You, your portfolio and the future: Thinking about year-end planning
November 13, 2023
As 2023 comes to a close, it’s worth taking a moment to prepare your finances for the coming year. Here are three broad areas to be mindful of, ranging from basics such as required distributions on retirement accounts to weightier issues such as portfolio reviews. This kind of regular maintenance is an important part of staying on track toward your financial objectives.
Please reach out to your Private Wealth Advisor for guidance on any of the items listed below.
We’ll help you meet your annual obligations and take advantage of yearly opportunities.
It’s easy to lose track of the little details in investing, especially if you have complex holdings. Each year, we help our clients think through and complete several tasks, including making gifts and maximizing annual contributions to retirement accounts. Our 2023 Wealth Planning Reference Guide provides relevant limits on such actions.
We often advise clients to contribute the maximum allowable amount to retirement plans such as 401(k) accounts. Your Private Wealth Advisor can help review what you’ve already contributed and whether you can or should add more to these accounts based on your individual circumstances.
You may also have some distribution obligations. If you are 73 or older, you must withdraw required minimum distributions (RMDs) from non-Roth retirement accounts. If you have such accounts with Capital Group Private Client Services, your Private Wealth Advisor and team can confirm your required distribution amount and help you implement the distribution.
Clients might also consider converting tax-deferred assets to a Roth account. Your Private Wealth Advisor can work with you and your tax advisor to help determine whether it would be beneficial for you.
You still have some time to make charitable gifts for 2023. Your Private Wealth Advisor can provide strategies and opportunities to consider to make your generosity work harder for the recipients — and for you. Not only are there ways to make a gift go further for the organizations and causes close to your heart, but certain strategies can also result in greater tax efficiencies for you.
Additionally, you might be able to better utilize gifts to loved ones. Giving during your life can result in more wealth flowing to your loved ones overall, depending on your individual situation. We can review your opportunities for gifts, such as covering tuition or medical expenses or making better use of your annual and lifetime estate tax exclusion amounts.
We also recommend checking on your estate plan. Your Private Wealth Advisor and team can examine its associated documents to help you determine if they are still aligned with your current goals and objectives, including:
Checking that your gift plan and named fiduciaries reflect your current family situation and wishes
Identify tax planning strategies that may be relevant to your estate plan
Determine if your current life insurance benefits meet your needs
Review and update beneficiary designations
Funding a child’s education — even if it’s years away — offers another opportunity. Special 529 accounts allow for tax advantaged treatment when savings are used for qualified education expenses. State tax treatment varies. These accounts have their own rules for giving, such as the ability to pre-fund up to five years’ worth of giving at once, that can offer significant benefits.
Note that, when making larger gifts, you won’t be able to make additional gifts to that beneficiary over the next four years after the year in which the one-time gift is made. If the donor of an accelerated gift dies within the five-year period, a portion of the transferred amount will be included in the donor’s estate for tax purposes. Consult with a tax advisor regarding your specific situation.
We can also help you keep your portfolio aligned with your goals.
This is also a good time of year to review your assets to evaluate that it is still in line with your objectives.
With the Federal Reserve’s rate-hiking cycle potentially peaking, this may be a good time to consider deploying cash. Historically, bonds have outperformed cash, both over long periods of time1 and in the years following Fed hiking cycles2. Cash yields are projected to fall next year, and bond yields are unusually attractive. Your Private Wealth Advisor can help you assess how much cash you should consider keeping on hand for your individual short-term liquidity needs and how much you can use to take advantage of today’s unusual rates.
Everyone's circumstances and risk tolerances differ, of course. For example, cash may be insured whereas the return of principal for bonds is not guaranteed and subject to interest rate, inflation and credit risks.
For many investors, having a line of credit in place can help future liquidity needs. Your Private Wealth Advisor can help you determine whether that could help in your individual situation; if so, we can also open a line for you.
Finally, as part of your year-end review of your assets, please discuss with your Private Wealth Advisor if you have any reasonable restrictions you would like to add or change in the management of your account.
Look forward to 2024 and prepare for potential changes.
Several legislative items could impact investors in the next few years. Your Private Wealth Advisor can help you understand which of these changes may impact you and help you plan for them now. Among the potential changes are:
The IRS increased the allowable gift tax exclusion amounts for 2024, which could offer additional gift giving opportunities. For example, contributions to 529 plans qualify for the annual gift tax exclusion. We can help you understand how you can utilize these changes.
Changes to gifting exclusion
Source: IRS. As of November 15, 2023.
The lifetime gift tax exemption amount is scheduled to be cut in half, indexed for inflation, beginning in 2026. This could significantly impact your future estate tax liability. Your Private Wealth Advisor, in conjunction with your certified public accountant, can help you determine actions to consider now under today’s potentially more expansive rules. Some of the changes could include accelerating income, exercising options and implementing Roth conversions.
Rule changes occur regularly, but your Private Wealth Advisor and team stay abreast of these updates and can help you understand and prepare for their potential impacts. For example, limits on direct charitable gifts from IRAs, which can offset income taxes, will be adjusted for inflation after legislation passed last year. Similarly, we can discuss what it would look like to make distributions from inherited IRAs or rolling over certain 529 assets into a Roth account after recent rules changes.
The Capital Group Private Client Services team stands ready to answer your questions. We look forward to giving you personalized guidance to help you pursue your financial objectives for years to come.
1 Bonds provided a 6% average annualized return from 1978 through 2022, whereas cash provided a 4% average annualized return in that period. Bonds are represented by the Bloomberg US Government Intermediate Total Return Index. Cash is represented by the FTSE Treasury Bill 1 Month USD Index. Source: Capital Group Private Client Services, Morningstar Direct. Neither Morningstar nor its content providers are responsible for any losses arising from the use of this information. The indexes are unmanaged and, therefore, have no expenses. Investors cannot invest directly in an index. Past results are not predictive of results in future periods.
2 Bonds outpaced cash in the one-year and five-year periods following the last four Federal Reserve transition cycles from 1995 to 2018. As of June 30, 2023. Sources: Capital Group, Morningstar.
This material does not constitute legal or tax advice. Investors should consult with their legal or tax advisors.