As we approach the end of the year, it is the opportune time to review your personal wealth picture, strategically plan for the future, and make any last-minute contributions or financial moves before year-end deadlines. From thinking about your investment strategy, to estate, retirement, and tax planning, each element is a vital part of the financial journey. Below are some of the year-end considerations you should review. We encourage you to reach out to your Haverford Portfolio Manager if you have any questions.
Retirement Planning:
Consider optimizing your retirement savings by maximizing contributions to your retirement accounts while being mindful of contributions limits for each account type and other important deadlines.
Evaluate 401(k) and Individual Retirement Accounts (IRAs) Contributions
Take advantage of tax-deferred growth and the power of compounding returns by contributing as much as you can to your retirement accounts up to 2023 limits by the end of the year.
| 2023 Limits | Age 49 and Younger | Age 50 and Above |
| IRAs | $6,500 | Includes $1,000 catch-up to total $7,500 |
| 401(k)s, 403(b)s & most 457s | $22,500 | Includes $7,500 catch-up to total $30,000 |
Take Required Minimum Distributions (RMDs)
IRA owners who are age 73 or older must take RMDs. Don’t forget, especially if you have IRAs outside of Haverford Trust, to take these distributions as penalties can be extremely steep. If you are giving to charity, it may be advantageous to gift your RMD directly to the organization. By doing so, you do not have to acknowledge any income for that donation, up to $100,000.
*Small Business Owners
If establishing or modifying a retirement plan, be mindful of deadlines for plans such as SEP IRA, SIMPLE IRA, solo 401(k), or defined benefit plans.
Investment Planning:
As a Haverford client, your Portfolio Management team diligently oversees your investment management and planning requirements; However, it is prudent to reflect if there is new information you discover you want to share with your Portfolio Management team that might impact your investment goals or risk tolerance.
Reallocation and Rebalancing
As the year concludes, it is a good reminder to review your investment strategy and portfolio. Have your circumstances changed since your investment strategy was developed? Confirm alignment with your specified goals, risk tolerance, and other essential considerations is integral to sustaining an optimal risk-return profile. Engaging in the disciplined practice of rebalancing is a proactive measure that ensures your investment portfolio stays true to its original strategy, reinforcing a resilient and thoughtful approach to investing.
Consider Tax Loss Harvesting
Investors should review their portfolios for potential losses that can be offset against gains for the 2023 tax year. Tax loss harvesting involves selling investments at a loss to counterbalance capital gains, thereby minimizing tax liabilities. Taking action before the end of the year allows investors to optimize their tax position and make informed decisions about their holdings.
Tax Planning
Review your tax withholding and explore opportunities to defer or accelerate income to improve tax efficiency and preserve more of your earnings.
Consider Deferring or Accelerating Income
Consider deferring year-end bonuses or other payments if you foresee being in a lower tax bracket in the coming year. This proactive decision allows you to postpone the payment of taxes on this income until the following year.
Conversely, if there’s an expectation of entering a higher tax bracket in 2024, it may be prudent to contemplate accelerating income before year-end. This strategy enables you to recognize income in the current year, potentially mitigating the impact of higher tax rates anticipated in the future.
Review Tax Withholding
If you think you will owe federal income tax for the 2023 tax year, you may want to consider increasing your tax withholding for the remainder of the year to cover that shortfall. This method can be used to make up for low or missing estimated tax payments.
Evaluate the Potential Benefits of a Roth IRA Conversion
A Roth IRA conversion is the process of converting a traditional IRA to a Roth IRA where taxes are paid in the year of conversion to allow for future tax-free withdrawals. Discuss the potential benefits and other considerations with your Accountant and other trusted advisors to see if a Roth IRA conversion should be a part of your wealth plan.
Estate Planning:
Reflect on life events that may have occurred during the year that may impact your estate plan like marriage, births, or divorce. Ensure accuracy of critical estate planning documents and confirm any intentions to support your loved ones’ financial well-being.
Evaluate Your Gifting Strategy
Consider making use of the annual gift tax exclusion. In 2023, you can gift up to $17,000 per person ($34,000 for married couples) without triggering gift tax. This can help reduce the taxable value of your estate.
Be aware of the current lifetime gifting exemption, which is $12.92 million per individual in 2023. Given the scheduled reduction by about half in 2026, exploring strategic gifting options this year may be beneficial.
Review Beneficiary Designations and Other Key Documents
Your end-of-the-year review is a great time to confirm that beneficiary designations on retirement accounts, life insurance policies, and other similar assets are accurate and in line with your current intentions.
Review key documents such as your will, power of attorney, healthcare proxy, and ensure all documents still reflect your intentions.
Click here to read more about Estate Planning Essentials.
Education Planning:
While saving for college and other educational costs can seem like an overwhelming task, having a tax-advantaged strategy and saving early can help to alleviate some of that stress.
Contribute to Education Savings Accounts
Review education savings options to open the right savings vehicle for your financial situation. If you already have an account set up, contribute as much as you can by the contribution deadline, which in most states is December 31.
Click here for more information on funding for education.
Planning for 2024
While planning for the future is crucial, reflecting on past experiences is a vital step for informed decision-making. We encourage you to consider the achievements and lessons learned from the past year, anchoring them in the context of your broader financial objectives.
Consider the following questions to help plan for the year ahead:
- What were your financial objectives for 2023?
- Did you make progress toward or achieve these goals?
- What contributed to success or setbacks?
- What lessons-learned from 2023 can you carry over to 2024?
- Are you experiencing any milestones in the next year?
A comprehensive approach to wealth planning can empower you to make informed decisions to instill the confidence and financial clarity necessary to navigate the evolving stages of life with resilience and foresight. If you have any questions about the concepts discussed in this document, we encourage you to reach out to your Portfolio Manager for more information.
The information provided is not intended to be and should not be construed as legal or tax advice. Haverford does not provide legal or tax advice. You should consult with your legal or tax advisor regarding your specific tax situation prior to taking any action based upon this information.
