As we approach the end of an extraordinary year on many fronts, it is a perfect time to take account of the year and begin to plan for the future. Whether it is economic models, capital market assumptions, or political headwinds, we can consider year-end planning techniques that may increase your net worth with changes in your financial and investment plans.

Investment and Income Tax Strategies

Capital Gains Harvesting

  • Consider harvesting losses in taxable brokerage accounts to offset gains.
  • Re-evaluate your asset allocation as many of your stocks may have appreciated significantly in the past several years. Rebalancing can be a valuable tool in long-term investment performance.
  • Understand what capital gains taxes are and how they affect your mutual fund investment returns. Consider delaying investment in mutual funds to avoid inlaid capital gains.
  • Ask your financial advisor if you should expect a capital gains distribution from your mutual funds and design a harvesting strategy around minimizing taxes.

Retirement Planning

  • Maximize annual IRA contributions as you may be able to deduct $6,000 for your IRA and $6,000 for your spouse’s, depending on income limitations. An additional $1,000 can be deducted if you are over the age of 50.
  • Self-employed individuals should consider a defined contribution plan to supercharge their retirement planning, especially for older workers and owners.
  • Recent legislation has made Roth IRAs a more powerful retirement and estate planning tool.
  • Understand what a Roth conversion can do to your retirement income.
  • Consider setting up Roth IRA accounts for your children with earned income.
  • Always check your beneficiaries on all qualified accounts in December.
  • NUA — There are special tax rules for executives with stock in their retirement accounts. Understand what the NUA strategy is and how you can take advantage of tax rules.

“Secure” Act Strategies

Looking at the Setting Every Community Up for Retirement Enhancement (SECURE) Act, there are several changes to financial planning strategies that should be considered. The SECURE Act has brought up two specific issues that create significant planning opportunities:

  1. Neutralizes “Stretch IRAs”.
  2. Increases the age of Required Minimum Distributions (RMD) from 70 ½ to 72.

Both of these make the IRA a less effective retirement and estate planning tool.

  • Consider a Roth conversion if you have suffered a financial loss from business slowdowns.
  • Properly Structured Life Insurance can replace the benefits of the Stretch IRA, but is more tax efficient and has better flexibility, no RMDs, and fewer tax complications.
  • If you are in RMD status, but do not need the income, you may consider using distributions from your IRA to fund premium payments to a life insurance contract held in an Irrevocable Life Insurance Trust. This may drastically increase the legacy to your beneficiaries.
  • Consider accelerating IRA distributions before 59 ½ through 72(t) payments to avoid the 10% early withdrawal penalty.
  • If you have losses this year as a business owner, you may consider converting some or all of your qualified IRA balances to Roth.

Gifting Strategies

  • Consider giving gifts of up to $16,000 per person, allowed under the federal annual gift tax exclusion.
      — Use assets that are likely to appreciate significantly for the most optimum tax savings.
  • Use appreciated stock rather than cash when contributing to charities. This maximizes your charitable deduction and avoids the capital gains tax on significantly appreciated assets.
  • Consider setting up a Donor Advised Fund (DAF) while in your prime working years (or if you are in a high tax bracket) and gift appreciated stocks or other assets. Assets in a DAF grow tax-free and are not required to be gifted annually. Therefore, growing a family trust that can be used for charitable purposes can be turned into retirement and beyond.
      — Consider “bunching” years of contributions into a DAF during high tax years.
  • In years where your income is higher, consider a Charitable Remainder Trust. The trust is funded with after-tax money, which you can take income from for any period less than 20 years. In addition, you will get an immediate partial deduction in the year the trust was funded.

Strategies for Market Pullbacks

  • Gifts to strategic investment accounts that are tax specific:
      — 529 Plans for education
      — ROTH accounts for tax-free income in retirement
      — Cash Value Life Insurance to build tax-deferred cash value in your policy
      — Donor-advised funds to increase charitable benefit
  • Consider replacing fixed-income funds with individual bonds for surety of income and maturity of principal.
  • For growth-oriented investors, consider increasing growth assets during periods of market volatility for future appreciation.


Current estate tax exemption of $12.06 million for individuals and $24.12 million for married couples are set to “sunset” or expire on 12/31/2025. This means the proportion of families that will be required to pay estate taxes will increase drastically. After sunset, exemptions will return to pre-2018 levels of $5 million for individuals (indexed for inflation).

  • Understand what a Grantor Retained Annuity Trust (GRAT) is and if it can help. A “Grantor” creates a trust and transfers property. The trust then pays the grantor back an annuity stream, usually equal to the deposited amount for a period no longer than 20 years. If the assets perform better than the IRS-mandated amount at the end of the trust, the beneficiary receives the excess and the trust is not included in the grantor’s estate.
  • Discuss possible benefits of a “Roth for the wealthy” strategy.
  • Qualified Charitable Distributions (QCDs) — Direct transfer of IRA funds to a qualifying charity is the most tax-efficient way to make charitable gifts as most people do not itemize their deductions, and for those over the age of 65, they have an even larger standard deduction.
      — QCDs:
      — Reduce AGI, which determines the availability of tax deductions, credits, taxation on social security, and Medicare Parts B&D
      — Allow you to reduce taxable IRA balances at no cost
      — Are capped at $100,000 per year for each IRA owner

If you have questions about any of these strategies and how they may help you, please reach out and schedule a no-obligation appointment to see how we may add value to your current relationship.

Philip Clark, CPWA®, CFP®, CLU® | Director – Wealth Management

Direct: (626) 788-3947 | | Connect with me on LinkedIn

This information should not be construed as tax advice, nor should be taken as financial planning advice. Please consult your tax professional. These opinions are based on observations and research and are not intended to predict or depict performance of any investment. These views are as of the close of business on 11/18/2022 and are subject to change based on subsequent developments. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. These views should not be construed as a recommendation to buy or sell any securities. Past performance does not guarantee future results.

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