2024 Year-End Planning Considerations

As 2025 approaches, we would like to highlight several year-end planning opportunities for you to consider, many of which could help you with your longer-term goals. We encourage you to speak with us as well as your tax professionals to determine how we can be helpful.

GIFTING AND ESTATE TAX CONSIDERATIONS

Year-End Action Items

• Consider making annual exclusion gifts of up to $18K for individuals or $36K for married couples who opt to split-gifts. To qualify for a 2024 deduction, gifts must be made by 12/31/2024. Cash gifts must clear in the recipient’s account on or before this date.
• Gifts to 529 plans for children and grandchildren can be front-loaded with up to five years’ worth of annual exclusion gifts. Each client’s situation is unique. We can help you evaluate the appropriate savings rate to ensure you are on track for your tuition goal without overfunding the plan.
• For those so inclined, consider making a charitable contribution before year-end to offset a high-income year.
• Remember to take your required minimum distribution (RMD) from your IRA or 401(k).

Charitable Donations

• “Bunching” charitable donations into a single tax year provides an opportunity to use your itemized deductions to offset higher-than-usual income, such as capital gains from a home or equity sale. For all but the smallest charitable donations, we recommend using appreciated stock rather than cash, as you avoid capital gains taxes on gifted shares.

Donor-Advised Fund

• Gifting to a donor-advised fund (DAF)—a popular vehicle for making charitable donations—provides several benefits, including the ability to reduce taxes in a year in which taxable income is unusually high and “prefunding” charitable giving that you anticipate continuing in subsequent years.
• You receive a tax deduction for the year in which contributions are made but you can make gifts from the DAF to your preferred charities later.
• We can help you establish your DAF, partnering with organizations such as American Endowment Foundation, Jewish Communal Fund, or other third-party sponsors.

Qualified Charitable Distribution

• If you have not satisfied your RMD, making a qualified charitable distribution (QCD) from your IRA is a tax-efficient means of making charitable gifts.
• To make a QCD, you must be age 70½ or older, and the contribution must be made directly from the IRA to the charitable institution(s). Beginning in 2024, the maximum QCD limit is $105K, which is an increase from the previous $100K due to the annual adjustment for inflation that began this year.
• If you are eligible to make a QCD, your tax professional can help you compare the relative pros and cons of the QCD versus donating appreciated stock from a taxable account. For some individuals, donating appreciated stock and receiving the tax deduction will be the most tax-efficient approach. For others, the QCD will be optimal. The best approach may even vary from one year to the next, depending on the particulars of your situation.

RETIREMENT

Retirement Plan Contribution Limits for 2024

• 401(k) and 403(b) plans: $23K ($30.5K if age 50 or older) by 12/31/2024
• SIMPLE 401(k) plans: $16K ($19K if age 50 or older) by 12/31/2024
• Traditional and Roth IRAs: $7K ($8K if age 50 or older) by 4/15/2025
• SEP-IRAs: Capped at the lesser of 25% of net earnings or $69K by 4/15/2025

Roth IRA Conversions

• A Roth IRA conversion may be beneficial for IRA owners who have taxable (non-qualified) assets on hand for the tax payment, do not need their retirement funds in the short- to medium-term, want to add to their tax-exempt assets, and are focused on leaving an efficient legacy

Required Minimum Distribution

• If you have an RMD, it must be satisfied by 12/31/2024.
• Beginning in 2023, the SECURE 2.0 Act raised the age at which original retirement plan owners (with certain exemptions) must begin taking RMDs to 73.
• Those taking distributions for the first time can defer doing so until 4/1/2025 but will be mandated to take two RMDs that year—the first by 4/1/2025, which satisfies your required withdrawal for 2024, and the second by 12/31/2025, which satisfies your required withdrawal for 2025.
• For those who inherited IRAs after 12/31/2019, understanding if you are considered an eligible designated beneficiary¹ or a non-eligible designated beneficiary² will be helpful in determining if you are exempt from the 10-year rule, subject to the 10-year rule without RMDs, or subject to both the 10-year rule and RMDs.

TAXES

Tax-Loss Harvesting

• Tax-loss harvesting, or selling an investment at a loss, can help minimize capital gains and reduce federal taxable income for the year (up to a $3K income offset if you have no net capital gain).
• Realized losses that cannot be used in 2024 may be carried forward indefinitely into future tax years at the federal level. (State rules vary).

CORPORATE TRANSPARENCY ACT

Filing Deadlines for Certain Business Entities

• The Corporate Transparency Act (CTA) was enacted on 1/1/2024 to help prevent financial crimes. It requires certain business entities that were formed in the United States (and owners and individuals who exercise control over the entity) to file information on their “beneficial owners” with the Financial Crimes Enforcement Network of the US Department of the Treasury.
• The CTA imposes time-sensitive filing deadlines that are dependent on the date that the entity was formed. For entities in existence prior to 1/1/2024, the deadline is 1/1/2025. However, if the entity was created in 2024, the filing is due within 90 days of creation.
• We encourage you to check with your accountant and attorney to see if the CTA applies to you and if a filing is necessary. For more information, please visit https://fincen.gov/boi.
• A Federal District Court in Texas recently issued a nationwide injunction against the enforcement of the CTA. The Federal government has appealed. Many filers are awaiting the outcome of the appeal before proceeding with filing. We recommend that you speak with your attorney to determine how to proceed.

WEALTH PLANNING

Our Wealth Advisory Service

• By creating a comprehensive, customized Wealth Analysis that reflects your financial and investment objectives, net worth, detailed cash flows, asset allocation, and insurance coverage, we can facilitate thoughtful discussions with you on a range of topics. These conversations often address the purchase or sale of real estate, moving to another state, accelerating or delaying retirement, making sizable annual or lifetime gifts to the next generation, and paying for long-term care costs.
• We can also support you in trust and estate planning matters such as reviewing your existing plans, making recommendations (such as the pros and cons of revocable trusts), and working with your legal professionals to implement revisions that help to achieve personal, income, and estate tax planning goals. In addition, we can assist with family discussions and education related to family governance and dynamics and helping the next generation understand the goals and intent of family wealth.
• If you have recently purchased or sold real estate, valuables, and/or collectibles (e.g., artwork, automobiles, wine, jewelry), your property and casualty coverage should be reviewed. Periodically it is beneficial to review your excess personal liability/umbrella coverage to ensure it is sufficient³.

FIXED INCOME & EXCESS CASH

Reviewing Fixed Income Mutual Fund Shares

• If you have fixed-income investments in mutual funds, now may be an opportune time to re-evaluate these holdings.
• Since the Federal Reserve began raising interest rates in 2022, bond prices have fallen, and the net asset value of these funds may have declined as well. Further, the yields on many funds have materially lagged yields that can be achieved by purchasing individual bonds.
• Swapping bond mutual fund shares for individual bonds at higher yields may also be a good way to offset capital gains, as you may be able to harvest tax losses by selling these funds.
• Owning individual bonds allows us to structure your portfolio to ensure funds are available when you need them without being forced to sell shares of funds or stocks at inopportune times.

Excess Cash

• If you are holding excess cash—more cash than you are likely to require during the next several months—it may make sense to invest it in either short-term cash equivalents, like a money market fund or US Treasury bills, or longer-term investments, such as tax-exempt municipal bonds or other fixed-income securities. These types of assets are typically associated with an investment objective of preservation of capital and can help you maximize your earnings while having a ready source of funds. Certain investments may also help you reduce your taxable income. Learn more: Why Cash May No Longer Be King?

BENFICIARY DESIGNATIONS

Revisiting Your Designations

• We recommend that you review and coordinate your beneficiary designations to ensure they are aligned with your wishes and overall estate plan.
• It is important to remember that beneficiary designations supersede your will.
• Assets that commonly pass by beneficiary designation are retirement accounts, life insurance policies, and annuities. It is important to review TOD (transfer on death) designations to ensure they align with your estate planning documents.
• If you have a revocable trust, ensure that you have retitled relevant assets to the trust, as recommended by counsel.

TRUSTED CONTACTS & POWERS OF ATTORNEY

Updating Your First Manhattan Account

• Please provide us with executed powers of attorney as they relate to your First Manhattan account(s). In addition, we recommend that you consider naming a “trusted contact” and adding that person to your First Manhattan account(s). This designation permits us to communicate with your trusted contact in certain situations, such as if we are concerned about suspicious activity and are unable to reach you. Please note that the trusted contact will not have any authority to make transactions in your account(s).

A LOOK AHEAD

Federal Estate & Gift Tax Exemptions

• Federal estate and lifetime gift tax exemptions will increase from the current $13.61M in 2024 to $13.99M in 2025, with a combined exemption of $27.98M for spouses. This represents the amount an individual can gift during their lifetime (or at death) without being assessed a gift or estate tax (with rates up to 40%).
• Given the upcoming change in administration, the Tax Cuts and Jobs Act, currently scheduled to expire at the end of 2025, may be extended. We can help you navigate developments as they unfold. While the urgency to imminently utilize the exemption may have abated, there are still many long-term benefits to implementing gifts now rather than waiting. Learn more: Maximize Your Next Generation Gifting
• With exemptions so high, an individual may unintentionally fund a trust with more than anticipated. We recommend that you review your estate plan to ensure it still meets your intended goals. Many estate plans fund trusts with “formula amounts” to achieve maximum estate tax savings. Please let us know if we can help.

Gift Tax Exclusion Limits

• The annual gift tax exclusion will increase from $18K per individual ($36K per couple) in 2024 to $19K per individual ($38K per couple) in 2025.
• Gifts can be made “in-kind” by transferring securities valued up to the annual exclusion amount; however, the recipient will inherit the donor’s cost basis. Please consult with your tax professional to understand the consequences of the gift.
• Even if you have maximized your annual gift tax exclusion on behalf of a recipient, tuition and medical payments made directly to an accredited educational institution or healthcare provider on behalf of that individual are not counted against your lifetime gift and estate tax exemption.

Standard Deduction

• The IRS has indicated that the standard deduction will increase for tax year 2025: Married/Filing Jointly – $30K (from $29.9K in 2024), Single/ Filing Separately – $15K ($14.6K in 2024), Head of Household – $22.5K ($21.9K in 2024)

Social Security

• According to the Social Security Administration, Social Security recipients will receive a 2.5% increase in benefits beginning in January 2025 due to a cost-of-living adjustment.

¹Eligible designated beneficiaries include the spouse or minor child of the deceased account holder, a disabled or chronically ill individual, and an individual who is not more than 10 years younger than the IRA owner or plan participant.

²Non-eligible designated beneficiaries include non-spouses and certain trusts.

³The industry typically recommends personal liability insurance that matches your net worth up to $20M or $25M.