Esq Wealth’s Top 10 Year-End Financial Planning Strategies

This article is reprinted with permission from Esq. Wealth Management, Inc.

As we approach the end of the year, Esq Wealth is committed to helping you navigate strategic financial moves that can profoundly impact your financial future. This guide outlines ten strategies covering diverse aspects of financial planning, ensuring a holistic approach to your year-end financial strategies.

  1. Tax-Loss Harvesting with Bonds: Tax-loss harvesting is a strategy in which investors can sell investments at a loss to offset capital gains elsewhere. The average core bond fund is down 20% over three years. Investors can “harvest” those losses now to potentially cut tax bills in April 2024. Since bond funds tend to distribute the bulk of their return in income distributions, their price return is usually well below their total return. Consider harvesting losses from core bond funds with negative price returns. EsqWealth utilizes specialized software to help identify tax-loss harvesting opportunities and capital gains in clients’ portfolios to help them keep more of what they earn. We can upload client portfolios and run a tax analysis in seconds.
  2. Maximize Retirement Contributions: Contribute the maximum allowed to your retirement accounts (IRAs or 401(k)s) to benefit from tax advantages. For 2023, the 401(k) contribution limit is $22,500, with an additional $7,500 for those aged 50 and older. IRAs have a contribution limit of $6,500, with an extra $1,000 for those aged 50 and older. These catch-up provisions are intended to help older workers make up for lost savings time, as they may have had fewer years to contribute to their retirement accounts than younger workers.
  3. Optimize Charitable Donations with Appreciated Assets: Consider donating appreciated assets to charities. This strategy not only supports charitable causes but also provides tax advantages by potentially avoiding capital gains tax on appreciated assets. For instance, if an individual purchased stocks for $5,000, and these stocks are now valued at $15,000, donating them directly to a qualified charity would enable the donor to claim a tax deduction for the full current market value of $15,000. This donation allows the donor to potentially avoid paying capital gains tax on the appreciated amount of $10,000 and claim a tax write-off for the entire appreciated value when filing taxes.
  4. Charitable Distributions (QCDs): Charitably-minded individuals and couples age 70½ and older have a tax-smart strategy with QCDs, also known as a charitable IRA rollover. Individuals aged 70½ and older can significantly reduce taxable income by directly donating up to $100,000 from an IRA to one or more qualifying charities, excluding donor-advised funds. Additionally, donors can also direct a one-time, $50,000 QCD to a charitable remainder trust from an IRA.
  5. Leverage Annual Gifting and 529 Plans: Make the most of the 2023 gift-tax exclusion of $17,000 per recipient by gifting to children or family members. Moreover, explore the opportunity to open two 529 plan accounts per child—one for each parent—to potentially double the state tax deduction. Contribution limits vary by state. Some states allow front-loading a 529 plan for up to five years’ worth of the annual gift exclusion, totaling up to $85,000 for individuals or $170,000 per couple, per child or beneficiary.
  6. Review Investments and Long-Term Objectives: Assess investment performance in the context of your broader financial plan. While annual reviews are convenient, evaluating results over extended periods is crucial for tracking progress toward long-term goals. Additionally, consider rebalancing your investment portfolio on an annual basis to be sure that it is aligned with your risk tolerance and long-term goals.
  7. Evaluate Insurance Coverage and Debt Management: Ensure your insurance policies align with current needs and strategize debt management by creating a plan to pay off outstanding debts. Consider consolidating high-interest debts or renegotiating terms for financial ease. These measures not only mitigate financial risks but also contribute to a stronger and more secure financial foundation for you and your family’s future.
  8. Strengthen Emergency Fund: Maintaining a robust emergency fund is vital to weathering financial storms that may arise unexpectedly. Experts recommend setting aside three to six months’ worth of living expenses in easily accessible savings. This fund acts as a financial safety net, providing a buffer against job loss, unexpected medical expenses, or other unforeseen circumstances. It grants peace of mind, ensuring that you can cover essential expenses without relying on credit or jeopardizing long-term financial goals.
  9. Estate Planning: Estate planning is a critical component of financial well-being often overlooked. Most financial advisors suggest reviewing estate planning documents periodically, typically every few years or after significant life changes. If you haven’t reviewed or updated your estate planning in the past three years, now is an opportune time to do so. Establishing or updating wills, trusts, and powers of attorney ensures that your assets are protected and distributed according to your wishes. It allows for the designation of beneficiaries and guardianship for dependents if necessary. Estate planning not only secures your legacy but also helps mitigate potential disputes or complications among heirs, providing clarity and direction during emotionally challenging times.
  10. Discuss End-of-Life Wishes with Family: Once you have your estate planning in order, you can use family gatherings during the holiday season to discuss end-of-life wishes, especially pertinent for older individuals. These discussions around estate planning, wills, trusts, and healthcare directives can be significant during these moments. Discussing end-of-life wishes with family is about fostering understanding, respect, and support during a sensitive and crucial time. It promotes a shared understanding of your desires and increases the likelihood that your preferences are honored, leading to more compassionate and informed decision-making.

Conclusion

The year-end offers a critical opportunity to make impactful financial decisions. Utilize these expert-endorsed tips to set a robust foundation for the upcoming year and secure your financial future. As a bonus tip, be sure to consider meeting with your tax professional to explore these and other potential tax-saving opportunities to ensure you have a comprehensive approach to your year-end financial planning.

The information above is not intended to and should not be construed as specific advice or recommendations for any individual. The opinions voiced are for general information only and are not intended to provide, and should not be relied on for tax, legal, or accounting advice. To discuss specific recommendations for any unique situation, please feel free to contact us.

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