Tax Planning and Gifting Strategies for Year-End
With the end of the year rapidly approaching, it is important to keep year-end deadlines top of mind. Below is an overview of three 12/31 deadlines, along with opportunities for planning strategies that arise from each.
Deadline
Complete any Roth IRA conversions
Opportunity
Using Roth Conversions strategically, such as filling up a tax bracket
There are often situations where it is better to pay taxes in the current year on some IRA dollars for the benefit of future tax-free growth. For example, if a client is in the 12% tax bracket, it may make sense to convert just enough of a Traditional IRA to Roth each year to fill that bracket.
A client’s individual financial situation should be carefully considered in determining if/when Roth Conversions should be done and for what dollar amounts. Keep in that mind that income from part-time work and/or consulting, or withdrawals from accounts such as IRAs or annuities can increase taxable income. If a subsidy/Premium Tax Credit for marketplace health insurance is being utilized, particular caution is warranted, as the additional income from a Roth Conversion could significantly lower or eliminate the subsidy.
Deadline
Make annual gifts to individuals, including direct gifts and 529 plan contributions
Opportunity
Maximizing the Annual Gift Tax Exclusion and 529 Superfunding
The 2026 annual exclusion is $19,000 per beneficiary for gifts to individuals, including direct gifts and 529 plan contributions. For a married couple, this doubles to $38,000 per beneficiary. Remaining within these exclusion amounts in any given year prevents being required to file a gift tax return or having the gift amounts count against the lifetime gift and estate tax exemption.
“Superfunding” a 529 plan allows up to 5 years’ worth of contributions in a single year. This means an individual can contribute up to $95,000 in a single year to each beneficiary’s 529 plan. This could be a good way for parents to deploy some of an inheritance or for grandparents to pass along some of their wealth while they are alive.
Deadline
Take any Required Minimum Distributions (RMDs) from traditional retirement accounts if age 73 or older
Opportunity
RMD to QCD
If RMD funds are not needed and there is a preference to not increase taxable income, a Qualified Charitable Distribution (QCD) directly from an IRA to a public charity can be considered. For 2026, QCDs are limited to $111,000/year per individual and available starting at age 70 ½ (despite RMD beginning ages now being 73 and 75).
For Use with the General Public. Financial Planning and Advisory Services offered through Vicus Capital, Inc., a federally Registered Investment Advisor.
