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Top Tax Moves for High-Net-Worth Investors to Consider

Before December 31
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Top Tax Moves for High-Net-Worth Investors to Consider Before December 31

As 2023 draws to a close, now is the time to proactively review your accounts with your team of wealth professionals to make strategic tax moves before the end of the year. With accurate annual income projections in sight, there are several timely opportunities to consider:

  1. maximize pre-tax deductions and
  2. strategically plan distribution timing to maximize low tax brackets

Maximize Pre-Tax Savings

If you have earned income for 2023, consider all opportunities for pre-tax retirement savings.1 These often come in the form of a company 401(k), 403(b) or similar plan through an employer, or a solo 401(k), SIMPLE or SEP IRA for the self-employed. Additionally, you and a spouse can each contribute up to $6,500 (plus a $1,000 catch-up contribution) in an IRA as long as you have at least that amount in earned household income for the year. While income limitations exist for contributing to Roth IRAs, you can still super fund Roth IRAs through alternative methods regardless of income in 2023.

If you plan to itemize your taxes this year, you can also consider a range of charitable gifting strategies to both maximize your gifting impact and tax savings.

Time Taxable Distributions Strategically

Proactive planning with an accurate projection of your annual income can identify opportunities to accelerate or delay the timing of realizing taxable events to create potential tax savings.

1: Take Required Minimum Distributions (RMDs) On Time

For those age 73+ with IRA accounts and/or company retirement plans (if not covered by the “still-working exception”), required minimum distributions (RMDs) must be taken by December 31. Additionally, if you have inherited an IRA or Roth IRA, you may also be subject to this RMD deadline as a beneficiary. While the penalty for missing this deadline has lessened under SECURE 2.0, it is still costly at a 25% penalty on the missed amount in most instances.

To reduce the administrative burden of RMDs during your lifetime, converting to a Roth IRA may be one option to consider. Additionally, there are strategies to maximize the impact of your RMD dollars should you not need the distribution for income, including QCDs and IRA relocation.

2: Time Roth Conversions

With the RMD age progressively increasing under SECURE 2.0, retirees now have a longer window or “valley” of potentially low taxable income years early in retirement. This period can be utilized strategically by converting traditional retirement assets to Roth over a series of years, resulting in lower tax brackets at conversion intervals and future tax-free growth, eliminating RMD requirements during your lifetime.

3: Consider Qualified Charitable Distributions (QCDs)

If you are at least age 70 ½ and charitably inclined, you may be eligible to make a deduction from your IRA directly to a 501(c)(3) organization in what is known as a qualified charitable distribution (QCD)2. This strategy enables you to transfer up to $100,000 to a charity tax-free while also satisfying RMD requirements (if you still need to take distributions in 2023).

4: Maximize Tax-Free Wealth Transfer with IRA Relocation

For those intending to leave much of their retirement savings as a legacy to heirs, the SECURE Act made a hefty blow to tax considerations by eliminating the stretch IRA for most designated beneficiaries, starting in 2020. Previously, heirs could stretch distributions and tax-deferred growth benefits over their lifetime. Now surrounded by a web of new complex rules, most heirs are required to cash out and pay tax on these accounts over a truncated ten-year period upon inheritance.

One option for those concerned about this legacy scenario would be an IRA relocation strategy to take a portion or periodic distributions from an IRA to fund a life insurance policy that will pay to heirs tax-free. For a detailed analysis and illustration of this scenario, click here.

5: Realize Capital Gains

Just as there are marginal income tax rates that increase with higher annual income, capital gains rates are also contingent upon income brackets. As with the Roth conversion “valley” described previously, low-income years during early retirement may be an opportune time to realize capital gains for highly appreciated assets, potentially even with 0% taxes due. Capital gains and losses, when netted together, can be used to offset each other in a strategy known as tax loss harvesting3.

6: Utilize Net Unrealized Appreciation (NUA)

To piggyback on the capital gains strategy above, highly appreciated company stock within your retirement plan may be subject to favorable capital gains treatment using net unrealized appreciation (NUA). There are a number of rules and qualifying events to consider to utilize NUA; however, when completed correctly, you may be eligible for long-term capital gains rates versus ordinary income rates, resulting in significant potential tax savings.

7: Take Advantage of the Annual Gift Tax Exclusion

Each year, the IRS allows individuals to gift money without it counting towards the lifetime gift tax exemption. In 2023, the maximum amount one can gift to an individual without reporting to the IRS is $17,000. This is a use-it-or-lose-it strategy where an amount can be given to children, grandchildren, 529 plans, and similar each year. Separate and above the annual exclusion, there is a current lifetime exemption of $12.92 million; however, these generous exemptions are set to expire on December 31, 2025. For individuals concerned about exceeding estate tax thresholds and generational wealth transfer, see our recent blog, “Why Accredited Investors are Taking Advantage of Private Placement Life Insurance.”

Complete Proactive Tax Planning Before the End of the Year

As with all financial planning, there are no “one-size-fits-all” techniques. To discuss what proactive tax moves are appropriate for you as part of your overall wealth plan, schedule a consultation with one of our trusted wealth advisors today.


1 https://www.irs.gov/pub/irs-drop/n-22-55.pdf

2 https://www.irs.gov/newsroom/seniors-can-reduce-their-tax-burden-by-donating-to-charity-through-their-ira

3 https://www.investopedia.com/terms/t/taxgainlossharvesting.asp#:~:text=Key%20Takeaways,and%20maintain%20the%20portfolio%20balance.

4 https://www.irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-tax

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