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Essential Deadlines for Retirement, Charitable Contributions, and More

As 2024 comes to a close, taking a strategic approach to your finances can make a significant difference. Effective year-end tax planning isn't just about reducing your tax bill; it's about setting up a strong financial foundation for the future. Here are the key deadlines and strategies to consider, especially for retirement accounts, charitable contributions, and general wealth management.

Retirement Accounts

December 31, 2024

• Fully Utilize Employer Retirement Plans 
  Max out your tax-deductible 401(k) contributions of $23,000 if under 50, $30,500 if over 50.
• Mega Backdoor Roth Contributions Using Your Company 401(k) Assuming that fully tax-deductible contributions have been maximized, consider making post-tax contributions to your 401(k) account and immediately converting those post-tax contributions to a Roth IRA account where they will grow tax-free forever and won’t be subject to Required Minimum Distributions (RMDs). The 401(k) plan must allow post-tax contributions to carry out the Mega Backdoor Roth strategy. The maximum contribution (pre- and post-tax) to a 401(k) for 2024 is $69,000 and $76,500 (if over 50). These maximums consider all pre-tax (deductible) employee contributions, employer match, and employee post-tax (non-deductible) contributions to the plan. 
• Convert Traditional IRA Accounts to Roth IRAs 
  Convert Traditional IRAs to Roth IRAs accounts where they can grow tax-free indefinitely, as no Required Minimum Distributions (RMDs) are required for Roth IRA accounts. Roth conversions work best in years with lower total income. Unlimited amounts can be converted to Roth under this strategy; however, the conversion is considered a taxable event at ordinary income rates.
• Required Minimum Distributions 
  Unless it is the first RMD, which can be taken up until April 1st of the following year.
  For inherited IRAs, where the original account holder died after 12/31/2019, there is no requirement to take an RMD under the 10-year rule for 2024 due to a special waiver being granted by the IRS.  Where the account holder died before 2020, there is no waiver on 2024 RMDs.

April 15, 2025

• Traditional IRA contributions
  Where the taxpayer or the taxpayer’s spouse are covered by a qualified plan with an employer, the deductibility of the contribution may be limited or lost entirely. The deduction for the contribution starts to be limited at modest income levels ($77,000 for 2024 if single, $123,000 if MFJ).  Where a plan at work covers neither of the spouses, contributions can be made on a fully deductible basis, regardless of income.
• Contribute to Your Spouse 
  For those filing joint returns, there is no earned income requirement for IRA contributions made by a nonworking spouse if the earned income of the couple exceeds the combined IRA contribution amount. Such contributions are also subject to income limits when deductibility is assessed.
• Fund Roth IRA Accounts

Contributions can be made up to $7,000 for 2024 from earned income (with a $1,000 catch-up contribution if over 50 years old). Roth contributions are subject to income limits ($161,000 if filing single for 2024 and $240,000 for MFJ). Due to the income restrictions, direct Roth contributions may only be relevant for younger, lower-earning taxpayers.

• “Backdoor” Roth IRA Conversion 
  Consider a backdoor Roth Conversion where income exceeds the direct Roth contribution limits. Make contributions to a Traditional IRA on a post-tax (non-deductible) basis, then convert that Traditional IRA contribution to a Roth IRA. Because of the Aggregation Rule, this strategy is not appropriate for those clients with existing pre-tax IRA accounts, such as rollovers.

Charitable Contributions

December 31, 2024

• Contribute highly appreciated assets (stocks) 
  Contribute to charity to avoid paying capital gains and receive tax deductions. Such contributions also remove assets from the taxable estate.  The tax deduction will be equal to the Market Value of the stocks, even if there is a very low or no tax basis. The tax deduction may be limited to 30% of adjusted gross income (AGI); however, any unused deduction in the year may be carried forward for five years.
• Contribute cash to a public charity or DAF
  For 2024, up to 60% of AGI can be deducted if paid in cash to a public charity.
• Make use of Qualified Charitable Distributions (QCDs) 
  Due to the large Standard Deduction ($32,300 for MFJ 2024) if both spouses are over 65 years old, charitable donations claimed as itemized deductions are often not tax effective.  In these circumstances, it is more beneficial to make a yearly QCD from an IRA to a public charity if you are over 70.5 years old. Such QCDs count towards meeting your RMDs for the year and transfer highly taxed ordinary income to the charity without creating taxable income for you. There is a limit of $105,000 per year for a QCD per tax return.
• Consider Bunching of Donations 
  Often a donation delivers no tax benefit if the client does not naturally itemize deductions.  Bunching several years of donations together can lead to itemized deductions that exceed the standard deduction in the bunched year and obtain at least partial deductions for the client.

December 31, 2024 

• Harvest unrealized capital losses 
  Stock with an unrealized loss can be sold, creating a tax loss that can be banked or used to offset realized taxable gains. Net short-term losses can offset Net long-term gains and vice versa.  This is especially relevant for non-BakerAvenue managed accounts where no active management is in place.  Such strategies need to consider the Wash Sale rules.
• Use the Annual Gift Tax Exclusion amount 
  $18,000 per individual recipient of a gift in 2024.  Married couples can gift the same recipient $18,000 each.  An unlimited number of recipients.
• Consider taking taxable IRA Distributions in years up to RMD age 
  May be relevant for those clients with large, deferred balances where the first RMD may automatically be in a very high tax bracket.

If you have any questions about this tax update, please contact BakerAvenue.

Important Tax Update for the Southeast

The deadline for filing 2023 and 2024 taxes, including tax payments, estimated payments, and return submissions, has been extended to May 1, 2025. Additionally, funds received from FEMA or other government entities are typically not included in gross income.

Hurricane Helene and Milton: States Affected

• 2023 returns must have had a valid extension filed
• Tax payments in these states are extended until May 1, 2025
• 2024 Q4 estimated payments due January 15, 2024 are now due May 1, 2025
• 2025 Q1 estimated payments due April 15, 2025, are now due May 1, 2025

For details, view the IRS releases:

• IR-2024-264, October 11, 2024: IRS provides Hurricane Milton relief; May 1 deadline now applies to individuals and businesses in all of Florida; many businesses qualify for deposit penalty relief
• IR-2024-253, October 1, 2024: IRS provides relief for Helene; various deadlines postponed to May 1, 2025; part or all of 7 states qualify

If you have any questions about this tax update, please contact BakerAvenue.

Utilizing the Net Unrealized Appreciation Strategy for Tax Savings

Important Tax Update for California Residents

As of June 2023: As previously announced (see below), most California residents do not have to file their 2022 tax returns or pay the tax due until October 16th, 2023, due to the storm relief.  

However, we are seeing an increasing number of notices issued by the IRS stating that 2022 taxes are due shortly after clients have filed their 2022 tax returns. In other words, the IRS system is not recognizing the extended due date for tax payments and is auto-generating tax due notices for taxpayers who have filed their returns.

We have confirmed directly with the IRS that these notices for 2022 are being auto-generated and may be ignored. The payment due date remains October 16th, 2023, regardless of whether a taxpayer has filed their 2022 tax returns or not.

Due to the hazardous storms that have hit California in recent weeks, the IRS has  announced that most California residents will have until October 16, 2023, to file various individual and business tax returns and to make tax payments. Tax Day, initially scheduled for April 18th this year, is therefore pushed to October 16, 2023.

Frequently Asked Questions About the 1031 Exchange and DSTs

The 1031 exchange offers one of the most strategic planning tools available to real estate investors. A properly executed 1031 exchange can defer taxes, create a sustainable stream of income, and potentially offer estate and liquidity advantages. We can help you strategically maximize the benefits of a 1031 exchange by setting up a Delaware Statutory Trust (DST). With a DST, you can be a part owner of real estate assets by purchasing fractional units and gaining the same benefits as large institutional real estate investors -- without the management hassles.

What to Expect With Your Inherited IRA

When it comes to inherited IRAs, there are certain withdrawal rules that are important to understand, and the IRS has recently clarified their position in Notice 2023-54. The 10-Year Rule was put into place with the Secure Act of 2019, stating that certain heirs must deplete their inherited retirement accounts within a ten-year period. In this article, we discuss to whom the 10-Year Rule applies, how Notice 2023-54 affects the 10-Year Rule, and other factors to be aware of as they relate to required minimum distributions (RMDs) on inherited IRAs.

How to Take Advantage of Tax-Loss Harvesting

Tax-loss harvesting is both simple and complex. On the surface, it is as simple as sell your losers and take the tax write-off. But it can also get complex, requiring an appreciation of market volatility, correlation between different stocks, and the trickier parts of the tax code as it relates to Wash Sales. In this article, we take a look at these different areas and examine those situations where proactive tax-loss harvesting can be particularly powerful.

Gifting Appreciated Assets to Your Parents Can Make More Tax Sense Than Gifting Them to Your Children

Many are familiar with the concept of gifting to younger generations as an appealing and tax-efficient method of transferring assets, while keeping those assets in the family but out of the taxable estate of the person making the gift, the “gifter.”

However, upstream gifting, a strategy in which the younger generation gifts appreciated assets to the older generation, can capture significant tax savings as well, often more than traditional gifting.

How to Zone In on the QOZ Tax Benefits

With the unprecedented decade-long run in US stocks and real estate, prices look to be returning to more normalized growth rates. We are now seeing increasing numbers of clients choosing to ring the register and cash in at least some of those monster gains. But what about the taxman? He will want his cut of those gains. Here we examine an increasingly popular way to reduce the tax take on those gains by re-investing them (or part thereof) in a Qualified Opportunity Zone.

What You Should Know About Vesting Your RSUs

Restricted Stock Units (RSUs) are a common way for employers, particularly in the technology industry, to attract and retain talent. For the employee, understanding the tax implications of RSUs is vital in maximizing the value of this form of compensation.

Here we look at the key tax considerations for RSUs. If you are interested in the tax treatment for Employee Stock Purchase Plans (ESPP) or for stock options such as Non-Qualified Stock Options (NSOs) or Incentive Stock Options (ISOs), stayed tuned for our subsequent blog posts covering these topics.