2024 Year-End Tax and Investment Planning Consideration

John Robinson |
Categories
Tax Planning
Portfolio Rebalancing
Roth IRA Conversions

By John H. Robinson, Financial Planner (November 30, 2024)

Every year I find myself scrambling to get out my year-end notice to clients to make sure they have considered year-end tax planning, and this year is no exception.  Below is a checklist of common year-end planning considerations. That is followed by an important message about rebalancing.

 

YEAR-END CHECKLIST

  • Review Capital Gains/Losses in taxable accounts.  Are there opportunities for tax loss selling to offset gains? 

 

  • Confirm that you have taken your 2024 RMDs. Remember that IRA RMDs can be consolidated and taken from a single IRA, but qualified plan (403(b)/401(k)) RMDs must be taken separately from IRAs and individually (i.el, they cannot be bundled.

 

  • Consider Partial Roth IRA conversions from IRAs to fill up lower (12%, 22% 24%) 2024 marginal tax brackets.

 

  • Consider Qualified Charitable Distributions (QCDs) – If you are over 70 ½, gifting from pre-tax IRAs is often more tax efficient than making direct charitable donations from savings, since most taxpayers do not have enough itemized deductions to exceed the $29,200 standard deduction for married couples ($14,600 for single taxpayers).

 

  • Meet with your CPA or tax advisor.  The best time of the year to meet your CPA is when they are the least busy.   October 15 to December 15 is often a good time, so we are chasing daylight on this one.  Early January (before 1099s start being issued) is often a good time to meet with your CPA too, but there is not much you can do retroactively for 2014 planning at that time. 

 

NOTE:  All FPH clients are welcome/encouraged to contact us for a one-on-one year-end tax planning review or to request a copy of your 2024 Realized Gain/Loss Report.

 

 

Time to Rebalance? 

Most FPH clients know that I favor “opportunistic” rather than automated annual portfolio rebalancing. This means that we review your portfolio toward the end of the year (or even the beginning of the next year) to decide whether it makes sense to sell some stock market exposure and replace it with investments with no market risk to maintain a healthy 5 to 7-year cushion.

 

For retirees, this often means replacing money that may have been spent during the year.  For people who are within five or so years away from retirement, the purpose is to begin setting aside 5-7 years’ worth of anticipated retirement income distributions. The fundamental planning purpose in both of these instances is to build a buffer to protect against sequence of returns risk.  In other words, we strive to avoid being forced to sell from the stock market portion of your portfolio to fund living expenses during times when the stock market may be depressed.  Maintaining 5-7 years of anticipated spending in safe, liquid investments buys time to wait out even a prolonged down-market period. 

 

While we do not ever know if the stock market will be higher or lower over the next few years, we do know that 2023 and 2024 have been strong years for the stock market.  As such, I believe it is wise to consider rebalancing now. 

 

SEE:  How Sequence of Return Risk Can Impact When to Retire 

 

John H. Robinson is the owner/founder of Financial Planning Hawaii and Fee-Only Planning Hawaii. He is also a co-founder of fintech software maker Nest Egg Guru and the new personal finance website NestEggPF.com.