Making A List and Checking It Twice
As we collectively wind down the year, mid-way into December, it is important to double check our to-do list items before putting a bow on 2024.
First, let’s acknowledge that year-end can often be a busy time of year for folks with holidays, travel plans, and time off from work for gathering with friends and family.
What else can we be mindful of before year end?
When it comes to your portfolio of investment accounts and your planning objectives, there are a few things to keep top of mind with the 15 ½ trading days left this year. Be nice to your financial self and double check what is left to make good upon. And before you kickback with a cup of holiday cider or eggnog, let’s review the following points of financial emphasis.
Naughty or Nice Checklist:
• Retirement Contributions: Did you fully fund your employer-sponsored retirement account of a 401(k), 403(b), or 457 of $23,000? If you are over age 50, did you fund to the max allowable addition, with a catch-up amount of an additional $7,500? Or best yet, do you have access to a post-tax 401(k) deferral option for funding a whopping combined 401(k) “MEGA” contribution of $69,000 for this year? There is just enough time to make good and adjust your contributions before the last payroll cycle. Consider logging on to your employer plan website and determine if any of these can be further funded or maxed out before year-end and capture the tax benefits. Note: if you maxed these out last year in 2023, know that the allowable dollars went up in 2024 and will go up again in 2025 (particularly for those ages 60-63); check back again in January.
• Flexible Spending Account (FSA): Did you fund dollars into a FSA this year? A nice reminder that those dollars, unlike an HSA, generally must be spent before year end; some with a grace period to March 15th of next year. Ultimately, an FSA is a use-it-or-lose it benefit with tax advantaged spending for deductibles and co-pays. But move over Rudolph, because you can use FSA funds to purchase everything from over-the-counter medications, bandages, prescription glasses or sun glasses, or thermometers. Attempting to use these funds for retail therapy and self-medicating bar tabs will result in exempt (non-allowed) expenditures. Fun fact: in many cases, acupuncture, massage therapy, orthotics, skin care, baby monitors, contraceptives, and fertility kits can be allowable expenses for most insurance companies FSA programs. Oh, and if little Lisa needs braces, dental plans are an ideal use for FSA funds, too.
• Review Beneficiaries: Lean into the holiday spirit of this Naughty or Nice List and determine if your list of heirs and legatees warrant being added or subtracted from your investment accounts, insurance policies, retirement benefits and pensions, or general estate plan. As the generous benefactor that you are, perhaps consider naming new children or grandchildren of the family or charities of worthy interest. On the other hand, a change of heart for others that divorce, fall out of favor, pass on from life, or simply end up on one’s naughty list may be adjusted or removed where appropriate.
• Year End Spending: It’s the Most Wonderful Time of the Year.…to evaluate how your spending changed in 2024 and review your monthly cashflow. No one likes the B word (budget), but we can all agree on the practical need to have a spending plan. You are inevitably going to spend, so just make a plan – a spending plan. A good year-end habit is also reviewing what spending can be curbed, too, on excess subscriptions, frivolous habits, unused memberships, and other items that contribute to monthly drag on your savings. Today’s world of fin-tech includes an innumerable number of budget apps that help with tracking your spending, alerts for unwanted transactions, and even help you easily un-subscribe from unwanted or pesky subscriptions with a few clicks.
• Cost basis confirmations: Did you sell any investments with an incomplete or unconfirmed cost basis this year? Before your custodian publishes the 1099 tax reporting forms, make sure that securities sold have your best effort to determine the date acquired and submitted for recording. Selling a security with no known cost basis (entered as “$0.00”) ensures you unfortunately will pay capital gains tax on 100% of the value sold.
This basis check-up is also an important exercise for any RSU (employer issued “restricted stock units”) sold in 2024; remember to circle back in 2025 on the RSU figures before tax filing occurs. You may notice that your RSU cost basis reflects as zero purchase price; this is because you technically did not buy them – they were awarded. But if you report it as-is, you will end up paying tax twice! Avoid this common error by including the income previously reported from the Fair Market Value on your W-2 for cost basis purposes for any capital gain sales of the shares in 2024.
• Roth conversions or backdoor contributions: Did you have the opportunity to consider the merits of an IRA to Roth IRA conversion this year? Better yet, take the opportunity to review funding a back-door Roth IRA or spousal back-door Roth IRA for maximizing tax free income later on. And always double check first for existing IRA dollars to consider the pro rata rules for IRA conversions. You’ll end up with a lump of coal, and an unexpected tax bill to boot, if you are not careful to take time and effort in these nuanced steps for retirement account strategies for placement into Roth investment accounts. We covered these topics earlier this year with articles here and/or here.
• Surplus cash in the bank: The economy continued to expand in 2024 with near record low unemployment rates. Steady/increasing income leads many to a surplus of cash available for planning. Simultaneously, the current holiday season is providing money market rates between 4% – 5%. Take stock with your ACM advisor to see which strategies may be appropriate to help your surplus cash keep up with ongoing inflationary pressures.
• Gifting: Saving the best for last – because it’s the season of giving! As many families and friends partake in gift giving this time of year, we also remember that there are rules and tips many clients use for intergenerational & charitable gifting within the tax code. In 2024, the gift tax annual exclusion amount is $18,000 per person. So, as you benevolently consider the best utilization of these gifting rules, there are minimum and maximum heights for flying the charitable sleigh. In gifting to charitable organizations, be mindful about making the gift large enough for itemization in order to claim it for tax purposes. This year’s standard deduction is $14,600 for single filers or $29,200 for married couples filing jointly. If you are taking the standard deduction this year, then you are not itemizing deductions and therefore cannot deduct charitable contributions. That could change it your deduction is large enough and those over 70.5 years old can still make qualified charitable deductions from their IRAs.
We hope this holiday season finds you well and in good spirits as we begin to close the books on 2024 planning. Please be sure to reach out to your ACM Wealth advisor for follow up questions on any of the above-mentioned planning items and funding considerations. Know that we serve as a resource to you and your family for fulfilling your holiday wish list of portfolio tips and best practices to smartly build and protect your wealth. Until next time around, cheers to your holiday season.
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