Planning Moves to Consider Before Year-End

Maximizing Your Savings

While how you invest is an important part of building a nest egg, the first step is putting that money aside. Retirement plan contribution limits increased across the board for 2024, so make sure your savings are keeping pace with the higher levels.  And if you turned age 50 this year, you’re eligible to make an additional catch-up contribution to those accounts, so don’t miss out on that opportunity.

Roth conversions are always a popular topic, in particular for those who can’t directly contribute to a Roth IRA. While this can be a viable option – especially for those whose taxable income is lower this year, it comes with a lot of considerations worth discussing with your Baird Financial Advisor. Keep in mind that the conversion must be completed before year-end to be taxable this year, so don’t wait too long to have the conversation.

If you have a high deductible health insurance plan, consider taking advantage of the increased contribution levels for your Health Savings Account (HSA), with additional catch-up contributions for those age 55+. HSAs are one of the most tax-advantaged savings tools we have available today, with tax deductible contributions and tax-free income later in life. And you don’t need to be employed or use an employer plan to fund and HSA – as long as you have the right type of health insurance, anyone can open an account.

After you’ve maximized your contributions to your retirement plans and other accounts, it’s important to check in from time to time to see how your portfolio is doing. We’ve seen some fast and significant swings in the market this year, so it’s possible your portfolio has drifted from your target allocation. Year-end is a perfect time to revisit your accounts and make sure your allocations still match your target, and you’re not taking on more – or less – risk than you anticipated.

Addressing Life’s Changes

Our lives can change quickly and dramatically, and the plans you put in place just a year or two ago can become out of date before we even realize it. Use year-end as a time to reassess where you are, what’s changed over the last year, what you expect in the year to come, and how it may affect your financial plan.

Consider any changes to your family situation this year or in the coming year: marriage, divorce, or welcoming a new member to the family. Or perhaps you suffered the loss of a loved one during the year. The impact of all of those events on your tax situation can be significant, both this year and next, and your Baird Financial Advisor can help assess the impact to your plan and identify appropriate planning opportunities.

This year also brought new tax planning opportunities to keep in mind. Inflation has not only driven up the retirement contribution limits, but it’s had a big effect on tax brackets, phaseout ranges, the standard deduction and more. If you turned 73 this year, you’re also now subject to Required Minimum Distributions, or RMDs, from your IRAs and other retirement accounts.

While it was a quiet year for tax legislation, some new tax laws did take effect in 2024, such as allowing leftover funds in a 529 plan to be rolled into a Roth IRA. And earlier this year, the IRS announced their long-awaited final rules for beneficiaries of inherited retirement accounts. If you inherited an IRA in 2020 or later, it’s worth a conversation with your Baird Financial Advisor on how you plan to withdraw those balances under the new 10-year rule so that you can avoid a big tax shock down the road.

Passing On Your Legacy

Your Baird Financial Advisor’s primary focus is ensuring your financial goals are met, and for many that includes plans to support generations to come.

For many, this starts with making gifts to family members. The annual gift tax exclusion increased again for 2024, to $18,000, and those gifts must be completed before year-end.  The lifetime exemption amount also increased this year, to $13.61 million per person, but as you may know there is a lot of uncertainty around what might happen with this exclusion in the coming years.  Those with larger estates should be having discussions with their Baird advisor, estate planner and others about ways to leverage this exclusion before the opportunity goes away.

Regardless of the size of your estate, it’s always a good idea to review your will, trusts, beneficiary designations, health care directives and other documents. Ensuring these are all up-to-date can go a long way toward making it easier for your heirs to manage an otherwise difficult time.

Year-end is also a time to consider your charitable giving intentions, and how to support organizations in the most tax efficient manner. The larger standard deduction we’ve had for several years means that deducting those gifts requires more planning.

• A common strategy is to “bunch” contributions – combining multiple years of charitable gifts into one year to maximize their benefit. As you think about your gifting plans this year, consider whether accelerating future gifts into 2024 provides a greater tax benefit than spreading those gifts out over multiple years.
• By combining a bunching strategy with a donor advised fund, you secure the full tax benefit of the gift today, while giving you time to decide which charities will ultimately benefit from your generosity.
• Another strategy to maximize the value of your gift is the Qualified Charitable Distribution, or QCD. This technique allows you to move assets from your IRA to charity without having to recognize any income, and for 2024 the limit on QCDs has been increased to $105,000 per person. If you’re over 70 ½, this can be a great way to support charities in a tax-efficient way.

Whether your plan is to support individuals or charities, now or in the future, your Baird Financial Advisor, along with our wealth planning specialists, can help you understand your options.