Year-end tax planning strategies

For a more comprehensive guide of tax-planning strategies to consider, the experts at TIAA Wealth Management have prepared the 2024 Year-End Tax Planning Guide.

Detailed guidance includes:

Weigh the benefits of a Roth conversion

Converting a traditional individual retirement account (IRA) to a Roth IRA requires paying income taxes on accumulated gains and income. So conventional wisdom holds that it makes most sense to convert if you anticipate being in a higher tax bracket post-retirement than you are right now. Talk to your TIAA wealth advisor about a conversion if this is your situation. You can also use the TIAA Roth IRA Conversion Calculator to help decide.

Keep in mind that many Roth accounts are earmarked for legacy, so another consideration is your current tax rate versus the future tax rates of your intended beneficiaries. One way or another, taxes need to be paid—either now if you opt for a Roth conversion or later when your heirs pay income taxes on withdrawals from traditional retirement accounts. If you expect your children to be in lower tax brackets when they inherit, a traditional IRA may be more tax efficient than converting to a Roth.

Think about bunching charitable gifts into a single tax year

Bunching or bundling charitable gifts allows donors who wouldn’t normally qualify for itemized deductions to benefit from itemizing. Ever since 2017’s Tax Cuts and Jobs Act doubled the size of the standard deduction (currently $14,600 for single filers and $29,200 for married filing jointly), taxpayers have had to make much larger donations to qualify for a charitable deduction. Thus, consolidating incremental or annualized gifts into a single tax year can save on taxes.

The TCJA is set to expire at the end of 2025, though Republican control of both Congress and the White House may make renewal of the law’s tax cuts more likely. That said, if the TCJA does expire, the standard deduction would be cut approximately in half. That would give taxpayers extra incentives to delay 2024 or 2025 charitable donations and bunch them with 2026’s.

Consider reducing your taxable estate

The TCJA effectively doubled the lifetime exemptions for gift, estate and generation-skipping transfer (GST) taxes. As we said, the Republican wins on Election Day may make TJCA’s renewal more likely. But as things stand now, the lifetime exemption—which now stands at $13.61 million per individual and $27.22 million per couple—would be nearly halved without Congressional action. The good news is that an anti-clawback rule will shelter gifts made prior to 2026. In other words, gifts made under the higher lifetime exemption this year or next will not be subject to gift and estate tax if the lifetime exemption shrinks in 2026. “This,” according to the tax guide, “presents unique planning opportunities should you have the means to fully utilize your lifetime gift and/or GST tax exemptions.”

In addition to making outright gifts, those opportunities include setting up GST trusts, intentionally defective grantor trusts (IDGTs) or spousal lifetime access trusts (SLATs) to lower your taxable estate prior to 2026. Talk to your TIAA financial advisor about the pros and cons of each.

Personalized tax planning guidance

For more help with tax planning, please schedule a meeting with a TIAA advisor, who can collaborate with your accountant and other advisors to identify potential opportunities to optimize your taxes for 2024 and beyond.