Five Year End Planning Tips

Financial Planning

“Starting next year” is a phrase you commonly hear around the holidays. Whether the goal is to exercise more, travel, or eat healthier, it just seems like these resolutions seem more manageable in January. While you can cut cookies from your diet next year, there are a few items that should be addressed before 2022 when it comes to finances. We’ve outlined five valuable areas to address before the ball drops and we head into the New Year, but also encourage you to work with your tax advisor for specific recommendations.

Optimize tax advantaged accounts

If you are eligible to participate in your company’s 401k plan, maximize your contributions. The limit in 2021 is $19,500 and you can contribute an additional $6,500 if you are over the age of 50, for a total of $26,000. If you are financially unable to meet these suggested contribution levels, try and contribute an amount that would allow you to receive a 100% employer match. For those who are self-employed, this is where it gets interesting as you can potentially contribute to your retirement at much higher levels. The amount you can contribute will depend on how much income you have, so we recommend speaking with a retirement plan specialist or your tax advisor when exploring a customized strategy. Finally, if your employer doesn’t offer a 401k plan, think about contributing to a Traditional or Roth IRA. These accounts differ in how contributions are treated from a tax perspective so make sure you understand the potential outcomes before deciding to move forward. Individuals who have access to a 401k may also be eligible to contribute to an IRA if their income falls below certain income limits.

Investment considerations: capital gains and losses

While we don’t encourage making investment decisions solely based on tax consequences, tax-loss harvesting is a great way to mitigate taxes. This is a process where assets can be sold at a loss to offset realized gains elsewhere in taxable accounts. As an example, assume you sold an asset during 2021 and you have a $10,000 capital gain due to the sale. If you were to sell a different asset at a loss, you would be able to effectively net your gains and losses against one another to potentially lower your tax obligation. Additionally, if your losses exceed your gains, you are able to offset up to $3,000 of these losses against ordinary income. Any remaining losses can be carried forward to future years until the total loss is depleted. As an example, assume your total capital loss is equal to $5,000 in 2021. The first $3,000 can be used to offset annual income and the remaining loss of $2,000 can be carried into 2022.

There are two important notes to make surrounding tax-loss harvesting. First, it is oftentimes not optimal to solely harvest losses at year-end. Instead, this strategy should be carried out throughout the year. Take 2020, as an example, where Covid-19 fears caused markets to decline rapidly in the first quarter only to recover these mark-to-market losses by year-end. If you realized losses in March 2020, these losses could have potentially offset capital gains made at a later date. The second item to consider is the IRS Wash-Sale rule. This prohibits individuals from selling an asset at a loss and then purchasing a “substantially identical” security within a 31- day window. Violation of this rule will result in any losses being disallowed for tax purposes. As an example, if you were to sell IVV (an ETF that tracks the S&P 500) at a loss and then purchase SPY (another ETF that tracks the S&P 500) 15 days later, the IRS would consider these to be similar securities and would disallow your loss on the sale.

Gifting & education planning

While gifting cannot offset ordinary income, it can be used for estate planning purposes. Any individual can gift up to $15,000 ($30,000 for married couples) to another individual without having to file a gift tax return. For individuals approaching the estate tax limit of $11,580,000, gifting can reduce net-worth and prevent families from crossing into estate tax territory.

Another vehicle that can be used from a gifting perspective is a 529 Plan, also known as an Education Savings Plan. Assets in the account grow tax-free (i.e., no income or capital gains taxes) as long as distributions are used for qualified education expenses such as tuition, books, lodging, etc. While the annual contribution limit is set at $15,000, individuals can accelerate contributions up to five years in advance, allowing up to a $75,000 annual contribution ($150,000 for married couples). Pursuing this accelerated strategy would prohibit future contributions for the next five years.


Taxpayers that take the standard deduction typically don’t benefit from itemizing, charitable donations. However, recent legislation permits individuals electing the standard deduction to claim a $300 deduction for cash contributions to qualifying charities and $600 for married individuals filing jointly in 2021.

For individuals that want to be philanthropic, but haven’t yet identified which organization to support, establishing a Donor Advised Fund (DAF) may be a great option. A DAF, allows donors to receive an immediate tax deduction for their charitable contribution, but also decide at a later date which charity should be the grant recipient. A DAF may also save taxpayers money by bunching charitable donations in one year in order to benefit from itemizing tax deductions, while also taking standard tax deductions in other years.
Finally, individuals taking Required Minimum Distributions (RMDs) from their IRA accounts are able to donate up to $100,000 annually from their IRA to qualified charitable organizations and not have these proceeds count towards their income.

Family governance

A less tangible, but equally important item to tackle is family governance. Whether it is related to philanthropy, education, or other generational issues, families typically want to ensure certain values are passed on to future generations. A good way to do this is to make it a point to meet annually as a family and have a discussion around legacy. This does not necessarily have to be a conversation about money per se, but instead focus on expectations you desire to be passed down to future generations including the importance of your family, and maintaining your family’s legacy, etc. While these topics may be addressed in a will or trust, it’s important to discuss them in a less formal manner in order to avoid any confusion after the passing of a loved one.

Unfortunately, following through on these items won’t automatically add you to Santa’s “nice list”, nor will it eliminate your tax bill, or guarantee success. Instead, proactively addressing these low-hanging fruit issues should allow you to live a little more comfortably in retirement, both financially and holistically.

Written by Chris Engelman & Nelson Greene