Year-end Checklist

The end of the year is a natural time to take stock and make sure your financial planning priorities are in order. In the spirit of the season, we’ve put together a list of key items for your consideration. Whether you check it twice is up to you, but some year-end due diligence might end up being one of the best gifts you can give yourself and your loved ones.

As 2021 draws to a close, have you…

Established a donor-advised fund?

A donor-advised fund is essentially a private family foundation that allows you to make a tax-deductible charitable contribution now and in future years. The benefit of a donor-advised fund is that it allows you to maximize deductions during years when you are facing a higher tax burden and stretch the distribution of the funds to qualified charities of your choice over many years. Not only do you receive an immediate tax benefit, but your fund’s assets grow tax-free into the future.

Considered a Roth IRA Conversion?

Converting funds from a traditional IRA to a Roth IRA allows you to benefit from both tax-free growth and tax-free withdrawals in the future. While you will pay additional taxes today, now might be the right time to make an investment in the future, especially if (as we suspect) taxes for high-income individuals could increase in 2022 and beyond. Converting assets over time to a Roth IRA not only creates a completely tax-free vehicle, but it avoids what could otherwise be a tax time bomb for your beneficiaries, especially if they are in a higher tax bracket when forced to distribute funds from an inherited traditional IRA. Finally, since Medicare premiums are “means tested”, reducing traditional IRA balances now will help to reduce Medicare premium increases in the future as Roth IRAs are not forced to make taxable required minimum distributions.

Funded your 529s?

529 accounts are savings plans designed to allow families to invest in a child or grandchild’s future educational needs—from college tuition to books and materials, and even school loans. Because you can make an estate tax-free deposit of up to $15,000 annually per child, these vehicles are not only great for the kids, but are an excellent way to shift assets outside of your estate. And it gets better: unless you have an estate more than $23 million (subject to the whims of Congress!), that $15,000 annual cap is unlikely to have an impact on you. In other words: maximizing annual 529 contributions can avoid capital gains and income taxes for quite literally hundreds of thousands of dollars on the growth of assets invested in a 529. Please also keep in mind that the IRS allows for 5-year advanced funding; for a husband and wife, this translates to a $150,000 contribution this year with no contributions allowed for the next 5 years.

Taken advantage of a backdoor Roth IRA contribution?

If your income level is too high (above $140,000 if filing individually, and $208,000 if filing jointly), you might not qualify for a direct Roth IRA contribution. If you have no traditional IRA balances, what you can do instead is make what is called a “backdoor” Roth IRA contribution: a non-deductible contribution into a separate IRA account that you then convert immediately to a Roth IRA. This workaround might not be available in 2022, so now is the time to take advantage of this great opportunity for tax-free growth!

Spoken to your Nemes Rush advisor?

While the final outcome and impact of the Build Back Better legislation currently being debated in Washington remains unclear, everything from income tax rates to capital gains and estate taxes could be impacted. At Nemes Rush, we take great pride in helping our clients put their life vests on before the water gets rough. The time to discuss and plan for big changes is now, and we encourage you to speak with us about making sure that you are being strategic and proactive to stay ahead of any coming changes.

Find the straightest path toward your goals. Contact Us!

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