7 Year-End Action Items to Optimize Your Wealth Plan

 

With 2024 drawing to a close, now is the perfect time to assess your wealth plan. Despite the year's stabilization, the upcoming presidential election may introduce new variables. Proactive planning ensures your financial strategy remains aligned with your goals.

1. Reevaluate Your Risk Tolerance:

• Life Changes: Have there been significant life events, such as a new job, marriage, or the birth of a child, that have impacted your risk tolerance?
• Market Conditions: Consider recent market fluctuations and how they may affect your investment strategy and savings.

2. Review and Update Your Investment Portfolio:

• Asset Allocation: Ensure your asset allocation aligns with your risk tolerance and long-term objectives.
• Tax Efficiency: Harvest losses to offset gains and minimize your tax liability.
• Rebalance: If your portfolio has drifted significantly from your target allocation, rebalance to maintain your desired risk exposure.
• Interest Rate: Review outstanding debts in preparing for potential rate increases and taking opportunities to lower rates.
• Cash Flow is a crucial metric in investment portfolios, representing the net amount of cash entering and exiting your investments over a period. A healthy cash flow can provide:
  • Liquidity: The ability to meet unexpected expenses or seize investment opportunities.
  • Income: Regular cash payments from dividends, interest, or rental income.
  • Reinvestment: The opportunity to reinvest earnings for further growth.

3. Maximize Annual Contributions and Gifts:

• 401(k), 403 (b), and IRA Contributions: Contribute the maximum allowable amount to your retirement accounts to take advantage of tax benefits and compound growth. 2024 Contribution limits are:
  • 401(k), 403(b) - $23,000 and an additional $7,500 if over 50.
  • IRA - $7,000 and an additional $1000 if over 50.
• Emergency Savings Exception: Allows penalty-free withdrawals from retirement accounts for emergency purposes.
• Roth Conversions: Facilitates Roth conversions for spouses of deceased individuals.
• Health Saving Accounts (HSA), are tax-advantaged savings accounts that can be used to pay for qualified medical expenses.
  • Tax-free contribution, growth, and distribution for medical expenses including copays and over-the-counter prescriptions.
  • 2024 contribution limits:
    • $8,350 for family coverage
    • $4,150 for individual coverage
    • additional $1,000 if over age 55
• 529 College Savings Plan is a tax-advantaged savings plan designed to help families save for future education expenses.
  • Some states offer a tax deduction for contributions.
  • Tax-free growth, and distribution for qualified education expenses.
  • Super funding is available to make five years' worth of gifts in a single contribution.
  • Under the Secure Act 2.0, a lifetime maximum of $35,000 of unused 529 accounts can be rolled over into a Roth IRA for the same beneficiary, with certain eligibility requirements.
• Annual Exclusion Gifting is a federal tax law that allows individuals to give a certain amount of money or property to another person each year without incurring gift tax.
  • For 2024, the annual gift tax exclusion is $18,000 per recipient.
  • Gifts to Multiple Recipients: You can give the annual exclusion amount to as many recipients as you choose.
  • Gifts of Property: The annual exclusion applies not only to cash gifts but also to gifts of property, such as stocks, bonds, or real estate.
  • Lifetime Gift Tax Exemption: In addition to the annual exclusion, individuals have a lifetime gift tax exemption. This is a one-time amount that can be used to make gifts over the annual exclusion. For 2024, the lifetime gift tax exemption is $13 million per individual.
  • Education Plan: Annual exclusion gifts can be made to 529 plans.

4. Assess Your Estate Plan:

• Review Beneficiary Designations: Review and update beneficiary designations for retirement accounts, life insurance policies, TODs, wills, and trusts.
• Review Fiduciary Appointments: Ensure executors, trustees, and agents are still the right choices.
• Estate Settlement Analysis is used to determine whether your existing plan will perform as expected and whether your named fiduciaries are properly positioned for the important responsibilities you have given to them.
• Titles: Review the titles of your assets to ensure that they are how you intended them to be. For instance, joint ownership with the right of survivorship provides for the surviving owner to take full ownership of the entire asset.  
• Estate Tax Implications: Evaluate the potential impact of estate taxes and consider strategies to minimize your tax liability.

5. Review Your Insurance Coverage:

• Life Insurance: Ensure your life insurance coverage is adequate to meet your family's financial needs.
• Disability Insurance: Assess whether your disability insurance coverage is sufficient to protect your income in case of illness or injury.

6. Review Income Tax Picture :

• Harvesting Capital Gains and Tax-loss: Realize losses from underperforming investments to offset some or all capital gains.
• IRA Distribution: Proactively make distributions from your retirement plans at a lower tax rate, and decrease required future distributions at a high rate.  
• Tax Implications: Consult with a tax advisor to understand the potential tax implications of tax-loss harvesting.
• Defer Tax Deduction: Defer filing charitable contributions and improvements to investment properties to a higher tax year.

7. Schedule a Meeting with Your Financial Advisor:

• Personalized Guidance: Discuss your financial goals, concerns, and recent life changes with a qualified financial advisor.
• Comprehensive Review: Receive expert advice on how to optimize your wealth plan for the upcoming year.

Changing Legislation:

• Corporate Tax Rate:  The 2017 Tax Cuts and Jobs Act (TCJA) reduced the corporate tax rate from 35% to 21%. This reduction is scheduled to expire on December 31, 2025.
• Individual Tax Provisions: Many individual tax provisions, including standard deduction increases, child tax credit enhancements, and tax cuts for high-income earners, are scheduled to expire on December 31, 2025. However, there is ongoing debate in Congress about whether to extend these provisions beyond 2025.
• Other Provisions: Some provisions of the TCJA, such as the bonus tax deduction and the deduction for pass-through entities, have already expired or are scheduled to expire shortly.

The future of the Tax Cuts and Jobs Act (TCJA) is uncertain. Congress may extend, modify, or allow certain provisions to expire, impacting taxpayers and businesses significantly. Given the potential legislative changes, it's crucial to proactively evaluate and plan for possible outcomes.

The outcome of the 2024 elections will likely influence taxation and financial planning legislation. Don't delay in seeking professional advice to assess your current situation and develop strategies to mitigate potential risks and maximize opportunities.

By taking a proactive approach, you can ensure your wealth plan remains resilient and adaptable to the evolving tax landscape.

Disclaimer: This information is intended for general knowledge and informational purposes only, and does not constitute legal advice. It's essential to consult with an attorney for personalized guidance on your specific situation.

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