Money: Year End Tax Moves to Make Now

Retirement doesn’t mean you no longer have to worry about taxes. Quite the opposite – it’s a time when you need to pay extra attention to taxes.

The Required Minimum Distributions, tax-deferred retirement savings, capital gains and all the talk about Roth IRA conversions moves tax planning to the top of your to-do list.

And that doesn’t mean wait till the end of the year. Sit down with your financial team – your accountant, financial planner and tax attorney – now to prepare for the most efficient tax planning for 2024.

A few tax-planning tips from the experts:

Qualified Charitable Distribution (QCD).

For high-income earners who have started their RMD and don’t necessarily need the money, the Qualified Charitable Contribution makes a lot of sense. You can have up to $100,000 your RMD go directly to the charity or charities of your choice. Spouses can do $100,000 each.

“If they don’t need any portion of that required minimum distribution, and they’re charitably inclined, that’s a great way to avoid tax on their required minimum distribution,” says Gregory Stokes, managing partner at Stokes Family Practice in New Orleans. “And it would not be subject to income tax because it would go directly to the charity.”

“They (retirees) have to take money out of the IRA, whether they need it or not,” says Jaime Eckels, partner at Plante Moran Financial Advisors in Auburn Hills, Michigan. “So doing the qualified charitable distribution can be a huge benefit from a tax standpoint, especially if they’re not itemizing on their tax return, which a lot of retirees aren’t because a lot of times their homes are paid off.”

Manage capital gains from actively managed mutual funds.

“If they have a portfolio of where they own mutual funds, year-end is a very busy time where capital gain distributions start to hit portfolios,” Eckels says. “And you know mutual fund companies are required to distribute their realized gains. So capital gain distributions in certain years can be very significant.

“We have a fund right now that we own that’s paying a 15% capital gain distribution at the end of the year,” she says. “So, we’re looking at clients that own those positions. And if the if they own it at a 2% gain, we’re going to sell it, book the 2% gain in order to avoid the 15% distribution. “It’s called a dividend skip. We’re very active in that to see if there’s any opportunities, to minimize the income tax that’s associated with capital gain distributions at year end.”

Gifting to relatives

The annual gifting limitation is $17,000 a person for singles. “So, if you have a married couple and they have children and grandchildren they can give $34,000 as a couple without any tax reporting requirements to each one of their family members,” Stokes says.

Roth Conversion

A key part of tax planning for everyone is looking towards future changes in tax laws and brackets, says Connor Manning at Great Waters Financial in Shoreview, Minnesota. That might mean a Roth conversion – moving money from your traditional tax-deferred IRA to a Roth. You are, in effect, paying the taxes on that IRA now instead of in the future, when your Social Security or a pension might push you into higher taxes. “You need to do tax planning, so you aren’t pushed into a higher tax bracket this year. “There’s a lot of little things to look at, but you ultimately want to do that with someone who understands tax implications and understands income and tax planning in retirement,” Manning says.

 “(A Roth conversion) can be a very powerful tool, even if it’s a little bit each year,” says Eckels.

Gift your company stock

You may have accumulated stock after working for years in a company with publicly traded stock. You may be reluctant to sell it because it will trigger taxes, says Manning. You can gift some of that stock to a charity with no tax consequences.

Look down the road to changes in tax laws

“We’re about to turn another Social Security benefit on, a pension on RMDs is kicking in,” Manning says. “There are reasons why looking ahead to what’s down the road next year, two years from now might influence what’s a great decision today. And so, you want to want to be mindful of those things.”

Know your tax brackets

Make the financial moves when you are in the lower tax bracket, says Eckels. “If clients are in that situation where they have low taxable income, considering things like a Roth conversion or pulling forward some gain in order to absorb some of those advantages is critical.”

Planning a gift to Senior Planet? Learn your options here and here.

Rodney A. Brooks is the former deputy managing editor/Money at USA TODAY. His retirement columns appear in U.S. News & World Report and Senior Planet.com. He has written for National Geographic, The Washington Post and USA TODAY. The author of “Fixing the Racial Wealth Gap,” Brooks has testified before the U.S. Senate Special Committee on Aging. His website is www.rodneyabrooks.com.

 

Your use of any financial advice is at your sole discretion and risk. Seniorplanet.org and Older Adults Technology Services makes no claim or promise of any result or success. 

On 12/13/23 a correction was made to accurately reference Plante Moran Wealth Management, previously using “Morgan”.