The outcome of the 2024 presidential election has brought a lot of speculation about how new policies could affect our financial lives. In times like these, a solid financial plan is more important than ever. One of the primary benefits of a well-constructed financial plan is that it serves as a roadmap, helping you confidently navigate uncertain times.
Now that we know the outcome of the election and many other key races, we have a better idea of strategies to recommend. While specifics remain to be seen, making proactive adjustments now will allow you to consider certain opportunities in the years ahead. Here are a few financial strategies to consider in your plan post-election.
Tax Considerations
It’s highly speculated that the Tax Cuts and Jobs Act (TCJA) provisions, currently set to expire at the end of 2025, will be extended. Here are some areas of opportunity to look at in a low tax environment:
- Asset Location Strategies: Placing the right assets in tax-efficient accounts—known as asset location—can minimize the impact of taxes on investment returns. Tax-managed solutions and active asset management strategies can enhance this by focusing on tax efficiency and reducing capital gains taxes.
- Maximizing the 24% Tax Bracket: Through 2025, individuals and couples can take advantage of the 24% tax bracket, which could be one of the last opportunities to make significant tax-efficient moves before a potential tax hike. Again, the TCJA provisions may be extended, so we will keep an eye on this.
- Deferring Capital Losses: Consider deferring capital losses to offset gains in years when tax rates are higher, providing a buffer against future tax increases.
- ROTH Funding: For those interested in a tax-deferred growth option for future retirement funds, consider “overfunding” retirement accounts with a long-term goal of a Roth conversion down the line. This can provide future tax-free growth potential and help manage required minimum distributions (RMDs) in retirement.
Retirement Planning Strategies
Some of the next administration’s changes may also affect retirement planning and income. Here are some ways to diversify your income during retirement that also have tax advantages:
- Life Insurance: With approximately 70% of people aged 65 or older requiring some type of extended care in their lifetimes, life insurance policies are important on their own1. But they can also serve as a vehicle for potential tax-free income, especially if future tax rates increase. These long-term care (LTC) policies can also hedge against estate tax liability and fund Generation-Skipping Trusts (GSTs) for multi-generational wealth transfer.
- Maximizing ROTH Conversions: With lower tax rates likely to continue, there’s an opportunity to convert retirement funds to a Roth IRA while rates remain relatively low, meaning you pay the taxes now in anticipation that, come time for retirement, you may be in a higher bracket. Roth accounts offer other significant advantages, including tax-free growth, potential 10-year deferral post-inheritance, and no required minimum distributions (RMDs), making them ideal for legacy planning.
- Annuities: If you haven’t already, consider annuities as part of a tax-efficient retirement strategy. They provide a structured way to lock in gains and control the timing of taxable events, especially useful for tax-sensitive retirees.
Charitable Giving
If you have assets that are highly appreciated, here are some charitable strategies to avoid potential tax implications:
- Qualified Charitable Distributions (QCDs): For clients over age 70½, QCDs from IRAs can reduce taxable income. This is particularly useful when trying to manage RMDs and avoid entering a higher tax bracket.
- Donation Bundling and Donor-Advised Funds (DAFs): Charitable donation bundling—combining multiple years' worth of donations into a single year—can help taxpayers surpass the standard deduction threshold, maximizing the impact of their giving. DAFs also allow for tax-efficient donation timing and investment growth for future donations.
- Appreciated Assets: Donating highly appreciated assets instead of cash can help avoid capital gains taxes on those assets while providing a tax deduction.
Real Estate & Education Investments
- Qualified Opportunity Zones (QOZs): For clients considering property sales, reinvesting capital gains into Qualified Opportunity Zones offers the potential for significant tax deferral and even partial exclusion of gains if held long-term.
- 529 Plan Funding for Education Costs: Leveraging 529 plans for education expenses allows tax-free growth and helps remove taxable assets from an estate, offering a valuable multi-generational planning tool.
Estate Planning and Wealth Transfer
One of the most significant outcomes from the TCJA was the effect on estate taxes. With those provisions set to likely extend, some key strategies remain in place to take advantage.
- Gifting Strategies: With the potential for a continued reduced estate tax exemption, gifting while the current higher exemption remains is crucial. Implementing a regular gifting strategy reduces the size of the taxable estate and can provide more flexibility in the future.
- Accelerated 5-Year Funding: Utilizing the 5-year accelerated gifting option for 529 plans provides immediate estate tax benefits while funding future education costs for heirs.
- Reevaluating Trust Structures: Reviewing and updating trust structures, including GST funding, allows for optimal estate planning. This is especially important for families who may be affected by potential estate tax changes.
Navigating uncertainty is challenging, but a strong financial plan helps you stay focused, flexible, and confident, no matter the policy shifts ahead. As we await more details on any legislative changes, let’s make sure your financial plan is set to guide you through the coming years. If you have questions or want to review your plan, don’t hesitate to reach out. Together, we can navigate these changes and keep you on track to help achieve your financial goals.
1U.S. Department of Health and Human Services