December 2024
Here are some key takeaways from their conversations:
- Ensure you are maximizing contributions to employer-sponsored retirement plans. The limit is $23,000 for people under 50 and $30,500 for those 50 and over with the catch-up contribution.
- Consider tax loss harvesting to offset capital gains by selling investments at a loss. Amber and Chris generally recommend listeners to monitor this strategy throughout the year for better opportunities.
- If you are subject to required minimum distributions (RMDs), it is important to take them before the end of the year. A good strategy for charitable individuals is to use Qualified Charitable Distributions (QCDs) to reduce taxable income while donating directly from your retirement account.
- Review your income and tax bracket to explore Roth IRA conversions, which can provide tax-free income in retirement and potentially benefit your children by leaving them tax-free assets.
- Max out Health Savings Account (HSA) contributions if eligible. HSAs provide a triple tax advantage: tax deductions on contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses.
- For Flexible Spending Accounts (FSAs), be mindful of any remaining funds since they are “use it or lose it.”
- The end of the year is the perfect time to think about gifting. Consider making contributions to 529 plans for your children or grandchildren, which offer tax-free growth and withdrawals for educational expenses. Additionally, explore options like gifting Roth IRAs for future generations.
Watch previous episodes here:
Ep. 115 Would You Rather Give to Charity or the IRS?
Ep. 114 Liquidity: Blessing or Curse?
Hello, everyone, and thank you for joining us for another episode of THE FINANCIAL COMMUTE. I'm your host, Chris Galeski joined by financial planning advisor Amber McBride. Amber, thank you so much for joining me today.
I'm so excited, Chris.
So we're nearing the end of 2024. This year feels like it's gone by really fast. And we're here to talk today about sort of like a year-end checklist. A lot of the things that we do for clients, you know, nearing out the end of the year, but things that other people can do or just sort of check the box to make sure that they're doing all of the things that they can to save, find and make more money before the end of the year.
Yeah, Chris, I know top of mind for a lot of my clients is planning for retirement. So talk to me about retirement plans.
You know, that's one of the things that I think people can do before year end. That's pretty easy, is to look at their employer sponsored retirement plans and make sure that they're maxing out those contributions. So if you're under 50, the limit is $23,000 for the year. If you're over the age of 50, there's a $7,500 catch up.
I know those rules are going to change a little bit next year. And we'll we'll film another episode talking about those changes, early on in 2025, but making sure that that you're maxing out those retirement plans and setting yourself up for success, you know, for your retirement, that's a really important one that age 50, catch up. You can actually do it in the year that you turn 50.
So if you turn 50 on December 27th, you didn't miss it. You can still do it before the end of the year.
Good news. My mom's that December 31st birthday baby. So she would appreciate that.
I like that. December 27th stood out because that's actually my dad's birthday. So it was the first one that I can think of. But you know, maxing out those retirement plans is a big one. You have until April to do your traditional IRAs and your Roth IRAs, so there's no rush to have to do that.
But that is something that people can plan for. I also really like tax loss harvesting. I know the markets have been on an absolute rout in the last couple of years. Lots of asset prices have increased in value, so there might not be a ton of opportunity for people to sell investments at a loss and use that loss to offset other capital gains that they may have or may want to take.
But tax loss harvesting is something that we like to do throughout the year. Some people only do it towards the end of the year. I would recommend for people to look at it a little bit more often than just December, because there may not always be an opportunity in that month, but there might throughout the year.
But that tends to be a good one. As we talked a little bit about retirement plan, some of our clients are subject to required minimum distributions, and there's some year end things that they have to do related to that. What are some strategies that are tied to that?
Yeah. So again I think sometimes you're taking your required minimum distributions throughout the year. But if you haven't yet and if you're charitable, there's a really great strategy that we like to consider. Qualified charitable distributions. It's a way to let you give money directly from your retirement plan to a qualified charity, and it reduces your taxes dollar for dollar.
There are some limits, for any single individual, the limit is 105,000 a year. If you're married, filing jointly a little bit higher, 210,000 a year. But again, if you haven't taken that RMD yet and you still need to and if you're charitably inclined and want to reduce your taxes a little bit, qualified charitable distribution is something to think about.
Yeah, I love those. You know, Mike and I just spoke on this briefly last week in our episode around, you know, different charitable giving strategies. The key thing to note with that is that the 1099 the clients are going to receive is just going to say that a distribution was taken out of their IRA.
They still have to let their accountant know or to notate the amount that was given through the through the form of a QCD. So that way they get the deduction. But I love that strategy.
And then Chris, you talked about maximizing the contributions that you're making to your retirement plans this year. Another good idea right now is you probably have a good idea of what your total income for the year is.
Depending on your income, there might be some room to do some Roth conversions.
Totally. I mean, if you want to analyze kind of where you are today and what bracket you're in, and if you're worried that you're going to be in a higher tax bracket in the future, a Roth conversion can make a lot of sense. But it's not just for you. It's also thinking about the tax bracket your kids might be in and the values you have with the legacy you want to leave.
Yeah, absolutely. It's really right later in life to have that tax free income for yourself. But there's the potential that you're not even going to touch your retirement accounts or maybe not all of it.
So then the money's that your kids are going to inherit. It's a really nice way to leave them tax free income, because they're going to have to start pulling from whatever retirement account you potentially leave them. If you've done Roth conversions or if you've contributed to a Roth throughout the years, you're going to be leaving them tax free.
Most people love that, that word tax free. And speaking of tax free, it goes into one of my favorite types of accounts, which is a health savings account.
It's an account where you can contribute money into and get a tax deduction off of your income. You can invest and grow that money tax deferred. And then as long as you take the money out for qualified medical distributions, it comes out of the account tax free. And so it feels like one of the best accounts.
Now, it's not right for everybody. You have to look at your personal situation and whether or not a high deductible health plan makes sense for you. But I love HSA accounts and being able to max those out. And so people might want to look at that and say, hey, maybe I've got room left to contribute it. Because the thing with the health savings account, which is different than a flexible spending account.
Is that with the health savings account, you don't lose the money that's in there at the end of the year. But a flexible spending account or and FSA that's use it or lose it. So right now if somebody hasn't used it what should they be doing. Well I tend to see a lot of people going to the doctor this time of year and get prescription sunglasses because they've got room left over, or at least that's something that I used to do back in the day.
But, you know, people should really be conscious about the amount that's going into an FSA and the amount that they have left, and make sure that, you know, they're not they're not letting any money just disappear, that they put that they've set aside and don't have access to it.
Yeah, definitely. I think it's also a time to think about next year and how much you're going to put into those accounts next year.
With a flexible spending account. Did you put too much in and you weren't able to use it all? Maybe you don't want to put as much in next year. With the health savings account, you talked about that triple tax advantage. So we want to make sure that you're maximizing how much you're putting in that.
And so you mentioned thinking about next year. As as we near out the end of the year, one of the things that you had on the checklist that you thought was important was sort of reviewing your personal goals, like, talk to me a little bit about that.
Yeah, definitely. The end of the year can be really busy, it's also a time of reflection. So it's a really good time to think about your financial goals. What happened this past year? Have your goals changed and if your goals have changed? Does your financial plan need to change? What goals do you have in the coming year and what steps can you take to set yourself up for success next year?
And as we're nearing the end of the year, thinking about what steps can you still take this year to reach to maybe help with some of your financial goals that you had this year?
Some of these things are on our list, and we've already talked about them. And coming up on next year, how can you start preparing and planning for your future goals?
I love the planning aspect. I mean, financial planning is such an important part of people's lives because it helps build the confidence that they're making the right short term decisions with their money that don't sort of ruin the long term aspect of what they're trying to accomplish.
And as you mentioned, like reflecting on goals that you have- some clients, they like to do this in the form of gifting, whether it's to their kids or grandkids. I mean, there's a lot of different strategies that people can deploy. Like what? What comes top of mind there?
End of the year, there's usually a lot of gift happening.
Contributions to a 529 plan are one way that we love to do that.
I love 529 plans. I mean, it's a way to be able to set aside money for, you know, future education that you get all of the growth tax deferred. And again, when you take the money out for qualified higher education expenses, it comes out tax free.
There's been some rule changes with Secure Act 2.0. So, there's some nuances. I think as long as the account's been open for at least 15 years and there's money left over, you could use some of those dollars to get a jump start on your kids or grandkids' retirement plans by being able roll some of it over into a Roth IRA each year.
So, a lot of clarification that's coming out. I'm sure it's a topic that that we'll discuss more, in 2025, but it can be a great vehicle to not only save for higher education, but also help your kids, jump start a retirement plan in the future if there's money left over.
Absolutely. And then, Chris, so while people are reflecting, thinking about their financial goals, they're probably also thinking about their portfolio.
What should they be thinking about when it comes to their investments? You know, we care a lot about diversification. Obviously price and value valuations matter a lot when it comes to making investment decisions. And the last couple of years we've been spoiled with a lot of growth in the stock market. And so there's a chance that, clients have some positions that have grown large in size and they should consider, you know, evaluating those concentrated positions or that large growth and finding ways to employ strategies to decrease the size of those positions and look to evaluate the risk and the goals that they have?
I like to think of it in the bucket approach that we talk about a little bit, making sure you've got one bucket, that's your emergency fund, that's your sleep at night money. I know I'm and need this money in the next couple of years, so keep that really safe then I need income to live my life.
So I got that second bucket where I put enough money in those income generating assets in order to to help pay myself so I can live the life that I want to live. And then whatever's left over can be in the growth bucket. In years like we've had, we've been spoiled the last couple of years. That growth bucket has grown a lot.
So there's a chance that we can take some risk off the table and increase the income so we can have more fun in our lives. And so decreasing, some of the concentrated positions or some of the growth, I think is a great thing to do. Right now.
Chris, I love that you brought up that aspect about revisiting your income needs. If you have any questions or want to revisit your financial plan, reach out, schedule an appointment with your advisor to start a conversation.
Yeah. Amber, thank you so much for joining us today. You know, again, we talked about a lot of different things as it relates to like a year end checklist, whether it's maxing out retirement plans, qualified charitable distributions.
I always say qualified charitable donations, but qualified charitable distributions, tax loss harvesting, reducing concentrated positions, gifting, the overall goals that you might have for your money and your family. Amber, really enjoyed today. Thank you so much.
Me too. Thanks for having me, Chris.
The information presented herein is for educational purposes only and is not intended to constitute financial advice. The views and opinions expressed by the speakers are as of the date of the recording and are subject to change. It should not be assumed that Morton will make financial recommendations in the future that are consistent with the views expressed herein. Past performance is no guarantee of future results. You are encouraged to seek tax and/or financial advice from your financial advisor and/or tax professional to thoroughly review all information before implementing any transactions and/or strategies concerning your finances
