RevShark
TSP Timing
Heading into the new week, pundits are wringing their hands over the pending Federal Reserve interest rate decision and their messaging around possible policy changes for the coming year, while traders are wondering when the Santa Claus rally will begin. Ultimately, though, my approach and perspective remains unchanged: the primary trend for the funds off of the Inflation Bear Market low remains intact... even for (at this point) for the I-Fund.. and I don't anticipate making any changes to my model allocation into the end of the year (although I would still like to eventually increased the weighting to the S-Fund when the opportunity presents itself).
With that said, I thought I'd share some key end-of-year tax planning notes from the Certified Financial Planner on my staff. These aren't comprehensive by any means, but these can be big wins and implemented before the end of the year:
1. If eligible, consider contributing as much as possible to a Health Savings Account (HSA) up to the 2024 limit of $8,300 for families (with an additional $1,000 catch-up contribution for those over 55). Crucially, try not to use those funds until retirement, as they are not only tax-deductible but continue to grow year after year and withdrawals are completely tax-free if useful for eligible healthcare costs. This is a tier-one tax strategy.
2. If feasible, contribute as much as possible to your TSP up to the contribution limit of $23,000 for 2024 (with a catch-up contribution for those over 50 of $7,500). Depending on your marginal tax bracket, consider allocating a position of your contributions to a Roth TSP.
3. If charitably inclined, consider "bunching" charitable contributions using a Donor Advised Fund (DAF), which offers an immediate tax deduction for contributions while granting funds to charities over time, if the total contribution exceeds your standard deduction, which is $29,200 for Married Filing Jointly and $14,600 for Single. For example, if I planning on giving $10,000 each year to charity over the next four years (and happened to have that $40,000 handy), I could put that $40k into a DAF, take the tax deduction (which would also allow me to itemize other deductions as well) in the current year and make my planned charitable contributions in subsequent years. Bonus tip: Donating highly appreciated stock from a brokerage account allows you to satisfy charitable goals while avoiding the capital gains tax on the sale of the stock. Since the charities are exempt from taxes, the organization won't be taxed when selling the stock, either. 2nd bonus tip: If you have even more cash that is burning a hole in your pocket, some municipalities permit pre-paying property taxes for the coming year, which would be an additional deduction to itemize.
4. Consider harvesting losses from taxable accounts. Those realized losses will offset any capital gains (either short-term or long-term) from other investments you sold during the year. Plus, if your losses exceed your gains, you can use up to $3,000 of the net loss (married filing jointly) to offset ordinary income. Moreover, if losses exceed both your gains and the $3,000 MFJ limit, the remaining losses can be carried forward to future tax years.
There are several other end-of-year tax planning strategies, but these are some of our favorites and can really move the proverbial needle.
With that said, I thought I'd share some key end-of-year tax planning notes from the Certified Financial Planner on my staff. These aren't comprehensive by any means, but these can be big wins and implemented before the end of the year:
1. If eligible, consider contributing as much as possible to a Health Savings Account (HSA) up to the 2024 limit of $8,300 for families (with an additional $1,000 catch-up contribution for those over 55). Crucially, try not to use those funds until retirement, as they are not only tax-deductible but continue to grow year after year and withdrawals are completely tax-free if useful for eligible healthcare costs. This is a tier-one tax strategy.
2. If feasible, contribute as much as possible to your TSP up to the contribution limit of $23,000 for 2024 (with a catch-up contribution for those over 50 of $7,500). Depending on your marginal tax bracket, consider allocating a position of your contributions to a Roth TSP.
3. If charitably inclined, consider "bunching" charitable contributions using a Donor Advised Fund (DAF), which offers an immediate tax deduction for contributions while granting funds to charities over time, if the total contribution exceeds your standard deduction, which is $29,200 for Married Filing Jointly and $14,600 for Single. For example, if I planning on giving $10,000 each year to charity over the next four years (and happened to have that $40,000 handy), I could put that $40k into a DAF, take the tax deduction (which would also allow me to itemize other deductions as well) in the current year and make my planned charitable contributions in subsequent years. Bonus tip: Donating highly appreciated stock from a brokerage account allows you to satisfy charitable goals while avoiding the capital gains tax on the sale of the stock. Since the charities are exempt from taxes, the organization won't be taxed when selling the stock, either. 2nd bonus tip: If you have even more cash that is burning a hole in your pocket, some municipalities permit pre-paying property taxes for the coming year, which would be an additional deduction to itemize.
4. Consider harvesting losses from taxable accounts. Those realized losses will offset any capital gains (either short-term or long-term) from other investments you sold during the year. Plus, if your losses exceed your gains, you can use up to $3,000 of the net loss (married filing jointly) to offset ordinary income. Moreover, if losses exceed both your gains and the $3,000 MFJ limit, the remaining losses can be carried forward to future tax years.
There are several other end-of-year tax planning strategies, but these are some of our favorites and can really move the proverbial needle.
