Another year, another swirl of tax policy speculation. With the recent election results, it’s looking likely that key provisions of the Tax Cuts and Jobs Act (TCJA) might get extended—or at least partially preserved. While Washington negotiates, we’re here to ensure you make the most of today’s opportunities while planning for whatever surprises tomorrow may bring.
To that end, let’s dive into strategies to close out 2024 and position yourself for 2025. As always, we’ll aim to keep it simple, smart, and just a bit entertaining.
The tax landscape is unpredictable, but what’s clear is that proactive planning always pays off. Whether you’re protecting your wealth, building a legacy, or simply trying to keep more of what you’ve earned, there are opportunities to act before year-end.
Top Off Retirement Accounts: The 2024 Edition
The best time to save for retirement was yesterday. The second-best time is right now. For 2024, you can contribute up to $23,000 to your 401(k), plus an additional $7,500 if you’re over 50. If you’re self-employed, SEP IRAs and Solo 401(k)s offer even higher contribution limits based on your income.
Looking ahead to 2025, an extension of the TCJA could mean ongoing opportunities for backdoor Roth IRA contributions or higher limits for HSAs, which are increasingly popular as triple-tax-advantaged savings vehicles.
Reminder for pre-retirees: Supercharge your deductions and other income offsets during high-tax-rate years.
Health Savings Accounts (HSAs): More Than a Medical Fund
An HSA is a powerful savings tool that often flies under the radar. Contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are tax-free—earning it the “triple tax advantage” title.
The 2024 contribution limits are $4,150 for individuals and $8,300 for families, with an additional $1,000 if you’re 55 or older. If you’re maxing out your 401(k) and looking for more ways to save, an HSA can be an excellent supplement.
You don’t need to spend your HSA funds immediately. Let the account grow and use it to cover medical expenses in retirement when healthcare costs are likely to peak.
Plan Ahead for Business Owners
If you own a business, make sure you’re maximizing deductions and credits available under the TCJA. Qualified Business Income (QBI) deductions remain a potential source of significant savings if you meet the income and operational thresholds. Bonus depreciation for assets purchased in 2024 is still on the table, but be prepared for phased reductions starting next year unless the TCJA is fully extended.
Charitable Giving: Double the Impact
Charitable contributions can still pack a punch. Donating appreciated assets, such as highly appreciated company stock, can help you avoid capital gains taxes while claiming a deduction for the full market value.
Consider front-loading donations using a Donor-Advised Fund (DAF). Fund it this year, claim the deduction, and direct the distributions to charities over time. It’s a win-win for you and the organizations you support.
Use Up “Lower” Brackets in Retirement
If the TCJA gets extended, many of the strategies we’ve used to date will remain in play. Expect continued opportunities for income tax planning within retirement.
- For many retirees, we’ve found that the 24% income tax bracket has become a “sweet spot” for tax efficiency. For married filing jointly (MFJ) couples, this bracket expands to $383,900 at the top end for 2024.
- Retirees may also benefit from preferential long-term capital gains brackets. The 15% long-term capital gains tax rate runs from $94,051 to $583,750 for MFJ couples.
- As part of your annual RMD analysis, don’t forget to consider QCDs for your charitable giving needs
Reminder for retirees: Take advantage of Roth conversions and other income accelerants during low-tax-rate years.
Transfer Tax Talk
Take advantage of family tax planning.
1. Use the Annual Gift Exclusion Wisely
The gift tax exclusion for 2024 is $18,000 per recipient. Use it! Gifting to children, grandchildren, or others is a simple way to reduce your taxable estate. If you have a wealth transfer strategy in play, these annual gifts can complement other techniques beautifully (and add up over time)! Married couples can give each recipient up to $36,000 tax-free in 2024. This can be achieved through gift splitting or use of a joint account.
Reminder for education and health care expenses: Amounts paid directly either to an educational institution or health care provider do not count towards the annual gift tax exclusion. Again, these amounts need to be paid directly to be exempt.
Custodial Roth IRAs: For children or grandchildren with earned income, consider funding a custodial Roth IRA. Contributions grow tax-free and teach the next generation the value of long-term investing. Even modest early contributions can snowball into substantial savings over time.
2. Fund Advanced Trusts:
- GRATs (Grantor Retained Annuity Trusts): Transfer appreciating assets while minimizing gift taxes. You receive fixed payments over the trust’s term, and any remaining assets pass to beneficiaries tax-free. Undervalued business interests, real estate or “growth” investments are types of assets to consider when funding a GRAT.
- SLATs (Spousal Lifetime Access Trusts): Preserve access to trust assets while reducing your estate. A SLAT allows one spouse to transfer assets into a trust for the benefit of the other spouse (and potentially other family members), keeping the assets out of the taxable estate.
- Crummey Trusts: Use annual exclusions to fund a trust for heirs while maintaining control. Crummey Trusts are often used to fund life insurance policies (via Irrevocable Life Insurance Trusts) or to safeguard assets for younger beneficiaries until they’re ready to manage the wealth responsibly.
- Consider Irrevocable Life Insurance Trusts (ILITs): Use an ILIT to keep life insurance proceeds out of your estate while ensuring liquidity to cover estate taxes or provide for heirs. Fund the premiums with annual gifts to maximize tax efficiency.
- For those with substantial estates, minimizing transfer taxes is always a top priority. With estate and gift tax exemption limits at a historic high ($13.61 million per individual in 2024, moving to $13.99 million per individual in 2025), it’s an excellent time to take action.
3. Consider Intra-Family Loans and Refinancing
Interest rates have risen, but they’re still relatively moderate historically. An intra-family loan can be an excellent way to help loved ones while shifting future appreciation out of your estate. Use these loans to fund a child’s home purchase, business, or other ventures.
If you have an existing intra-family loan, consider refinancing it if interest rates drop further.
By tailoring these strategies to your unique circumstances, pre-retirees, retirees, and those managing substantial estates can optimize their tax outcomes. Here’s to another year of staying ahead of tax deadlines and enjoying the rewards of thoughtful planning!
All of us at WealthCrossing wish you the happiest of holiday seasons and wishes for a healthy and prosperous New Year. If you have questions about how we can help, please reach out to our team!
