Finance
I’m a Financial Advisor: 6 Year-End Tax Moves My Wealthy Clients Make
The dog days of summer might seem like a strange time to start thinking about the right year-end tax moves. After all, you still have to go through spooky season and the holidays well before the taxman comes a callin’. Yet planning your tax moves well in advance can help you preserve more of your wealth long before you have to sign those forms.
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As the founder and CEO of 11 Financial, Taylor Kovar, CFP, has experience in helping wealthier clients make those savvy tax moves. GOBankingRates connected with Kovar to get his insights about what people with higher incomes can do to get their taxes in order as the end of the year approaches (it’ll be here sooner than you know).
Contribute to Tax-Advantaged Retirement Accounts
One of Kovar’s first big pieces of advice for wealthy clients is to ensure that they’re maximizing contribution to tax-advantaged retirement accounts, like 401(k)s, IRAs and Roth IRAs.
“For 2024, the contribution limits are $22,500 for 401(k)s ($30,000 if over age 50) and $6,500 for IRAs ($7,500 if over age 50),” he said. “Making these contributions can reduce taxable income and boost long-term savings.”
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Focus on Charitable Giving
Giving money to causes that inspire you doesn’t just do your heart and soul some good, it can also have great benefits for your bottom line. Kovar recommends that his clients consider making donations to qualified charities before the year’s end to help save on taxes.
“Additionally, they can donate appreciated assets such as stocks or real estate to avoid capital gains taxes and receive a charitable deduction,” he added. “For those 70 and a half and older, qualified charitable distributions from IRAs can be a tax-efficient way to give.”
Explore Tax-Loss Harvesting
While the word harvesting conjures images of plucking fresh fruits and vegetables out of the ground, tax-loss harvesting can help you generate more green. As Kovar explained it, tax-loss harvesting involves selling investments at a loss to offset capital gains and reduce taxable income.
“Investors should review their portfolios to identify underperforming assets that can be sold to realize losses and minimize their tax liability,” he said.
Make Annual Gifts
Kovar also recommends that his wealthy clients make annual gifts to reduce their estate size and potentially avoid estate taxes. Even better? They get to see the recipient enjoy their gift. For 2024, the annual gift tax exclusion is $17,000 per recipient.
“Reviewing and updating estate planning documents and strategies can ensure that their estate plan is aligned with current laws and personal goals,” he added.
Convert to a Roth IRA
If you’re expecting your income to increase in the future, you might consider converting traditional IRAs or other tax-deferred accounts to Roth IRAs.
Kovar shared that Roth conversions can be taxed in the year of conversion. However, they provide tax-free growth and withdrawals in retirement.
Take RMDs
New Year’s Eve should be more than your last chance to party before the end of the year, it’s also the last day of the year you can take required minimum distributions (RMDs) to avoid penalties.
“Investors who turn 72 this year need to start taking RMDs, and those already taking them should verify they have met the requirements,” said Kovar.
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This article originally appeared on GOBankingRates.com: I’m a Financial Advisor: 6 Year-End Tax Moves My Wealthy Clients Make