Tax-Smart Portfolio Moves for the End of 2024

Lastly, there are no capital gains taxes from selling the shares since they are being gifted directly to the charity.

If clients can’t normally itemize, they might consider bunching charitable contributions, or other expenses that can be itemized, especially if they have substantial investment gains.

Qualified Charitable Distributions

For clients who are at least age 70.5, doing qualified charitable distributions from their traditional IRAs can be a tax-efficient way to give to charity, especially if they are unable to itemize deductions.

Moreover, these distributions can be used to satisfy some or all of clients’  required minimum distributions if they’ve reached their required beginning date.

QCDs either before clients’ RMD beginning date or in excess of their RMD amount after they begin RMDs can be used strategically to reduce the level of future RMDs. 

They also can be used in conjunction with portfolio rebalancing. Holdings that need to be reduced for rebalancing can be sold in the IRA used to fund the QCD. This can avoid selling appreciated holdings in a client’s taxable account where applicable, reducing potential capital gains taxes incurred in the course of rebalancing.

Roth Conversions

Roth conversions can be another solid tax planning move if adding to a client’s Roth balance makes sense from a planning perspective. Roth accounts are advantageous for:

Reducing future RMDs. If the money from clients’ RMDs is not needed to support their retirement, reducing future RMDs through a Roth conversion can save on taxes in future years. Leaving some or all IRA money to non-spousal beneficiaries who are subject to the 10-year rule. This will eliminate taxes to these beneficiaries on the inherited Roth account if the five-year rule has been met. Providing tax diversification of their retirement accounts. The ability to withdraw funds from accounts with different tax treatments allows clients to exercise more control over their taxes as they move into retirement.

Timing can be key in helping clients determine in which years to do a Roth conversion. Clients whose income might be lower than normal in a given year could be good candidates for a Roth conversion. Another group of clients for whom a Roth conversion might work are those who have retired but have not yet claimed Social Security benefits. These years can be lower income years in some cases.

Review Clients’ Asset Location

Year-end is a good time to review which assets are held in taxable accounts and which in tax-deferred or tax-free retirement accounts. 

Asset location likely can’t be change overnight but can be adjusted over time through directing future contributions to retirement accounts and taxable brokerage accounts. Rebalancing is also a tool to adjust clients’ asset location structure over time.

Credit: Chris Nicholls/ALM; Adobe Stock