commonly done using a Donor-Advised Fund (DAF).  Any funds you deposit are immediate charitable gifts for tax purposes, which can then be gifted to various charities over time at your own discretion. 

As an example on the “bunching” strategy: if you normally gift $10,000 annually, you can set aside, say, $50,000 into your DAF (account). You’d receive an itemized deduction for the full $50,000, then make annual gifts from that DAF directly to the charity of your choice at your own pace.  Funds in a DAF can be invested and managed like other investment accounts.

For folks that hold large stock positions with large capital gains embedded, a popular strategy is to actually transfer those shares into the DAF account. The end-result is an itemized deduction based the full amount gifted, and no capital gains tax paid upon the transfer. The DAF is then tax-sheltered, and no taxes are paid if you then choose to sell or diversify.

3) RMD’s (Required Minimum Distributions)

If you need to take RMDs for any reason - either you’re over the age of 73, or you inherited a retirement account - you must take your full amount before Dec. 31.

While it may make financial sense to delay until the end of the year to make this withdrawal (to allow the funds to continue hopefully growing tax-deferred), I generally prefer to make these withdrawals earlier in the year. It’s one-less-thing to worry about this late in the year, and we can keep eyes open for broader strategies that may open up.

4) QCD’s (Qualified Charitable Distributions)

Related to the RMD topic above: some folks don't need the income from their RMD’s. And if they regularly give to charity anyways, they are able to give their RMD’s directly to their charities and avoid income tax and satisfying their RMD’s. 

Most firms execute this for you (i.e. send directly from the account to the charity).  But some families prefer to have a checkbook where they can gift on their own regard across the year by writing checks themselves. 

To make sure it gets done, firms will be double-checking accounts to make sure the requirements actually got done.

5) Roth Conversions

This is a more-advanced strategy, where you are taking advantage of being in a (relatively) low tax year today, and pushing ('converting') some of your pre-tax dollars into Roth dollars. 

You pay taxes on those converted dollars today, in exchange for forever-tax-free growth via Roth. 

6) IRA Withdrawals

Oftentimes, retirees need their pre-tax dollars to live on, so they must make withdrawals.  If you think your tax rate is (relatively) low today, and you want to withdraw some extra funds to get ahead of upcoming cash flow needs (and you don't want to convert it to Roth), you can consider simply making a larger-than-normal withdrawal from pre-tax accounts before 12/31.

7) Tax Loss Harvesting

This is where you choose to sell an investment at a loss - documenting the loss for tax purposes - but immediately reinvest in something similar. 

The end-result is usually tax reduction, while remaining invested. 

Markets are at all-time highs, so if you didn’t execute this earlier in the year, chances are you missed the boat. If you have a diversified set of investments, you may have something trading low to swap out.

Given Friday is the last business/banking day of 2023, there isn’t much time to execute. But if you’ve got these covered, you can happily glide into the new year.

Cheers to NYE. We’ll see you in 2024!

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