By Jeff Gilbert

With the new year comes renewed commitments to improving your finances, strengthening your savings, and planning for the future. Now is an opportune time to take a proactive stance toward your financial future. 

I understand the unique financial landscape that high-net-worth and ultra-high-net-worth families navigate, and with 2024 before us, it’s time to align your financial plan with your aspirations. From scrutinizing retirement contributions and investments to fine-tuning tax-saving strategies and charitable giving, I am here to guide you through a comprehensive review that safeguards your financial well-being in the coming year.

Retirement 

Maximize Your Retirement Savings

Be sure to max out your retirement contributions for 2023 prior to April 18th of 2024. Many employers offer retirement plans like 401(k)s, 403(b)s, and 457s, which allow you to contribute up to $23,000 for 2024 ($30,500 if over age 50).

These contributions are automatically deducted from your paycheck and won’t show up as part of your annual income, so the more you can maximize your contributions during the year, the less taxable income you will have. With this strategy, you can defer taxes until your retirement years when you could potentially be in a lower tax bracket.

Keep in mind that the SECURE 2.0 Act will increase catch-up contributions starting in 2025. At that point, individuals between ages 60 and 63 will be able to contribute up to $10,000 or 150% of the regular catch-up contribution to their retirement plan.

Contribute to an IRA

Contributing to a traditional IRA is another strategy to reduce your AGI if your income is within certain limits. By contributing pre-tax funds, you can effectively reduce your current-year tax liability, but you will owe tax on both the contributions and the account growth when you withdraw the funds in retirement. Alternatively, you can contribute to a Roth IRA, where taxes are paid up front but distributions are tax-free at retirement as long as the first contribution was made at least five tax years ago. The 2023 contribution limit for IRAs is $6,500 with additional $1,000 catch-up contributions for individuals over the age of 50. Contributions can be made until April 18th, 2024, for the 2023 tax year so there’s still time to utilize this strategy. If you’ve already maximized your 2023 contributions, start contributing for the 2024 tax year. The 2024 contribution limit is for $7,000 with additional $1,000 catch-up contributions for individuals over the age of 50.

Understand Your RMDs

Starting in 2023, the rules around required minimum distributions (RMDs) have changed again thanks to SECURE 2.0. If you turn 72 after December 31, 2022, your RMD age will be increased to 73. If you turn 74 after December 31, 2032, your RMD age will be 75. If you are subject to RMDs in 2023, the sooner you understand the rules around your distribution, the better. Though we are barely into the new year, you don’t want to be caught off guard come December 31. Depending on what age you are required to start taking distributions (70 ½, 72, 73, or 75), you could face a 25% – 50% penalty on missed distributions. 

If you don’t need your RMD money to live on, consider donating the funds to a worthy cause, which could also lessen your tax burden for the year. To calculate your RMD, use one of the IRS worksheets. 

Cash Flow 

Assess Your Emergency Fund

Now is the time to ensure that you have enough money set aside in your emergency fund or create a plan to build this up over the next year. An adequate emergency fund should cover 3-6 months of necessary living expenses, including mortgage or rent, utilities, groceries, transportation, etc. 

With all stock market uncertainty and recession fears, many experts have suggested maintaining a larger emergency fund, closer to 6-12 months of expenses. If you’re single, or your household only has one source of income, consider saving on the higher end of this scale to make sure you’re covered in the event of a job loss or reduction in income.

However much you save, be sure this money is held in a highly liquid account. It needs to be readily available and easily accessible, but it should also be in an account that offers a competitive interest rate so you don’t lose out on potential growth.

The SECURE 2.0 Act has made saving for emergencies a bit easier. In 2024, participants will be allowed to contribute up to $2,500 annually to an “emergency fund” within the 401(k) plan. These contributions can be accessed before retirement and will not be subject to the 10% early withdrawal fee.

Create and Maintain a Budget

The word “budget” seems to have a negative connotation; many people think that if you budget, you’re broke. Budgeting actually gives you permission to spend and is a simple way to keep track of your expenses and be aware of how much you’re actually saving each month. If one of your goals for the new year is to improve your cash flow and make better financial decisions, creating and maintaining a budget is a great place to start.

Risk Management

Contribute to a Health Savings Account

If you’re enrolled in a high-deductible health plan, consider contributing to a health savings account (HSA) in 2024. HSAs offer triple tax savings. Contributions are tax-deductible, earnings grow tax-free, and withdrawals are tax-free if used to pay for medical expenses. 

The 2023 IRS contribution limits for HSAs are $3,850 for individuals and $7,750 for families ($4,150 for individuals and 8,300 for families in the 2024 year). If you are 55 or older, you may also be able to make catch-up contributions of $1,000 per year. 

Review Your Workplace Benefits

The beginning of the year is a great time to review your workplace benefits and update your coverage levels if need be. If you had a major change to your family structure in 2023, like a birth, marriage, or divorce, now’s the time to update your 2024 health, dental, and vision insurances. Many employers also offer group life insurance which can be a great addition to any private coverages you may have. 

Contribute to Your Flexible Spending Account

Your employer may also offer a health care flexible spending account, which allows you to set aside pre-tax money for qualified out-of-pocket medical expenses. In 2023, you can contribute up to $3,050 (2024 limits have increased to a max of $3,200)

Unlike HSAs, FSAs do not require that you participate in a high-deductible health plan, but they are not as versatile either. For instance, HSAs allow you to carry over any unused funds to the next plan year, whereas FSAs only allow you to carry over up to $610. Generally speaking, if you do not have access to an HSA, then contributing to an FSA is likely a good idea.

Revisit Your Plans and Policies

The new year is also a great time to assess your insurance needs, review your coverages, and update designated beneficiaries to reflect your current financial situation. For example, if you paid off debt, you may not need as much life insurance coverage since your family’s liabilities have decreased. You might also want to evaluate your need for other types of insurance, such as long-term care or disability insurance. 

Taxes

Donate to Charity

Donating to charity doesn’t have to wait until the holiday season. In fact, charitable gifting is a great tax strategy to incorporate throughout the year.

Annual gifts to qualified charitable organizations may be deemed an eligible itemized deduction and can be a great way to give back at the end of the year while also minimizing your tax bill. With the higher standard deduction, you’ll need to make sure your total itemized deductions for the year exceed $13,950 for an individual filer, and $27,700 for married filing jointly ($14,600 and $29,200 for 2024). If your deductions fall below this amount, consider doing several years’ worth of giving in one year.

Donor-advised funds are another option that allow you to contribute a lump sum all at once and then distribute those funds to various charities over several years. With this strategy, you can itemize deductions when you make the initial contribution and then take the standard deduction in the following years, allowing you to make the most out of your donation tax-wise.

Invest in a College Savings Plan

If you have children or grandchildren in your life, contributing to a 529 savings plan is an excellent way to jump-start their college savings in the new year. 

This type of educational savings plan was created so that families can receive tax benefits for saving toward qualified higher-education expenses. After-tax money is invested in a 529 plan where it grows tax-free. When the money is later taken out for qualified expenses, there are no federal taxes due. 

In 2023, you can give up to $17,000 (or $34,000 if gift-splitting with a spouse) per 529 account gift-tax-free. The numbers for 2024 are $18,000 per individual contributor. There’s also a special election that allows you to give 5 years’ worth of contributions as a lump sum, meaning you could give up to $85,000 (or $170,000 if gift-splitting) entirely gift-tax-free! 

What’s more, remaining 529 balances can be rolled into a Roth IRA for the account beneficiary starting in 2024, so you won’t have to worry about losing the funds if your child chooses not to go to college or doesn’t use the full account amount. Keep in mind that the account must be at least 15 years old and the maximum lifetime rollover limit is $35,000. Contributions made in the last 5 years will not be eligible for rollover.

Consider a Roth Conversion

Roth IRAs are an attractive savings vehicle for many reasons, including no required minimum distributions (RMDs), tax-free withdrawals after age 59½, and the ability to pass wealth tax-free to your heirs. Unfortunately, Roth IRAs have income restrictions, and you may not be able to open an account outright if you are above certain limits. 

To get around this threshold, consider a Roth conversion. Using this strategy, you will pay tax on money contributed to a traditional IRA, thereby converting it into a Roth. If you believe you will earn less income in 2024, or your traditional IRA balance has taken a hit due to recent market volatility, a Roth conversion may be a great opportunity for your specific situation. Converting to a Roth also allows your money to grow tax-free for as long as you’d like.

Consider Tax-Loss Harvesting

Tax-loss harvesting involves selling investments at a loss in order to offset the gains in your portfolio. By realizing a capital loss, you are able to counterbalance the taxes owed on capital gains. The investments that are sold are usually replaced with similar securities in order to maintain the desired asset allocation and expected return. 

Given the continued market volatility of 2023, this can be a great way to make the most out of a losing situation by using an investment loss to offset your tax liability. Even though the deadline for this to count toward the 2023 tax year has passed, there will likely be ample opportunity to revisit this strategy in 2024. Talk with your advisor about potentially harvesting your losses and if it makes sense for you.

Investments

Review Your Asset Allocation & Invest With Impact

The beginning of the year is also a great time to review your asset allocation strategy and incorporate ESG and impact investing if desired. Given the dramatic market volatility and historic levels of inflation over the last year, it’s crucial to evaluate your investments and make sure your portfolio is properly diversified in 2024. It should also be tailored to your specific risk tolerance level, ensuring you earn enough returns to keep up with inflation but you’re not overexposing yourself to risk. 

If you are interested in using your funds to support environmental, social, or governmental issues (ESG), you can also consider impact investing as a way to earn returns while also promoting change on causes you care about.

Estate Planning

Review Beneficiary Designations

If you had any major life events happen in 2023, like the birth of a child, marriage, divorce, or a death in the family, make sure you review your beneficiary designations for 2024. There are several assets, including retirement accounts, bank accounts, and life insurance policies, that are distributed based on beneficiary designation and not the terms of your will. If you have an updated will but an outdated beneficiary listed on one of these accounts, there is a chance your assets will not pass according to your wishes. 

Review Your Estate Documents

Similarly, it’s important to review your estate planning documents, including your last will and testament, any powers of attorney, living wills, and/or trust documents. The new year is always a good time to take another look at these documents or start drafting them if you don’t already have them in place. 

Make the Most of the Annual Gift Tax Exclusion

If you’re looking to reduce your taxable estate in 2024, consider making gifts up to the annual exclusion amount. Individuals can give to each recipient (and to an unlimited number of recipients) up to $17,000 and married couples can give up to $34,000 without triggering gift tax (this increases to $18,000 per person in 2024) Not only that, but the beneficiary of your gift will not have to report it as income. This is a great way to spread your wealth amongst family and friends.

We’re Here to Help

Whether it’s optimizing your retirement contributions, strategically managing investments, or fine-tuning your charitable endeavors, a proactive approach now can pave the way for a prosperous and fulfilling future. 

Partnering with a professional can help prevent the opportunities of a new year from slipping through your fingers. We at Balboa Wealth Partners are here to help. Let’s collaborate to build a dynamic strategy that propels you toward financial success. Reach out, and together let’s make 2024 a year of financial achievement—give me a call at 949-445-1465 or email me at [email protected].

About Jeff

Jeff Gilbert is the founder and CEO of Balboa Wealth Partners, a holistic financial management firm dedicated to providing clients guidance today for tomorrow’s success. With over three decades of industry experience, he has worked as both an advisor and executive-level manager, partnering with and serving a diverse range of clients. Specializing in serving high- and ultra-high-net-worth families, Jeff aims to help clients achieve their short-term and long-term goals, worry less about their finances, and focus more on their life’s passions. Based in Orange County, Jeff works with clients throughout the entire country. To learn more, connect with Jeff on LinkedIn or email [email protected]. 

Advisory services provided by Balboa Wealth Partners, Inc., an Investment Advisor registered with the SEC. Advisory services are only offered to clients or prospective clients where Balboa Wealth Partners and its Investment Advisor Representatives are properly licensed or exempt from registration.

Securities offered through Kingswood Capital Partners, LLC, member FINRA, SIPC.

Balboa offers advisory services independent of Kingswood. Neither firm is affiliated.