Estate Planning Considerations

As the year comes to a close, this is a great time to review your tax and financial situation to guarantee you are getting the most benefit out of every circumstance involved. One area to look into more closely is your estate. Here are a few items to consider in the year-end planning that will be sure to help your taxable income.

Take the time to view your possible capital gains, while deciding if it is more advantageous to recognize losses or realize gains for the year. It may make sense to recognize some losses in order to decrease your overall capital gains tax burden; however, remember that for federal income tax purposes net capital losses are limited to $3,000. Although, excess losses can be carried forward indefinitely.

Utilizing a Roth IRA account can be very appealing as it pays taxes now to avoid taxes later, especially if you believe to have a higher income in the future. This is also beneficial if you plan to pass the account on to your heirs, as the assets grow tax-free and are not subject to a required minimum distribution.

Once you are over the age of 70½, required minimum distributions are required from a traditional IRA. One way to take advantage of these distributions, while not resulting in additional taxable income, is making qualified charitable contributions. Qualified charitable contributions are made directly to a charity from your traditional IRA and can be up to $100,000 per year.

If possible, it is advised to fully fund your 401(k) or similar retirement plans each year. This is a benefit in the long run as it maximizes retirement savings that grow either tax-deferred or tax-free and may help decrease your current tax liability.

If you have sufficient assets, annual gifting is a great option as it can be a powerful wealth transfer technique applied over time. During 2023, an individual can give up to $17,000 to as many individuals as they choose without utilizing any of their federal lifetime gift and estate tax exemption amount. Another great tool to benefit your family members overtime is a Section 529 Plan which is for education. A Section 529 Plan can be made with annual exclusion gifts for each individual. The money in the plan can then be used for any tuition expenses towards education from preschool through graduate school, but does not include charges such as room, board, or books.

When enrolled in a high-deductible health insurance plan, a Health Savings Account (HSA) that is fully funded is a great benefit. This is because funds in an HSA do not need to be spent in that calendar year and can instead be invested for future medical expenses; essentially, as if it were another type of savings account. However, there are limits for the amount that can be contributed into an HSA. For 2023 these are $3,850 for individuals and $7,750 for families.

Year-end is an appropriate time to review your estate planning documents, such as: your will, revocable trust, healthcare proxy, and durable power of attorney. Also, take the time to review your beneficiary designations for any IRA, 401(k), or insurance policies. These are important to update every year as the trusted parties named in the documents can change and you need to make sure the information is still appropriate and reflects your current wishes.