Keep clients on track with our year-end planning checklist

As the year draws to a close, it's crucial to proactively engage with your clients to optimize their tax situations. This page provides a comprehensive checklist to guide your year-end tax planning discussions.

For additional resources on the topics discussed here, visit our Tax Hub.                         

1. Required minimum distributions (RMDs)

• Review RMDs for clients aged 73 and older to make sure the distributions are taken by December 31.
• Consider qualified charitable distributions (QCDs) to satisfy an RMD up to $105,000. Notes: Clients who are at least 70 1/2 can also use QCDs to donate to qualified charities, even if they don't have an RMD. Donor advised funds can’t accept QCDs.  
• Inherited accounts subject to “stretch” rules must take an RMD by December 31 (if the original account owner died after 2020, only “eligible designated beneficiaries” are able to continue with the “stretch” IRA).
• RMDs are required beginning in 2025 for non-eligible designated beneficiaries who inherited retirement accounts after 2020 from original account owners who had reached their required beginning date (RBD, or the age at which the IRA owner must take distributions).

2. Retirement planning

•  Ensure clients maximize contributions to retirement accounts such as a 401(k) or individual retirement account (IRA). Contributing to tax-advantaged accounts can lower their taxable income for the year.
  • The deadline for employee contributions to an employer-sponsored retirement plan is typically December 31.
  • The IRS permits contributions to IRAs until April 15. If your client or their spouse is covered by an employer retirement plan, contributions may not be fully tax-deductible, depending on their income.
•  Discuss catch-up contributions for clients age 50 and older.
• Review plans for clients approaching retirement to confirm if adjustments are needed.
• Discuss withdrawal order and strategies for spending in retirement.

3. Health Savings Account (HSA) optimization

•  Encourage eligible clients to maximize HSA contributions, where clients have up to the April 15 tax filing deadline.
• Remind clients over age 55 of the additional HSA $1,000 catch up contribution.
•  Educate clients on the tax-free growth and withdrawal benefits of HSAs.

4. Education savings

• You can recommend contributions to 529 plans or Coverdell education savings accounts (ESAs) for education expenses. Most states set December 31 as the deadline for state benefit purposes, although six states set deadlines of April 15 of the following year.
•  Discuss the tax advantages and potential state-specific benefits of these accounts.

5. Investment portfolio management

•  Assess clients' portfolios for tax-loss harvesting opportunities. Tally up gains and cash out losing positions. If you have more losses than gains, you can offset up to $3,000 of ordinary income.
•  Consider the wash-sale rule when recommending security sales.
•  Review asset allocation, re-evaluate risk tolerance, and evaluate the tax implications of portfolio rebalancing.
• If a client needs income, use rebalancing proceeds or fund distributions to meet cashflow needs instead of reinvesting and generating additional capital gains.
• Review active versus passive holdings and identify opportunities for tax efficiency and lowering future capital gains.
• Review clients’ liquidity buffer.

 

6. Evaluate the merits of a Roth conversion

• If clients are concerned about federal income taxes increasing in the future, they can lock in today’s federal tax rates.
• Help clients understand how their future RMD from a tax-deferred account could affect their tax situation in retirement (versus a Roth), and how heirs inheriting Roth assets could benefit from a larger after-tax balance. 
• Review taxable portfolios to determine the best method to pay conversion taxes, while balancing the tax bill with other deductions.

 

7. Income and threshold planning

• Help clients to stay in their target federal tax bracket by accelerating or deferring income.
• Remind clients to review Medicare income-related monthly adjusted amount (IRMAA) notices sent in November and to plan for future years.
• Advise clients they can exercise nonqualified stock options (NQSOs) to stay within a tax bracket, to help keep taxes lower than if all options were exercised all at once.
• Help clients project next year’s income, to possibly help qualify for subsidies under Affordable Care Act plans. Open enrollment takes place November 1 through December 15.

8. Charitable giving strategies

•  Discuss charitable contributions and their tax benefits. If itemizing for a cash contribution, up to 60% of adjusted gross income (AGI) can be deducted.
•  Explain the advantages of donating appreciated assets. Clients can deduct the fair market value of the asset without paying capital gains, up to 30% of their adjusted gross income.
•  Introduce donor-advised funds as a flexible giving option.
• Note that bunching charitable contributions allows a taxpayer to itemize deductions, versus splitting donations over multiple years and receiving the standard deduction.

9. Execute upon annual gifting and maximize lifetime exemptions

• Discuss annual exclusion gifts and other annual estate tax reduction strategies. In 2024, you can gift $18,000 per person to any loved one.
• Ensure clients' estate plans are up-to-date and aligned with their goals.
• Review how much of the lifetime estate and gift tax exemption your clients have used and maximize up to $13.61 million per person in 2024. Take note of annual inflation adjustments to this exemption amount.  

 

Find more on these and other tax topics on our dedicated Tax Hub.

Notes:

All investing is subject to risk, including possible loss of principal. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account.

There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.

Withdrawals from a Roth IRA are tax free if you are over age 59½ and have held the account for at least five years; withdrawals taken prior to age 59½ or five years may be subject to ordinary income tax or a 10% federal penalty tax, or both. (A separate five-year period applies for each conversion and begins on the first day of the year in which the conversion contribution is made).

Tax-loss harvesting involves certain risks, including, among others, the risk that the new investment could have higher costs than the original investment and could introduce portfolio tracking error into your accounts. There may also be unintended tax implications. We recommend that you carefully review the terms of the consent and consult a tax professional before taking action. 

Neither Vanguard nor its financial advisors provide tax and/or legal advice. This information is general and educational in nature and should not be considered tax and/or legal advice. Any tax-related information discussed herein is based on tax laws, regulations, judicial opinions and other guidance that are complex and subject to change. Additional tax rules not discussed herein may also be applicable to your situation. Vanguard makes no warranties with regard to such information or the results obtained by its use, and disclaims any liability arising out of your use of, or any tax positions taken in reliance on, such information. We recommend you consult a tax and/or legal adviser about your individual situation.