The onset of autumn (known as Q4 to many) is a recommended time to review your end of year investment strategies to-do list, while also looking ahead to next year. Some of these tasks might need to be completed before January 1, while others simply warrant annual reviews. And some considerations may overlap, such as taxes and retirement and health savings accounts.
Closing the year out
Everyone’s financial portfolio is unique, even between couples, but there are potential changes in your fiscal picture that most people should consider before the close of the year. Because of the numerous and wide-ranging topics involved, it’s a good time to contact your Huntington Private Banker, who can help organize and prioritize your unique check list.
Looking at ways to reduce your tax bill–and there are many–is a wise place to start when tying up this year’s finances, starting with retirement accounts. In many cases, minimizing taxes may be achieved by acting before January 1.
You can transfer IRA money to a Roth IRA for tax-free future growth. However , you will pay upfront taxes on the amount transferred. Distributions of earnings on those contributions are tax-free as long as they're qualified.
Also, deductible contributions to a traditional IRA, and pre-tax contributions to an employer-sponsored retirement plan such as a 401(k) can reduce your taxable income next year.
Tax-Loss Harvesting may not be a familiar practice, which is exactly why you and your advisor should discuss it. Also known as tax-loss selling, the intent is to offset gains by selling investments that have lost value. As an example, if you earned a profit from the sale of an investment property that you had owned for less than a year, you’d be subject to short-term capital gains tax. Some of that tax liability could be offset by selling shares of a stock for less than what you paid for them.
Itemizing deductions may take time and effort but also could positively impact your next tax return if you’re likely to exceed the standard deduction. The 2023 standard deduction is $13,850 for single filers, $27,700 for joint filers and $20,800 for heads of household. Those 65 or older may be eligible for a higher standard deduction amount.
By combining some expenses, such as medical expenses, qualifying interest, and state taxes, you may have enough deductions to trigger the ability to itemize before the end of the year. Remember that contributions to charitable organizations are often eligible for itemizing, so add that into your mix.
Consider working with your tax advisors to defer income to next year. In particularly high earning years, receiving the income now and paying taxes on it all at once could result in higher payments than if the money were deferred and taxed over several years at lower rates during retirement. Even if your income remained consistent, keep in mind that the thresholds for each tax bracket increase each year with a cost of living.
Annual retirement steps
Year-end can be an ideal time to review your portfolio to ensure that the mix of assets in your various accounts (retirement, non-retirement, etc.) are working in coordination to help you meet your objectives and goals. If you’re 72 or older, you generally must take required minimum distributions from traditional IRAs and employer-sponsored retirement plans.
Health care accounts
Health care expenses can have a huge effect on tax planning. A Flexible Savings Accounts (FSA) is a pre-tax ‘bank account’ for out-of-pocket healthcare costs and is subject to taxation if funds aren’t used during the year. Therefore, be sure that you spend any leftover funds in your FSA by year-end.
The rules are different for Health Savings Accounts (HSA), which allow you to accumulate savings year over year. The maximum yearly contribution to an HSA is $4,150 for individuals, double that for a family, with an extra $1,000 annual contribution for individuals 55 and over. And the portion that you contribute is likely deductible.
Don’t forget about annual gifts
Annual exclusion gifts of up to $18,000 are permitted in 2024 with limited tax and reporting requirements. Although cash gifts are always welcome, consider making gifts with appreciated securities to recipients in lower tax brackets to maximize the future tax benefit. As an example, a married couple could give cash or appreciated securities of $36,000 ($18,000 each) to each of their children in 2024.
We’re here to help
Your advisors at the Huntington Private Bank stand ready, in coordination with your tax and legal advisors, to help you determine which end of year investment strategies are right for you. Selecting an appropriate giving vehicle depends on many factors–tax structure, income needs, type of asset being donated, desire to control and monitor, family culture, and philanthropic intentions. To learn more, please contact your Huntington Private Bank team to see how we can help or find a Huntington Private Bank office near you.