Gamble Jones

Year-end Planning Opportunities

Autumn is with us, and the holiday season is close behind.  Below are a few planning reminders and potential opportunities to review before the new year.

Year-end Gifting

When giving to qualified charities, weigh the benefits of donating cash, appreciated assets, or IRA assets.  As a reminder, giving IRA assets directly to a qualified charity is called a Qualified Charitable Distribution (QCD), which can help satisfy your required annual distribution. There are specific procedures you must follow to realize the tax benefits, and it is ideal that you start the QCD process by the end of November.

In addition to charitable gifting, year-end marks the deadline for 2021 gifts to fund 529 Savings Plans, UTMA/UGMAs, Crummey Trusts, and general gifting goals.  Unless an exception applies, the maximum annual gift exclusion for 2021 is $15,000 per person.

Tax Bracket Filling

Our Federal income tax system is progressive in nature, meaning that your tax rate increases as your income increases. Single filers with taxable income of $9,950 will owe a 10% tax, or $995. Using the brackets below, we can calculate that the same filer with $86,375 of taxable income will pay 10% on the first $9,950 ($995), 12% on the next $30,574 ($3,669), and 22% on the last $45,849 ($10,087).  As you can see, the brackets have dramatic jumps from 12% to 22% and then 24% to 32%.  

  • 10%: $0 to $9,950 for single filers (S), $0 to 19,900 for those married filing jointly (MFJ)
  • 12%: $9,951 to $40,525 (S), $19,901 to $81,050 (MFJ)
  • 22%: $40,526 to $86,375 (S), $81,051 to $172,750 (MFJ)
  • 24%: $86,376 to $164,925 (S), $172,751 to 329,850 (MFJ)
  • 32%: $164,926 to $209,425 (S), $329,851 to $418,850 (MFJ)
  • 35%: $209,426 to $523,600 (S), $418,851 to $628,300 (MFJ)
  • 37%: $523,601+ (S), $628,301+ (MFJ)

If you are temporarily in a lower bracket, it can be useful to use up (or “fill”) the bracket by accelerating taxable income as long as you stay within the desired bracket. A Roth conversion is one method of accelerating income and has a secondary purpose of building a larger Roth balance, which grows tax-deferred and can be tax-free when withdrawn.  

Retirement Plan Elections

Retirement plan salary deferrals (employee elective deferrals), including catch-up contributions for those age 50 and older, usually must be completed before year-end.  In addition, employer sponsored plans may require up to four weeks of notice before altering your deferral amount or deferral type (traditional or Roth), so now is the time to review your elections and make any desired changes.

If you would like to review any of these areas in greater detail, please contact us at your earliest convenience.