Wealth Planning Commentary – November 25, 2024

Year-End Income Tax Planning

As the year draws to a close, now is an opportune time to review key strategies for optimizing your income tax situation. Consider the following points and review them before year-end with your Wealth Manager and, if needed, Accountant: Required Minimum Distributions (RMDs) Ensure that all Required Minimum Distributions (RMDs) have been properly taken. Retirees must begin withdrawing RMDs from retirement accounts starting at age 73, as per the new age limit set by the Secure Act 2.0. Failing to take the required distribution can result in a penalty of 25% of the outstanding amount. In 2024, the IRS provided clarification on the rules for distributions from IRAs inherited after 2020. The new rules take effect next year and penalties for non-compliance will be waived for the years 2021-2024. For IRAs inherited before 2020, distributions should adhere to the previous rules, which allow the "stretch IRA" for nonspouse beneficiaries. Estimated Tax Payments Did you miss any estimated tax payments this year? While penalties may apply, additional penalties can often be avoided. A strategic rollover from an IRA may provide a solution, particularly if liquidity is a concern. By withdrawing the necessary amount from an IRA and opting to pay taxes, the withheld amount is treated as if it were paid throughout the year. To avoid additional income taxes, the funds must be rolled back into the IRA within 60 days. Another tactic to make late estimated payments is by withholding the amount outstanding from a Required Minimum Distribution. The IRS will treat this withholding as paid throughout the year, even if the distribution occurs late in December. However, it is important to note that state tax withholding may not be available, depending on the IRA custodian. Taxable Accounts Tax-loss harvesting remains a useful strategy for offsetting capital gains. By selling investments at a loss, it is possible to reduce taxable gains elsewhere in a portfolio. It is important to be mindful of the wash sale rule, which disallows the deduction if identical securities are purchased within 30 days of the sale. For those with cryptocurrency holdings, locking in losses on crypto investments is also available. Losses can be carried forward indefinitely or until fully utilized, and up to $3,000 in capital losses can be deducted from ordinary income in the current year. Please let your Wealth Manager know about any losses in your held-away accounts so they can plan accordingly. Retirement Plan Contributions To meet the 2024 contribution limit of $23,000, $30,500 for those 50 and older, for company-sponsored retirement plans, make salary deferrals by year-end. Some employers may allow a 100% salary deferral during the final month of the year. For self-employed individuals with a solo 401(k), the employee contribution must be made by December 31 unless the entity is a sole proprietorship or single member LLC, in which case the deadline is typically April 15, 2025. Employer contributions to ‘solos’ can't be made any later than the business tax-filing deadline, including extensions. The SEP contribution deadline is generally April 15, but it is March 15 for partnerships and S-corps. 529 Plan Contributions In states that offer tax deductions for contributions to 529 college savings plans, remember the deadline to make contributions that qualify for deductions in 2024 is December 31st. Qualified Charitable Distributions (QCDs) Individuals aged 70½ or older can make Qualified Charitable Distributions (QCDs) from an IRA to reduce taxable income, with a cap of $105,000 for 2024. If the distribution is made by December 31st, the donation will count toward the 2024 tax year, regardless of when the charity deposits the funds. The QCD must be transferred directly from the IRA to the charity—either electronically or via check made payable to the charity. Note that QCDs cannot be made to Donor-Advised Funds (DAFs). SALT Cap Workaround Many individuals are impacted by the $10,000 cap on state and local tax (SALT) deductions. However, for those receiving income through pass-through entities, there may be an opportunity to bypass this cap by having the business pay state taxes, which can then be deducted on the federal return. As these rules are state-specific and complex, it is important to consult with accountants to verify whether this election requires annual renewal. Please reach out to your Wealth Manager with questions about year-end income tax planning. Disclosures Investment advisory services offered through Robertson Stephens Wealth Management, LLC (“Robertson Stephens”), an SEC-registered investment advisor. Registration does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. This material is for general informational purposes only, has not been tailored to the needs of any specific client, and should not be construed as individual tax, legal or investment advice. Please consult with your individual tax advisor prior to making any tax-related decisions. The information contained herein was compiled from sources believed to be reliable, but Robertson Stephens does not guarantee its accuracy or completeness. Investing entails risks, including possible loss of principal. Past performance does not guarantee future results. This material is an investment advisory publication intended for investment advisory clients and prospective clients only. Robertson Stephens only transacts business in states in which it is properly registered or is excluded or exempted from registration. 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