The start of the year is a window for several recommended tax measures, from double-checking that financial institutions have the correct customer details to budgeting for tax-advantaged accounts.
“The sooner you consider your tax situation, the better the outcome,” said Alan Weissberger, director and portfolio manager at Hirtle, Callaghan & Co. in Conshohocken, Pennsylvania.
“It still happens where advisors are unaware of marriages, divorces and deaths,” said John Karls, Dallas-based tax partner at Armanino. “The beginning of the year is the perfect time for financial advisors to identify and correct oversights.”
Yet, he added, “the joke in the high-net-worth tax world is that no client wants to do any planning at the start of the year. There are a few obvious items to check off the list as the ball drops. Clients should fund their retirement accounts early and start the countdown to tax-deferred income.
Alan B. Gubernick, financial services advisor at EisnerAmper in Philadelphia, reminds clients of new increases in retirement savings limits: $22,500 for 401(k), for example, with $7,500 more for 50 years and older. “Many customers define these [and other plans] at the start of the year to be paid into plans throughout the year,” he said.
Self-employed people may have to fund an IRA Simplified Employee Pension (SEP), with a maximum contribution for it up to $66,000. “If your clients have a decent expectation of their self-employment earnings, you can help them calculate their contribution,” Karls said. “If there’s any uncertainty about where their self-employment income is going, it’s always worth contributing at least half the expected contribution amount now.” »
“Many high net worth clients don’t qualify for a traditional deductible IRA contribution,” Karls added. “One way to make this more valuable to your client is to suggest making the contribution and then transferring it to a Roth IRA soon after. Although they still don’t get a deduction for the current year, they have funded a tax-free retirement account.
The SECURE 2.0 law passed last year extends the start date for required minimum distributions, Weissberger said. Those who reach age 72 in 2023 or later should not start taking RMDs until age 73.
“In most cases, the RMDs in 2023 are a bit lower than 2022, so that determines how much additional revenue [clients] may need this year to cover their cost of living,” said Jonathan Thomas, private wealth advisor at LVW Advisors in Rochester, NY. “We often see some clients take their RMD monthly, transfer it to their checking account and not spend it. Rather than just sitting there checking out the 0% gain, we can talk about reinvesting, making quarterly charitable distributions, or at the very least earning more from a money market fund.
Pay attention to the debt ceiling debate and its possible negative effects on markets, Gubernick added.
“Last year, we began opening ‘charitable IRAs’ specifically for qualified charitable distributions,” Thomas said. “The client determines their charitable giving goal and we will fund this IRA in cash at the start of the year. The customer will write checks directly to charities using a check book provided by us. This gives them flexibility and discretion as to when and how much they can offer throughout the year. »
Other conversations Weissberger has with clients cover, for the ultra-wealthy, using or topping up the lifetime estate and gift tax exemption that can revert to pre-2017 amounts in three years. “We encourage customers to make their annual opt-out gifts as early in the year as possible,” he said. “Making annual exclusion gifts at the start of the year prevents a client from forgetting about it later in the year or, where applicable, from switching before having made these gifts.
“We recommend that you donate money or assets with a high tax base so that your recipients aren’t burdened with additional taxes,” he said, adding that customers can also pay for donation fees directly. educational and medical benefits of another without these payments being taken into account in the annual amount of the exclusion gift. or lifetime exemption.
“Too often, [gifts] are paid out at the end of the year, so those funds stay with your clients who earn taxable income,” Karls said. “Take those funds out in January and let them grow outside of your estate.”