2024 Paperwork Makes the Dream Work: Year End Deadlines + New Contribution Limits
Much of our work with Modernist clients is about building comprehensive financial plans, then coordinating with our CPA friends to complete many of the kinds of projects you’ll find below. If you’re DIYing it, keep these fun projects and deadlines in mind for your own to-do list!
4 year-end tax-saving strategies
It’s time for end-of-year planning. This part of the financial planning process not only ensures you meet mandatory deadlines, but it also brings up possibilities to minimize taxes and revisit your overall goals. With legislative change on the horizon, these questions are designed to guide you through a few key strategies to consider implementing before December 31st.
1. Are you required to take an RMD from a traditional IRA, retirement plan, or inherited IRA?
A required minimum distribution (RMD) is a withdrawal that must be taken from certain retirement accounts.
If it is your IRA, the first deadline to take an RMD is April 1 in the year after turning 73. All subsequent RMDs must be taken by Dec. 31. You can satisfy your RMD and give charitably through your IRA by making a Qualified Charitable Distribution directly to a 501c(3) from your IRA.
If you inherited the IRA after December 31 2019, you are required to withdraw the entire balance within 10 years (and pay the tax on the distributions). Effective Jan. 1, 2025, non-eligible designated beneficiaries (generally someone other than the original owner’s spouse) must take RMDs annually to satisfy the 10-year rule. Even though you may not be required to take distributions this year, doing so could help save on taxes in the long run.
2. Is it time to revisit your estate plan?
Simply put, an estate tax is what the government charges on your assets for the right to transfer them to heirs upon death. As of the 2023 tax year, individuals are exempt from paying federal estate tax if their estate is valued below $13.61 million, or $27.22 million for married couples (in other words, this tax affects a very small number of Americans).
However, pending no action from Congress, the exemption amounts will drop to about $7 million per person ($14 million for married couples) if the 2017 Tax Cuts and Jobs Act expires on Dec. 31, 2025. If your estate exceeds that amount, you may want to speak with your wealth advisor and a team of estate and tax planning professionals to understand whether you have a taxable estate.
At the state level, estate tax rules also vary, so it’s important to understand how the laws in your state may impact your planning and how to pay tax to the state in case of a death.
3. Could you benefit from a Roth conversion this year?
This is a big topic at Modernist at year-end in our clients’ Tax Planning meetings. A Roth conversion allows you to transfer pre-tax assets, such as traditional IRA or 401k assets, to a Roth IRA account, often over multiple years. Depending on your circumstances, Roth conversions can provide several benefits, especially for optimizing your savings and minimizing taxes over the long term.
Generally Modernist is aiming for 24% combined effective tax rate from Federal, state, local taxes when we’re designing a Roth Conversion.
While you’ll owe taxes on the funds in the year you complete the conversion, once they are in a Roth, you won’t have to take RMDs later as you would with a traditional IRA. The funds will also grow tax-free, enabling tax-free withdrawals once you’ve owned the account for at least five years and reached age 59½. Additionally, Roth conversions can play a key role in estate planning, allowing you to pass on tax-paid assets to your heirs.
That means planning conversions at the right time can help you reduce your overall lifetime tax burden and manage your tax bracket in retirement. The deadline for Roth IRA conversions is Dec. 31 in the year you want it to affect your taxes.
Note: Investment custodians are VERY busy in December. To make sure it is completed in time, request a Roth conversion as early in the month as possible!
4. intending to make donations to support causes you believe in and maybe lower your tax bill?
As a way to evidence our values and work towards the change we hope to see in the world, charitable giving is an important part of many financial plans. If you intend to make charitable donations before the end of year, your financial planner can work with you to identify the possible frequency and size of your contributions, recommend strategies to give efficiently (like giving highly appreciated securities), and align your giving strategy with your overall financial goals.
Strategies to consider include bunching your donations for greater tax benefit, qualified charitable distributions (QCDs) from your IRA, and the use of donor-advised funds (DAFs) or Donor in Movement Funds (DMFs) or charitable trusts to give illiquid assets like real estate.
Feeling Generous to Non-Profits & Live in Oregon?
We love aligning our giving with the radical work of Seeding Justice. Their approach to philanthropy is transformative and community led, with a focus on justice and liberation.
If you’re already supporting Oregon arts non-profits, consider making a matching gift to the Oregon Cultural Trust.
Maximum tax credit amounts are $500 for individuals, $1,000 for couples filing jointly, and $2,500 for class C-corporations.
If you owe Oregon State Income tax this year, consider a donation to the Oregon IDA Initiative, which provides a 90% Oregon state tax credit and funds programs that reduce wealth inequality!
Hurry up! This option is based on available credits with the state. They go fast at the end of the year.
Keep in mind these strategies might not be appropriate for everyone, instead they’re just a few of the tax-planning strategies we’re working on before year-end. Your financial planner can help you better understand the opportunities that align with and support your values and goals.
We’re also focused on reallocating portfolios and taking gains if this is a lower income year, donating appreciated securities, maxing out retirement plans, gifting to family members, and the list goes on! Check out more ideas below:
