With the election behind us, I wanted to address potential impacts to your plan, as well as other preparations for end of year planning. The biggest area of concern was the potential for another overhaul of the tax code. With Trump’s victory, I will continue planning under the assumption that the TCJA will be extended when it expires at the end of 2025. From an income tax perspective this is a win. While I know all of us are feeling squeezed from persistent inflation, federal tax brackets are very low, historically speaking.
Having said that, the end of the year provides the opportunity to add even more tax advantages to your plan. With open enrollment upon us, it’s imperative that you take advantage of FSA’s (Flex Savings Accounts), HSA’s (Health Savings Accounts) and Dependent Care FSA’s. These accounts allow you to deduct your contributions and utilize the assets tax free within the rules of the plan. If you are unsure what expenses qualify in these plans please set up a zoom call with me so I can review your workplace benefits with you as each company is unique in what they may offer.
While we are on workplace benefits, 401K limits are increasing $500 to $23,500 for 2025. Catch up contributions ($7,500 for 401K and $1,000 for IRA’s), Traditional IRA’s and ROTH IRA limits remained unchanged ($7,000). There is also a new addition in 2025 thanks to SECURE 2.0. Workers aged 60-63 are allowed an ENHANCED catch up contribution up to $11,250.
ROTH conversions are another area for potential tax benefits in retirement. Working with your accountant we can calculate whether there is room to add this type of tax plan while staying within your tax bracket. If you have a traditional IRA, “converting” some, or all of that balance to a ROTH will result in taxable income this year. However, that will be the last tax you pay on that amount. So if you believe that brackets have nowhere to go but up in the future, this may be an idea you want to take advantage of.
Estate planning is always something I personally look at year end. At the workplace you need to review your beneficiaries. Please remember, designated beneficiaries ALWAYS trump your will. And speaking of wills, is yours done? If not you can complete it here. Gifting and charitable giving is another way to start reducing money in your estate. Utilizing a donor advised fund can result in a tax deduction. This is a higher level planning idea that I can help with. For 2024 the gift tax exemption is $18,000 and will go up to $19,000 in 2025. One way to utilize this to open a 529 if you have grandchildren. A 529 owned by the grandparent is no longer counted in the FAFSA for college applications. It’s a great way to provide tuition help while not impacting financial aid at all.
I’m doing tax planning all year long in your taxable accounts. Harvesting losses throughout the year while also rebalancing on a regular basis is the best way to maximize your gains while minimizing taxable events. Should you have any questions on anything mentioned please don’t hesitate to reach out. And as always, feel free to share this with someone who may benefit. Thanks!