Around this time each year, I may reach out to you regarding year-end planning opportunities. Most revolve around taxes because there are 12/31 deadlines for some actions. But some are simply about prepping for 2024.
Tax Projections As Needed
I may ask you to document your income and saving for the year so I can project your taxable income and give you the proper advice. Why is this so important?
- If Roth conversions are part of your strategic plan, funds must be distributed by the end of the year. If I know a fairly accurate idea of your taxable income, I can recommend conversion amounts that fit your strategy (usually trying to fill up a lower tax bracket, but no more than that). Also, we need to plan for how you’re going to pay the taxes on any conversion and what the wider implications are.
- If you are retired and making Required Minimum Distributions, there’s another tax we need to worry about when it comes to Roth conversions: Medicare surcharges. These involve a completely different set of tax brackets and they work differently: If you go just one dollar above a threshold, you can trigger much higher Medicare premiums two years from now.
- I also use tax returns and tax projections to check your tax withholding. No one should be facing underpayment penalties. If you are, that’s a sign you’re not having enough withheld from your check. There may be clever strategies to boost your withholding that are superior to making an estimated tax payment (which may not help you avoid a penalty), but we need to start planning for that right now.
- For investment management clients, I also use a tax projection to help me better understand whether I should try to offset any already realized capital gains or even other income by realizing capital losses before the end of the year.
We can’t perfectly predict the future, but we can project your lifetime tax rate path as best we can with the knowledge available to us today. I want to be able to tell you which actions are most likely to deliver the highest lifetime wealth for you personally. But time is running out if this is relevant to your plan and situation. My personal cutoff to receive data is the end of November except for extenuating circumstances because I need time to analyze your information and prepare a projection. Plus, some brokers cut off Roth conversions before the end of the year. And if you need to roll over an employer plan of some kind first, that can take several weeks, so keep that in mind.
Updating Spending, Saving & Investing Plans
I’ve already begun updating financial plans with the latest inflation and return assumptions. How can you best help me make sure your financial plan is as accurate as possible and I’m giving you the best possible advice?
- Before the end of the year, review your financial plan and Profile in the Planning Software. Specifically, check the Net Worth, Income, Expenses, and Goals modules to make sure they’re still accurate.
- Log in to your Client Portal to make sure all your investment links are working properly. Please refresh any that aren’t, or if you have any assets we’re tracking manually, upload statements/documentation to the Planning Vault.
- If your goals have materially changed or you’ve experienced a life-changing event I don’t already know about, please update your Dream Statement and let me know as soon as possible (or reach out to me to discuss).
- Need a tax preparer/accountant for 2023? Don’t wait! Many CPAs, Enrolled Agents, and tax preparers close to new clients early in the season. If you want to outsource your taxes too, ask me for a list of referrals from my network.
First Up In 2024: Annual Check-In Meetings
Soon I’ll be in touch to schedule Annual Check-Ins (for those clients out of the initial planning phase), starting in January. I look forward to those in-depth discussions to reset for 2024. And if you need to talk earlier, feel free to find a time on my calendar. I’m at your disposal, so don’t hesitate to reach out.
All content presented in this article is for informational purposes only. Materials presented should not be interpreted as a solicitation or offer to buy or sell a security or the rendering of personalized investment advice, which can only be provided through one-on-one communication with a financial advisor. The content reflects the opinions of Hesperian Wealth LLC (HW), except where cited, which are subject to change at any time without notice. The information contained herein has been obtained from sources believed to be reliable, but the accuracy of the information cannot be guaranteed. All information or ideas provided should be discussed in detail with a financial, tax, or legal advisor prior to implementation.
Investing involves substantial risk, including the potential loss of principal. HW makes no guarantee of financial performance nor any promise of any results that may be obtained from relying on the information presented. HW may analyze past performance, but past performance may not be indicative of future performance.