Five Year-End 2024 Tax, Financial, and Estate Planning Ideas

As we approach the holiday season, it is easy to get caught up in the busy routines of everyday life. However, individuals should not lose sight of valuable year-end planning opportunities which could yield meaningful tax savings, strengthen one’s financial position and help ensure alignment with long-term goals. For personalized advice on how these strategies might benefit you, please reach out to your Clarendon Private team.

Tax & Charitable Planning

1. Make Annual Exclusion Gifts

Make $18,000 annual gifts ($36,000 for married couples who gift split) to children and/or grandchildren (this annual exclusion will increase to $19,000 in 2025); you can also pay tuition and/or medical expenses on behalf of others, in any amount, as long as the payments are made directly to the provider(s).

2. Maximize Retirement Contributions

According to Vanguard’s “How America Saves 2024” report, only 14% of plan participants contributed the maximum amount to their 401(k) plan in 2023.¹ Individuals who are still actively employed should review their year-to-date retirement contributions and evaluate whether to make additional contributions prior to year-end.

- The basic employee 401(k)/403(b)/457 contribution limit is $23,000 for 2024 (increasing to $23,500 for 2025).²

- The catch-up 401(k)/403(b)/457 contribution limit for employees age 50 or older is $7,500 for 2024 (unchanged for 2025).³

- The IRA contribution limit is $7,000 for both 2024 and 2025.³ Under SECURE Act 2.0, effective for 1/1/2025, some individuals may have an increased retirement savings opportunity.

In 2025, individuals 50 or older will have a 401(k)/403(b)/457 catch-up limit of $7,500; however, SECURE Act 2.0 includes a new provision for employees aged 60-63 to utilize an enhanced catch-up contribution limit of $11,250 (instead of $7,500) (note: each Plan Sponsor will decide whether to implement this enhanced feature in their retirement plan).³

Finally, individuals who are still working should assess whether to increase their contribution percentage for their 401(k)/403(b) for the next year and should consider whether to save to their employer retirement plan on a pre-tax basis (traditional contributions), on an after-tax basis (Roth contributions), or a combination of both pre-tax and after-tax.

3. Satisfy Required Minimum Distributions (RMDs) via a Qualified Charitable Distribution (QCD)

If you are over 70.5 - even if you are not yet required to take minimum distributions - consider making qualified charitable distributions (QCDs) of up to $105,000 from your IRA. The distributions count as part of your RMD and are not taxable income. The distributions must be made directly to a charity and not to your donor advised fund or private foundation. This limit will increase to $108,000 in 2025.³

4. Donate Appreciated Securities, Not Cash

It is estimated that December donations account for nearly a quarter (26%) of annual nonprofit revenue.⁴ With many nonprofits soliciting year-end donations, many individuals opt for the convenience of writing a check or charging a credit card although another giving option may be more beneficial financially.

Individuals with long-term appreciated securities held in a taxable account should consider gifting such securities to charity. Why? The charitable organization receives the same economic benefit as a cash donation, while the taxpayer receives a tax deduction for the full market value of the gift and, importantly, avoids paying capital gains taxes on the gifted security. Gifting appreciated securities can also provide a tax-efficient means to rebalance a portfolio by reducing exposure to a given asset class or a concentrated stock position, without incurring capital gains. Keep in mind the tax deduction for gifts of long-term appreciated securities to qualified public charities (including donor-advised funds) is limited to 30% of adjusted gross income (AGI) while similar gifts to a private foundation are limited to 20% of AGI.⁵ Charitable gifts in excess of the AGI limits result in a charitable carryforward which can be used over the next five years.

5. Charitable Deductions

If you want to obtain a charitable deduction in 2024 but haven’t selected the charities yet, then consider establishing a donor advised fund; you will get a full deduction in 2024, even if you distribute the funds in 2025 or later.

Sources

Source¹: Vanguard – “How America Saves 2024”

Source²: Forbes – “IRS Announces Retirement Contribution Limits Will Increase Will Increase In 2025” (November 2024)

Source³: IRS – “401(k) limit increases to $23,500 for 2025, IRA limit remains $7,000” (November 2024)

Source⁴: 2023 M+R Benchmarks Report

Source⁵: Schwab – “Is a Private Foundation Right for You?” (October 9, 2024)

Source⁶: Forbes – “IRS Announces Retirement Contribution Limits Will Increase In 2025” (November 1, 2024)

Disclosures
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.

Clarendon Private, LLC (Clarendon Private) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Clarendon Private and its representatives are properly licensed or exempt from licensure. For additional information, please visit our website at https://www.clarendonprivate.com/ or the Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov by searching with Clarendon’s CRD # 316616.