Reality Check for Year-End

October 11, 2023

The changing market climate and countdown to federal tax sunsets after 2025 should provide impetus to review portfolios and planning strategies.

The appearance of fall foliage provides a telling sign of the coming holidays and new year, but also offers a reminder of the passage of time and its possible impact on the markets, regulation and personal circumstances, which can drive planning and investment decisions—some of which may need to be addressed by year-end.

Look no further than the stock market to understand the value of careful review. Given the year-to-date strength of equities, you may have questions: Am I now overweight stocks? Would it be beneficial, given higher yields, to augment my bonds holdings? And should I consider additional exposure to private markets? All are important issues, but there are others as well. You may wish to take additional steps to limit risk, seek to reduce tax liability, contribute to a charity or transfer wealth to family members, to name a few examples.

Here are some ideas to consider in the waning months of 2023.

Manage Risk and Taxes

For investors, risk may extend beyond asset allocation to the presence of concentrated holdings. The typical rule of thumb is to keep any individual stock below 10% of your portfolio, which means that it may be prudent to trim some holdings. Realized gains may be offset by losses, so it’s important to connect with your wealth or portfolio manager to clarify your potential gain/loss picture for the calendar year. Select loss “harvesting” may be appropriate: You can offset realized capital gains and up to $3,000 of ordinary income with losses, whether realized in 2023 or carried over from previous years. Be sure to abide by wash sale rules, which apply if you purchase the same or substantially identical securities (or acquire a contract or option to do so) within 30 days before or after the sale resulting in a loss.

Organize Your Charitable Gifts

Year-end is an active time for making charitable donations, but the checkbook giving that many of us employ can be time-consuming and inconvenient. Taking a more organized approach can help to streamline this process and potentially make giving more effective.

Along these lines, a donor-advised fund (DAF) can serve as a single tax-free charitable account to support multiple nonprofits, and to also track your giving. If desired, you can pair DAF funding with tax-efficient investing, as donating appreciated marketable securities (e.g., stocks and mutual fund shares) held for over a year can serve as a tax-free way to reallocate your portfolio as part of your annual investment review. Note that with such long-term holdings, you can take a deduction of their market value, up to 30% of adjusted gross income (AGI). (For short-term holdings you can only deduct the purchase price. Cash donations can be up to 60% of AGI.)1 In some cases, you may prefer to “bunch” donations in a given year to maximize tax benefits beyond the standard deduction.

Be sure to allow sufficient lead time, given the year-end deadline of transferring certain assets. For instance, it can take up to six weeks to process a mutual fund donation, suggesting the need to initiate the transfer by mid-November. In addition, nonprofit organizations vary in their ability to process noncash gifts in a timely manner. This is an opportune time for your NB Private Wealth team to review your balance sheet and work with your tax advisor to identify optimal assets to transfer and then execute your philanthropic objectives for the year.

Benefit From Current Estate Tax Rules

We are cognizant that the clock is ticking on the generous estate tax rules enacted as part of the 2017 tax reform. Specifically, the current (2023) lifetime federal exemption of $12.92 million per person (or $25.84 million per married couple)2 from estate and gift tax is set to revert to past levels after 2025. Where feasible, we believe gifting above the historical exemption amount of $5 million (indexed from 2010) per person could be an effective way to move assets out of your estate on a gift-tax-free basis. For added flexibility, you may wish to employ certain trust vehicles.

Gifting on a less grand scale may also be in order. Under current law, you can give up to $17,000 ($34,000 as a married couple) gift-tax-free to as many individuals as you like in 2023, without using your lifetime federal gift tax exemption.3 However, all of your gifts, including those made directly to children via taxable investment accounts and/or UTMAs, 529 college savings accounts and, indirectly, to life insurance trusts to cover annual premiums, must be coordinated to ensure you don’t inadvertently exceed the annual gifting limits for any one person. Also, you can pay your children’s (or anyone else’s) tuition directly to an educational institution, or medical expenses/health insurance premiums directly to the service providers, in unlimited amounts without dipping into the annual exclusion or lifetime gift exemption.

Capitalize on Tax-Advantaged Accounts

Retirement Accounts

Use of retirement savings vehicles can provide significant opportunities for investment growth potential over time. The limit on annual employee 401(k) plan contributions is $22,500 for 2023 (plus an additional $7,500 for those age 50 or older); and you can contribute up to $6,500 to a traditional individual retirement account (IRA) in 2023 ($7,500 if you are 50 years of age or older), though the tax deductibility of your IRA contribution may be reduced or disallowed if you also participate in a retirement plan at work and your earnings exceed certain thresholds. Your nonworking spouse can use your earnings to contribute to an IRA, in which case income-based phaseouts take place at higher levels than those for the working spouse. Moreover, you and/or your spouse can still contribute to a nondeductible IRA or convert a traditional IRA to a Roth IRA.

Management of RMDs

Those who have not begun taking distributions from traditional retirement plans may eventually face meaningful required minimum distributions (RMDs). In such cases, it may make sense to take some distributions to tactically “fill up” your existing tax bracket before RMD status begins, rather than expose that income to potentially higher tax rates in the future.

529 Plans

A potentially effective way to use the annual gift exclusion is to contribute to a 529 education account on behalf of a family member or other individual. It’s possible to front-load up to five years of exclusions in one 529 contribution. Although the contribution isn’t tax-deductible at the federal level, account assets grow tax-free, and withdrawals are also not taxable if they are used for qualified education expenses, including both college and (for expenses up to $10,000 per year) private elementary and secondary school. Many states provide a limited income tax deduction for residents who contribute to a 529. Note that, starting next year, it will become possible to convert up to a lifetime limit of $35,000 in 529 account assets to a Roth IRA where the beneficiary and account have been in place for 15 years, subject to Roth contribution limits and the beneficiary’s earned income levels.

Assess Your Insurance Coverage

Insurance is a cornerstone of your financial picture that can sometimes be overlooked. Consider reviewing your policies to ensure there are no gaps in coverage should you or your family members be party to a lawsuit or legal judgment. Excess personal liability (or umbrella) insurance can be crucial, providing a backstop in the event you are sued for amounts in excess of the regular liability coverage offered by homeowner and automobile policies. As a general rule of thumb, you should consider coverage of up to your net worth to protect your family’s assets.

Also, assess whether you might benefit from coverage for future long-term care, which can be a particularly costly outlay late in life. Individuals typically begin to consider whether or not to have this type of coverage between the ages of 50 and 70. Eligibility and premiums are a function of the applicant’s health and age at the time of application, as well as the type of policy and features selected.

Finally, consider reviewing your life insurance coverage. Low interest rates in recent years and related dividend crediting rates are contributing to underperformance in some policies, creating potential for lapse if not addressed. In our view, it would be prudent to request in-force illustrations from the insurance carrier every couple of years to make sure there are no surprises down the road.

The Big Picture

The economic and market landscape continues to evolve, making it important to work with your advisors to ensure that your accounts and planning are in line with your individual needs and can fully capitalize on currently available wealth strategies. Importantly, your financial life can change dramatically over time. Marriage, divorce, the birth of a child and health issues, among others, may require an array of strategies across disciplines, from insurance to estate planning to asset allocation.

Working with your NB Private Wealth team, you can develop a plan to help navigate through these issues.

Checklist for Year-End

Your late-year financial review may include addressing these questions and more:

  • Are the beneficiary designations correct on insurance and retirement accounts, particularly where you might have designated a trust for planning reasons?
  • Are those named in your estate planning documents, such as trustees, executors or attorneys-in-fact, still appropriate?
  • Do your payroll withholdings need to be adjusted?
  • Are your Flexible Spending Account withholdings realistic, and are you on track to eliminate balances by the deadlines?
  • If you are enrolled in a high-deductible health plan, have you fully funded a health savings account?
  • Have you reviewed your cash management strategy? With short rates at or above 5%, consider maximizing your earned interest rates while ensuring that you adhere to FDIC limits where applicable.
  • Have you taken the opportunity to restructure your debt balances? Rate increases have reset many adjustable-rate mortgages higher, increasing monthly carrying costs.
  • Have your circumstances changed in any way that might require a reassessment of your asset allocation, or a fresh look at your estate planning?
  • Is your home adequately insured, given that valuations and rebuilding costs have increased substantially in many markets?
  • Have you taken steps to protect your personal and financial data? This may include a review of your credit report to address inaccuracies or identify unusual activity.


1Any excess above these thresholds is carried forward to the subsequent five tax years. You should consult with your tax advisor as to the timing and types of donations, especially in regard to larger gifts such as business interests.

2For 2024, the exemption will be $13.61 million per individual or $27.22 million per couple.

3The limit on tax-free gifting rises to $18,000 in 2024.

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