Maximizing Year-End Financial Strategies During Uncertain Times

As the calendar winds down, the end of the year presents an excellent opportunity for financial professionals to guide clients through essential financial planning strategies to help position them for long-term success.

Let’s explore 7 key financial strategies to consider as the year draws to a close.

Potential Changes to Tax Laws

The Tax Cuts and Jobs Act, implemented in 2018, brought significant changes to tax laws. With many of those provisions set to expire at the end of 2025, there is growing uncertainty about what the tax landscape will look like in the future. This is a great opportunity to help clients plan for the possibility of higher tax rates if these provisions are not extended. Consider discussing the potential benefits of accelerating income in the 2024 and 2025 tax years to lock in potential lower rates. Nonqualified annuities can be a valuable tool in tax planning, since earnings grow tax-deferred until the funds are withdrawn. This can be a crucial benefit when anticipating potentially higher future tax rates. Additionally, advising clients on Roth conversions could be a smart move, allowing them to pay taxes now at a potentially lower rate.

Tax-loss Selling

Another important year-end strategy to consider is tax-loss selling. This strategy involves selling securities that have declined in value to offset capital gains elsewhere in a client’s nonqualified portfolio. In addition, if the losses exceed the capital gains, a client may be able to offset up to $3,000 in income. By harvesting these losses, clients could reduce their taxable income, potentially reducing a significant amount of their tax bill. However, it’s important to be mindful of the wash-sale rule, which disallows the repurchase of the same or substantially identical security within 30 days.

Tax-gain Selling

While tax-loss selling is often emphasized, tax-gain selling can another strategic consideration if a client believes the Tax Cut and Jobs Act will sunset at the end of 2025. The capital gains tax rate may be as low as 0% for clients in lower tax brackets. By realizing gains now, clients could potentially benefit from these historically low rates. This strategy can particularly benefit retirees or those with temporarily reduced income. Once tax-gain harvesting has been completed, a high-net-worth client may consider using a tax-deferred vehicle to allow the money to grow into the future. The tax-gain and tax deferral strategies can be particularly effective if a high-net-worth client believes higher income tax rates are looming, and these assets are not needed for their current income plan.

Qualified Charitable Distributions

Charitable giving is a way for clients to support causes they care about and also serves as a powerful tax planning tool. For those who are charitably inclined, qualified charitable distributions (QCDs) offer a tax-efficient way to give. QCDs can begin once a client turns 70.5 years old and allow a direct transfer, up to $100,000, from an IRA to a 501(c)(3) charity.

Required Minimum Distributions

QDCs are also a potential tool for clients age 73 or older who are taking the required minimum distribution (RMD) from their retirement account each year. Setting up a QCD can help satisfy RMD requirements without increasing taxable income. This strategy can be a win-win, offering both tax savings and philanthropic fulfillment.

Mutual Fund Holdings

Toward the end of the year, mutual funds often distribute capital gains to shareholders, which can create unexpected tax liabilities for clients. Reviewing your clients’ mutual fund holdings can help them anticipate these distributions as well as determine if adjustments need to be made to funds inside their nonqualified accounts based on their performance.

Be sure to review your clients’ mutual fund holdings to anticipate these distributions. Also, consider strategies such as selling funds inside their nonqualified accounts with high turnover ratios if their performance does not justify keeping them in the portfolio.

Roth Conversions
Roth conversions can be a powerful tool in year-end tax planning. Converting traditional IRA assets to a Roth IRA allows clients to pay taxes at current rates, potentially avoiding higher rates in the future. This strategy can be a strong consideration in years when a client’s income is lower than usual, which could place them in a lower tax bracket. The Roth conversion strategy is particularly important to consider for small business owners. Clients with more volatile income are typically in a better position to maximize these benefits. Roth IRAs also offer tax-free growth and no RMDs, providing long-term benefits.

Medicare Open Enrollment

Each year, Medicare’s open enrollment period is October 15 – December 7, providing a crucial window for clients to review and adjust their health care coverage.  It’s essential for your clients to review their current Medicare plans, particularly if their health needs have changed. The biggest opportunity for clients to save money is by reviewing their current prescription drug coverage. This review can ensure clients are adequately covered and maximize any potential savings on health care costs.

There are plenty of ways to help your clients meet their goals. With thoughtful planning and strategic execution, you can turn year-end financial planning into a powerful tool for each client’s long-term financial success.

Tyler De Haan is director of advanced sales at Sammons Institutional Group.

Past performance does not guarantee future results.

The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals that are insurance licensed and/or Registered Representatives will be paid a commission on the sale of products distributed by Sammons Financial Network®, LLC.

Sammons Institutional Group®, Inc. and Sammons Financial Network®, LLC., member FINRA, do not give tax, legal, or investment advice. Please consult with and rely on your own tax, legal, or investment professional(s). Taxes are payable upon withdrawal of funds, and a 10% IRS penalty may apply to withdrawals prior to age 59½.

Securities distributed by Sammons Financial Network®, LLC., member FINRA. Insurance products are issued by Midland National® Life Insurance Company (West Des Moines, IA). Sammons Institutional Group®, Inc. provides administrative services. Sammons Financial Network®, LLC., Midland National® Life Insurance Company, and Sammons Institutional Group®, Inc. are wholly owned subsidiaries of Sammons® Financial Group, Inc. Sammons Retirement Solutions® and Midland Retirement Distributors® are divisions of Sammons Institutional Group®, Inc.

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