Best Planning Ideas 2024
"May you live in interesting times," often referred to as the Chinese curse, is reputed to be the English translation of an ancient Chinese proverb and curse. As you navigate your personal finances in 2024 and beyond, you may feel like you're living in those "interesting times."
The tax planning environment has a "cloud" hanging over it with the possible sunset of the Tax Cuts and Jobs Act (TCJA) tax changes at the end of 2025. Whether that cloud has a silver lining and you don't see a sunset will depend to a great extent on the outcome of the November 2024 elections. The investment markets that have been generally strong lately have started to see more volatility than in the past few years. The strong U.S. stock market performance has been concentrated in a small number of stocks, mostly in the large-cap growth area. Election year politics and a divided country add to the "interesting times."
It is always important to keep in mind that good, effective planning always starts from understanding your own goals and objectives. This goes much deeper than just answering a few questions at the start of a relationship with a financial planner. The real value is when your planner REALLY understands you—what is at your core and how they can help you truly live the life you desire. Only then can the "technical" aspects of planning be woven into the work they do for you. Here are some of the planning areas where we are focusing our time with clients this year:
Tax Planning
The potential expiration of the changes in TCJA creates the need to look at planning from both sides now —thinking about planning strategies both with and without a sunset. Bracket management is still critical, and multi-year tax planning is essential. There are often planning opportunities across generations, utilizing lower tax brackets of older parents or younger children.
Roth conversions are still an important planning tool, but how you think about them in this environment can be challenging. If tax rates go up, it could be more costly to convert, but also there would be more tax on your required minimum distributions. The markets have been strong, so waiting for market pullbacks is often advisable. The key is to be ready, accounts opened, and to act when the opportunity arises.
Charitable giving is still a very important goal for many clients. Donor Advised Funds continue to be a great way to "manage" this, especially for investments with significant unrealized capital gains. Another strategy to take advantage of the strong markets is to harvest capital gains. While you regularly harvest capital losses to offset gains, there can be situations where harvesting gains make sense from a tax and investment perspective.
Estate Planning
The most effective way to think about estate planning in the current environment depends on your net worth:
- Net worth of $2-10 million: For many in this group, focusing on your needs, desires, and protection is the most important thing. Make sure your documents are up-to-date and your asset/account titling is consistent with your goals. Look for ways to avoid probate.
- Net worth of $10-25 million: You're in a challenging spot with the potential of a significantly reduced federal estate tax exemption after 2025. While you may not currently have a federal estate tax liability, that could change if the exemption drops. Carefully analyze your asset sufficiency and the impact of a lower exemption. Strategies like Spousal Limited Access Trusts (SLATs) may be worth considering.
- Net worth of $25 million and more: In most cases, you should be using your full exemption now in case it decreases after 2025. All the standard wealth transfer strategies are in play. Also, think through how much and in what form you want to pass on to heirs, balancing family, charity, and government goals.
Retirement Planning
Decisions around when to take Social Security and Medicare can be complex, so make sure you understand the rules. Having good resources and talking to experts in these areas can save you a lot of time and headaches in the long run. We work with a number of experts in these areas to help you make the right decision.
As you approach and enter retirement, you may also face choices about downsizing your home, owning a vacation home, or accessing long-term care. Take the time to think about what you want your care to look like as you age before it's too late to make a decision. Do you want to try to age in place and have in-home care, or would you like to move to a continuing care retirement community (CCRC)? Taking tours of CCRCs now so you are prepared and understand your options will make life much easier in the future.
Investment Planning
A well-designed investment plan and asset allocation is the foundation for your broader financial plan. Make sure your portfolio aligns with your risk tolerance and goals, is well-diversified, and has reasonable expenses.
An often overlooked element of an investment plan involves 529 plans. These can be great tools to use to save for educational expenses for children or grandchildren, but we often see clients who have “overfunded” them. There are several ways to address this, from letting them continue to grow for future generations, using them for other family members, taking “non-qualified” distributions, and now the ability to convert a set amount to a Roth IRA over a period of years.
Remember, you don't have to navigate these "interesting times" alone. We work closely with our clients and take the time to understand you and your unique situation deeply. With our guidance, you can confidently plan for the future, no matter what challenges lie ahead.
- Lyle K Benson Jr., CPA, PFS, CFP, AEP
The views expressed represent the opinions of L.K. Benson & Company and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person.