Tips Before the End of 2024
Transcript
[00:00:03] Hi, this is Antwone Harris with Platinum Bridge Wealth Strategies and I wanted to give you a few tips that you might consider before the end of the year. So the first thing you may want to look to harvest some losses within your portfolio. So this has been a very strong stock market this year. You may have sold some positions at a profit.
[00:00:20] If you own a mutual fund in your account, those funds are required to distribute any gains that they have within the fund equitably amongst all those shareholders. So you may be responsible for paying tax on a gain that you're not even aware of yet based upon a mutual fund that you have. So in order to offset some of those taxes, you should look through the portfolio to see if there's any losses that you could harvest for tax year 2024.
[00:00:43] So, for example, you may have a fund or a position that's at a loss. You can use those losses dollar for dollar to offset any gains. So you may have say $20,000 in gains and $10,000 in losses. You can use the entirety of that loss dollar for dollar up to the $10,000 to offset any gains in that portfolio. So in that example, you would reduce your gain from $20,000, say down to $10,000.
[00:01:08] Now if you do not have any capital gains, you can still utilize the loss to offset ordinary income, but there's a limit. So say in this example, if you have no actual gains, but you have $10,000 in losses that you're able to book, you can offset ordinary income up to $3,000 and then you can carry that loss into the next year to offset any future capital gains or you could all set up the $3,000 in ordinary income next year, and you can continue to do that until those losses are totally used up. So, you can carry those losses into perpetuity for as long as they're available.
[00:01:44] The second thing you want to think through, you want to make sure that you take care of any required distributions that you're responsible for, either because you're age 73 or older and you have a required distribution from an IRA account, a 401k or 403b or any type of retirement account, or because you've inherited an IRA account; you may be responsible for a required distribution.
[00:02:05] So the rules have changed and the most updated rules around required distributions from an inherited IRA account were established in July 2024. This is a more technical, complicated area. Those rules are a bit convoluted. You may be responsible for doing a required distribution from the inherited IRA account.
[00:02:28] If you're not sure, if you are, check with your financial advisor or call your brokerage firm where the money is being held and ask if you're required to do a distribution. The rules again, have changed as of July 2024. For many people, they're required to take a distribution from an inherited IRA account each year, up through year 10, where the entirety of the account is required to be distributed.
[00:02:51] So if you do not take your required distribution, the penalty is 25% of what you are supposed to take out. So this is important. Make sure you're checking up on this to make sure that you're taking care of anything that you're responsible for.
[00:03:04] So the third thing that you want to think through, if you're inclined to give money to charity, oftentimes it's in your best interest to give appreciated shares of investments or stock to the charity versus giving cash. So say you have a stock with $20,000 in capital gains, you can give a portion of that stock to the charity and not have to pay the tax on the gains that have accumulated for that stock. So instead of giving, say, $500 to charity in cash, you would give $500 worth of that stock to the charity and not have to pay the gain for that portion of the stock that you give to the charity. So you're able to avoid the capital gain on what you give versus selling that stock, paying capital gains, and then giving the cash to charity. So that's a way to avoid some capital gains taxes.
[00:03:54] The fourth thing you want to consider before the end of the year is potentially pushing out income or revenue into the next tax year. For example, if you do a bonus to your job, Or if you're an entrepreneur and there's some clients that you need the bill, perhaps you start to build those clients in January versus December so you can avoid some income being assessed to you in 2024. If you work for a company, you also may have them push out a bonus check for you into January so that you don't realize or recognize that income in 2024.
[00:04:29] Continuing along those lines, the fifth thing that you want to look at is potentially doing a Roth conversion before the end of the year. This means taking money from your IRA account and converting it to a Roth account. If you do that, whatever the amount is that you convert, you're going to pay income tax on that amount this year, but you never pay tax on it again because it's going to a Roth account. For example, you may consider converting, say, $10,000 from an IRA account to a Roth account. If you convert $10,000, it increases your income by $10,000 this year, but once you get that money in the Roth account, that money can grow for the next 5, 10, 20 plus years, it can grow hopefully aggressively. Then you pull that money out tax free. So it's a way basically to prepay tax and allow that money to grow within the Roth account and then the Roth rules allow you to pull that money out tax free in the future. That's something to consider before the end of the year.
[00:05:28] You would think through this with your advisor, but a general rule of thumb, if you think you're going to be in the same or a higher tax bracket in the future, it may make sense to convert now. So if you look in the future and say, Hey, I think my income is going to be roughly the same or even higher later, it may make sense to convert this year based upon the tax bracket that you're in right now.
[00:05:51] The other thing that I think really makes a lot of sense, especially around the holidays is getting your kids or grandkids involved in investing. I have two boys. One of the things that I thought through instead of just teaching them about investing, I wanted to relate it to something that they were interested in.
[00:06:08] So I made a list of things that they like. So for example, they play flag football, they have Nike cleats. So I went through a list of all the companies that they interact with on a daily basis, that they like, that have publicly traded stocks. So Nike. They love Roblox. Roblox has a publicly traded stock. They like Chipotle. They like McDonald's. All these companies have publicly traded stocks. They have an iPad, so Apple. So we went through the list and said, Hey, if you own stock in these companies, you are an actual owner; you own part of the company. So the more money that these companies make, the more money you will make as an owner if you own the stock. So we picked out a company or two and said, hey, we're going to open up an account. We put a small amount of money there and now they're excited because they own some of these companies and they're sharing in this excitement and we check in periodically on their stock and they're very interested. So now they're wanting to learn about investing because they're only companies that they see every day that they can relate to that they're excited about. So this may be a great Christmas present for you, for your kids or your grandkids. You want to get them involved; have them pick out the stock. You don't have to put a ton of money in. It doesn't really matter if it's the best stock in the world, just that they're able to relate to it and understand conceptually what they're doing. It's a good tip before Christmas to potentially get them interested in investing.
[00:07:31] So happy holidays to you. I'm going to check in at the beginning of the year. This is Antwone Harris with Platinum Bridge Wealth Strategies. I'll talk to you soon.