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7 Tax, Retirement, Estate Planning Issues to Tackle With Clients Before Year-End

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What You Need to Know

  • Year-end planning is important so that your clients end 2021 in the best possible position and have a good start for 2022.
  • Many of these issues involve tax planning.
  • A lot of potential changes are looming, and communicating with your clients about the future is perhaps more important than ever. 

As 2021 comes to a close, there are a number of year-end planning issues for advisors to discuss with their clients. The list will vary from client to client.

As we head into 2022, we face the prospect of higher inflation, potential changes in tax and retirement rules, and other issues. Here are some issues to consider with your clients.

1. Tax Planning

Much of the year-end planning you do with your clients will touch on tax planning in one form or another. This includes looking at where your client stands and in many cases looking for ways to reduce their 2021 tax hit. Items such as charitable donations, retirement plan contributions and deciding which year to make some deductible expenditures come into play. Planning required minimum distributions is a key item here as well. 

You and your client will also want to assess what is and isn’t included in the final version of President Joe Biden’s tax plan to decide if there are moves to make in 2021 and to start your planning for 2022 and beyond. 

2. Charitable Contributions

For clients who are charitably inclined, 2021 provides unique opportunities. As a carryover from legislation passed in 2020 in connection with the COVID-19 pandemic, charitable contributions made with cash can be deducted up to 100% of adjusted gross income. 

This can provide a lot of planning options for clients. For example, they might bunch several years’ contributions into 2021 in order to take full advantage of this tax deduction, assuming they can itemize. Charitable deductions can be used to offset taxes on income from things such as Roth IRA conversions, capital gains from stock sales, retirement account distributions and many other types of income.   

Note that in order to take advantage of the 100% of AGI deduction, the contributions must be made directly to the charitable organizations, not to a donor-advised fund. 

Another charitable giving tactic to consider for 2021 is using appreciated securities as the gifting vehicle. With the stock market gains of 2021 and the past few years, your clients probably have a number of stocks, ETFs and mutual funds with significant unrealized capital gains in their taxable accounts. 

Donating these appreciated shares directly to a charity offers a tax deduction based on the market value of the shares on the date of donation. In addition to the tax deduction, your client will not have to pay any capital gains taxes on these appreciated shares. This can be helpful in rebalancing their portfolio without triggering taxes on these transactions. 

Appreciated securities and other assets can generally be used to make contributions to a donor-advised fund as well. The AGI limits for donating appreciated securities are lower than for cash; any excess amounts can be carried over to subsequent years.  

3. Portfolio Rebalancing

With the stock market at record levels, it is important to be sure that your client’s portfolio is properly allocated to ensure they are not taking on excessive risk. Rebalancing is critical every year, but especially so this year. 

It’s important to be as tax-efficient as possible. If your client does have any tax losses on positions in taxable accounts, it may make sense to harvest those losses to offset any gains. Rebalancing positions in IRAs or other retirement accounts should be looked at closely. As discussed above, donating appreciated taxable securities is another tax-efficient rebalancing tactic in terms of reducing the allocation to equities. 

While taxes are a consideration, it’s important to ensure that your client’s portfolio reflects an asset allocation that is aligned with their goals and risk tolerance as the markets sit at or near all-time high levels. 

4. Estate Planning

The end of the year is a good time to review your client’s estate planning with them. Has anything changed during the year? Are these changes properly reflected in their beneficiary designations or estate planning documents? These issues typically include marriage, divorce or the death of a spouse, as well as the birth or adoption of a child, or a child getting married. This is a perfect time of the year to ensure that any needed actions are taken.