Key Year-End Planning Considerations

The approach of year end presents another opportunity to reassess your tax and financial circumstances and generally take control of your finances. In this article, you will find some year-end planning tips to consider.

November 16, 2023

As schedules and commitments accelerate towards year end, now is an opportune time to reassess your tax and financial circumstances and continue to take control of your finances by focusing on the three areas:

  1. Income Taxes
  2. Retirement Savings and Employee Benefits
  3. Wealth Transfer, Planning and Risk Management

1. Income Taxes

There are many aspects to income taxes that may deserve your attention.

Massachusetts Millionaires Tax (MMT): If you live in Massachusetts and if you will be subject to the 4% MMT for state income tax purposes, you may want to consider filing as “married filing separately” (MFS) for Massachusetts purposes only if it would help you and your spouse decrease your overall tax bill for 2023. Note that beginning in 2024, you will be required to use the same filing status for federal and Massachusetts purposes, so this is the only year when you can potentially utilize MFS as MMT minimization strategy. In addition, beginning in 2023, charitable donations can be deducted on Massachusetts income tax returns. If you are close to the MMT threshold, increasing your charitable deductions before year end may be something to consider.

Capital Gains: Do you own any investments that should be sold based on an investment thesis? Beyond that, have you rebalanced to utilize your capital gains budget for the year? Do you have unrealized losses you could recognize to decrease your overall capital gains tax burden for the year? If you plan to recognize losses on holdings with a strong investment thesis, please remember the “wash-sale” rule will not allow you to utilize a recognized loss if you repurchase the same or similar security within 30 days of the loss sale date.

If you are concerned about being out of the market during the 30-day window, you could double up on the investment today and then wait and sell the loss shares some time at least 30 days after the purchase of the new shares. Remember that for federal income tax purposes, net capital losses are limited to a $3,000 deduction amount against non-capital gains income, but excess losses can be carried forward indefinitely.

Ordinary Income: Traditional year-end advice is to delay the recognition of income to the next year, when legally possible, in order to delay the payment of income taxes associated with it. Again, this may not be the best advice if you may be subject to higher income tax rates in future years, including the MMT or if you have a unique planning opportunity in 2023 such as the MFS option available to potentially help manage the MMT liability.

Itemized Deductions: If you know you will be itemizing deductions, consider accelerating any deductible activities into 2023 in order to maximize your current deductions. With the $10,000 cap on state and local tax (SALT) deductions, other items to focus on maximizing include charitable deductions, mortgage interest deductions, and medical expense deductions that exceed 7.5% of your Adjusted Gross Income (AGI). You only itemize when your itemized deductions are greater than the standard deduction, which for 2023 is $27,700 for a couple that is married and filing jointly, $20,800 for head-of-household, and $13,850 for other individuals.

Tax Projections and Estimated Tax Payments: Review your 2023 income and deductions to be sure that you have paid in sufficient amounts, either through withholdings, estimated tax payments, or prior year refunds carried forward, to avoid tax penalties. If you are planning to make estimated tax payments, the fourth quarter 2023 payments are due on or before January 16, 2024.

If you would like your fourth quarter state or local tax payment to be included in your 2023 itemized deductions, then those payments must be postmarked before year end. Another alternative to help avoid late-payment penalties can be to increase your tax withholdings from your wages or Individual Retirement Account (IRA) distributions instead of making estimated tax payments.

2. Retirement Savings and Employee Benefits

Required Minimum Distributions (RMDs): Remember to take your RMD from your traditional IRA and retirement accounts before year end if you are required to do so. This is generally necessary if you are over age 73 and the account is not a Roth IRA account. RMDs may be required from inherited IRAs as well, but the rules vary.

Roth Conversions: Roth conversions are counterintuitive. Does it really make sense to pay taxes today to avoid taxes in later years? It certainly can. If you believe you will be subject to higher income tax rates in the future or if you are planning to pass an IRA asset on to your heirs, you may be better off converting some or all of your traditional IRA to a Roth this year.

In exchange for paying taxes today on amounts converted, Roth IRA assets grow tax-free and, unlike traditional IRAs, are not subject to RMDs, which generate ordinary income during your lifetime. Over an extended period of time, this benefit can be significant, especially in a higher-income tax rate environment. Since Roth IRAs benefit from tax-free growth, they can be most compelling for those who have a longer time horizon but can also make sense for those who have taxable estates. Additionally, a Roth IRA creates an income tax-free asset that can pass to heirs if the assets are not needed during your lifetime.

Year end is an excellent time to review your projected ordinary income for the year and understand the tax impact of any conversions based on where your actual taxable income falls within the marginal tax bracket structure. As a reminder, it is most compelling to pay the tax liability associated with a Roth conversion from assets that are not being converted in order to maximize the amount in the Roth IRA benefiting from tax-free growth. Please note that Roth conversions can no longer be recharacterized, or reversed, once completed. If you are planning a multi-year Roth conversion strategy, and if future conversions could cause you to be subject to the MMT you may want to accelerate conversions to 2023 if doing so would enable you and your spouse to convert more and avoid the MMT by MFS for Massachusetts purposes.

Fully Fund Your 401(k) or add to your IRA: While working, it is advisable to fully fund your 401(k) or similar retirement plan each year. Doing so will benefit you in the long run by maximizing retirement savings that grow either tax-deferred or tax-free and may help decrease your current tax liability. Even if your cash flow will not allow you to fully fund your plan, making contributions to at least maximize any available employer match is compelling. Maximum 401(k) contribution limits are $22,500 for 2023 and $23,000 for 2024, with those who are over age 50 allowed to contribute an additional $7,500 in 2023 and 2024.

Depending on your situation, you may want to consider taking advantage of a Roth 401(k) feature if offered by your employer. Utilizing a Roth 401(k) will likely result in higher current income taxes, but will provide you with tax-free, as compared to tax-deferred, appreciation on any savings invested in your Roth 401(k).

If you do not have a 401(k) or are already fully funding your 401(k), consider funding an IRA. The $6,500 IRA contribution limit will apply for 2023 and increase to $7,000 in 2024, with an additional $1,000 contribution allowed in both years for those over age 50 by year end. A non-working spouse with an employed partner can also fund their own IRA, subject to taxable compensation requirements.

If you are eligible, consider funding a Roth IRA instead of a traditional IRA. Roth IRAs grow tax-free and are not subject to RMDs, compared to traditional IRAs that grow tax-deferred and are eventually subject to RMDs. Please note that all 2023 traditional IRA and Roth IRA contributions must be made by April 15, 2024.

Health Plan, Health Savings, Flexible Spending, and Other Elections

  • Open Enrollment: The open enrollment period for Medicare plans, as well as that for most employer-based benefits, generally occurs during the last few months of a calendar year. Taking a moment to make sure your current elections are your best option for next year can be time well spent.
  • Health Savings Accounts (HSA): If you have a high-deductible health insurance plan, make sure you are fully funding your HSA. Funds put aside in an HSA do not need to be spent in that calendar year but can instead be invested and used for future medical expenses. The HSA limit for 2024 is $4,150 for individuals and $8,300 for families. If you are over age 55, you can contribute an additional $1,000, whether for an individual or family HSA. Please note that if an individual is over age 65 and enrolled in any part of Medicare, he or she is not eligible to contribute to an HSA.
  • Flexible Spending Accounts (FSA): In addition to making contribution elections for 2024 for either Health and/or Dependent Care FSAs, you should review the funds remaining in your FSA account before year end and submit the necessary receipts for qualifying reimbursable expenses by March 31, 2024. Some plans allow you to carry balances forward to the new calendar year for future expenses, but others do not. If allowed, the maximum carryforward to 2024 is $640. Amounts remaining beyond the allowable carryforwards will likely be forfeited, so it is important to properly manage both the use of funds currently in your FSA as well as elections for future contributions. Maximum contributions to a Health Care FSA and Dependent Care FSA for 2024 are $3,200, and $5,000, respectively. If you have an HSA, please also make sure your Health Care FSA is HSA-compatible. An HSA-compatible Health Care FSA will generally limit reimbursement to items related to dental or vision expenses.

3. Wealth Transfer, Planning and Risk Management

Annual Exclusion Gifts: If you have sufficient assets, and if transferring wealth to the next generation is a goal in your overall wealth plan, you should consider making annual exclusion gifts before year end. Annual exclusion gifts can be a powerful wealth transfer technique over time. During 2023, an individual can give up to $17,000 to as many individuals as he or she chooses without utilizing any of his or her federal lifetime gift and estate tax exemption amount. That $17,000 combines to $34,000 for married couples who either make separate gifts or choose to “gift split.” Beginning in 2024, the annual exclusion amount will increase to $18,000 or $36,000 for married couples who gift split.

In addition to the annual exclusion gifts noted above, an individual can also pay tuition expenses and qualified medical expenses directly to the provider without creating a taxable gift. Tuition includes the cost of education from preschool through graduate school but does not include non-tuition charges such as room and board or books. Qualified medical expenses include health insurance premiums.

Contributions to a Section 529 Plan for education can be made with annual exclusion gifts. In fact, you can front-load a 529 Plan and elect to spread the gift ratably over a five-year period when you file your gift tax return. If you have a 529 Plan and have incurred unreimbursed qualified educational expenses, you should request reimbursement from the plan before the end of the year. Also, remember that up to $10,000 of elementary and secondary school tuition costs can be reimbursed from a 529 Plan each calendar year. Be sure to meet your retirement savings goals before funding a 529 Plan and be careful not to overfund a child’s 529 Plan. If you do overfund a 529, up to $35,000 of the remaining balance can potentially be used to fund the child’s Roth IRA.

Learn More: “Paying for College”

Wealth Transfer Beyond Annual Exclusion Gifts: If you have significant assets, you should establish a comprehensive wealth-transfer plan that incorporates asset transfers both during your lifetime and at your death. This plan can include outright gifts or loans to family members as well as to your philanthropic interests.

If you plan to eventually transfer assets into irrevocable trusts, now may be an appropriate time to begin working with your advisors to draft a well-thought-out trust with appropriate parties named as trustees. The current $12.92 million lifetime gift and estate tax exemption includes $6.46 million of basic exemption and $6.46 million of “bonus” exemption, with the “bonus” portion scheduled to sunset on December 31, 2025. The 2024 exemption amount is scheduled to increase to a total of $13.61 million per person.

Philanthropy: If you are over the age of 70½, you can make qualified charitable deductions (QCD) from your traditional IRA of up to $100,000 annually directly to a charity. QCD amounts can count as part of any RMD for the year and do not result in taxable income to the IRA owner. QCDs cannot be made to donor-advised funds or most private foundations. The QCD limit for 2024 is increasing to $105,000. Alternatively, donations of appreciated securities held for more than one year continue to be a tax-advantaged way to make charitable gifts, with current-year deductions limited to 30% of AGI for securities donations and 60% of AGI for cash donations to public charities and donor-advised funds. If the gift is to a private non-operating foundation, the limits are likely 20% of AGI for securities and 30% of AGI for cash.

If you are itemizing this year but may not be in future years, consider “deduction bunching” by accelerating what would be your 2024 or later years’ charitable gifts to 2023. If you are not ready to have the amounts gifted pass to charities immediately, you could also consider contributing to a donor-advised fund, which may allow you to receive the current-year tax deduction while retaining the flexibility to request that the donated funds be distributed to qualified charities of your choice during future years.

Learn More: “Minimizing Taxes with Charitable Gift Bunching”

Learn More: “Fiduciary Trust’s Donor-Advised Fund Program”

Estate Planning Documents and Beneficiary Designations: Year end is also an opportune time to review your estate planning documents, including your will, revocable trust, healthcare proxy, and durable power of attorney, to be sure that the trusted parties named in the documents are still appropriate to serve and that the document terms reflect your current wishes. In addition, it is a good time to review your beneficiary designations to make sure any IRA, 401(k), or insurance policies name your recipients of choice. You should consider whether changes to the inherited IRA payout rules warrant a change to either your beneficiary designations or to the terms of any trust that is named as the beneficiary of your IRA or 401(k).

Learn More: “Naming a Trust as IRA Beneficiary”

Insurance Review: When was the last time you did a full review of your insurance coverages? Given an increasingly litigious society and the appreciation in values, it is possible you are underinsured. Are you sure your excess liability or umbrella policy is sufficient to protect you and your assets from exposure in the event of an incident? Does the non-profit board you serve on have insurance to protect you? On the life insurance side, you should also consider requesting in-force illustrations for any permanent life insurance products that you may own to allow you to review the financial health of your policies. If you have not done a full insurance review, year end is a good time to do so.

Wealth Planning Checkup: Most families are not fully aware of how much they spend. Year end is an excellent time to review annual credit card, bank, and other statements in order to understand your current spending and assess how that fits in with your overall financial health. If you have debt, year end can be a great time to review how you are managing it. If you have significant upcoming expenses, such as college tuition, year end is an appropriate time to make sure you are on track to meet your funding goals. It is also an appropriate time to review your credit reports from the three major credit reporting agencies and consider freezing your credit. We find that our clients benefit from working with us to establish a wealth plan. This is a good opportunity to gather information to facilitate the preparation of a plan, with the goal of creating a basis from which you can make informed decisions.

Learn More: “Identity Theft: What You Don’t Know Can Harm You”

Learn More: “Wealth Planning: Is Your Financial House in Order?”

As you consider your year-end tax and wealth planning, we encourage you to consult with your tax advisor to review the specifics of your situation. As always, you should also feel free to discuss these planning opportunities with your Fiduciary Trust officer. Please contact us if you would like to be introduced to one of our officers.


  • Jody R. King, JD, CPADirector of Wealth Planning
    As the leader of Fiduciary Trust Company’s wealth planning practice, Jody focuses on developing customized wealth plans for clients that integrate all aspects of estate and finan...

The opinions expressed in this publication are as of the date issued and subject to change at any time. Nothing contained herein is intended to constitute legal, tax or accounting advice and clients should discuss any proposed arrangement or transaction with their legal or tax advisors.

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