Managing wealth isn’t just about growing assets—it’s about optimizing how those assets are taxed, transferred and preserved. Now is an ideal time to review your tax efficiency. This proactive approach allows investors to fine-tune strategies well before year-end deadlines.
Several key areas should be reviewed with your advisor to ensure alignment with your overall financial plan.
1. Tax Loss Harvesting
Volatile markets can present opportunities to capture tax losses in taxable investment accounts. By strategically generating tax assets on underperforming positions, you can help offset capital gains and— in some cases, even ordinary income—reducing your overall tax burden. These harvested losses can also be carried forward indefinitely to future years.
2. Roth IRA Conversions
Converting a portfolio of traditional IRA assets to a Roth IRA can be a powerful tax strategy, especially during market downturns or low-income years. Assess your current tax bracket and project your year-end income. If you anticipate being in a lower bracket this year, a partial Roth conversion could lock in taxes at a more favorable rate and allow for future tax-free growth and withdrawals.
3. Charitable Gifting Opportunities
For those who itemize deductions, or are close to the threshold, charitable giving can improve both tax outcomes and philanthropic impact. Instead of donating cash, consider gifting appreciated securities. This approach helps you to avoid capital gains tax on the growth and still deduct the full fair market value, up to certain limits. If you plan to give consistently over time, a Donor Advised Fund (DAF) can streamline your giving and provide immediate tax benefits.
For individuals subject to Required Minimum Distributions (RMDs) from retirement accounts, a mid-year review ensures these are on track. For those 70 1/2 or older, a Qualified Charitable Distribution (QCD) can satisfy RMD requirements while reducing taxable income.
4. Funding 529 Plans or Custodial Accounts
For families with education planning goals, mid-year is a good time to contribute to 529 plans or custodial accounts. Many states, including Pennsylvania, offer a tax deduction for 529 contributions. These strategies can also serve as a way to gradually transfer wealth to the next generation while remaining under the federal gift and estate tax thresholds.
5. Retirement Contributions and Health Savings Accounts (HSAs)
Maximizing tax-advantaged savings is a core element of tax-efficient planning. Ensure you are on track to fully fund IRAs, Roth IRAs (if eligible), HSAs (if eligible), and workplace retirement accounts. Mid-year adjustments to contribution levels can help ensure you maximize these benefits before year-end deadlines approach.
6. Income and Business Planning
For business owners or those with variable income, now is the time to evaluate income deferral or acceleration strategies, review pass-through entity deductions (Section 199A), and confirm that estimated tax payments are on track. If you’re considering a large asset purchase or business transition, mid-year modeling can provide valuable insights into the potential tax impact.
Tax efficiency isn’t just a year end exercise.
A tax checkup provides the clarity and time needed to implement meaningful changes. By reviewing your financial plan now, you can take advantage of current opportunities, and avoid a last-minute scramble in the final weeks of the year.
Working with your financial advisor at Fragasso can help you coordinate these strategies with your tax professional to ensure your plan remains tax-efficient, strategic, and aligned with your long-term goals.
