By: Paul Morrone
It’s easy to get sidetracked at the end of the year. You’re working out the schedules of your out-of-state relatives, Christmas lists are getting penned and you’re planning your holiday shopping with the precision of a military operation. But I suspect what you’re not doing is thinking about your finances with the same level of detail. The end of the year is one of the best times to identify opportunities and risks, and leaves time to act before the clock strikes midnight and we get our proverbial ‘clean slate’ in the new year. I’m not talking about the surface level stuff – retirement plan contributions, tax estimates or even tax loss harvesting, to name a few – but bigger picture strategies to help maximize the value of your wealth, align it with your goals and use the tools available to you to save on taxes. It should come as no surprise, then, that year-end planning has a heavy emphasis on tax strategies given the calendar-year deadline for taking action, however, each tax year should not be viewed in a vacuum. While reporting may work that way, projecting a year (or two, or five) out into the future can help you get a handle on what’s to come.
Individuals should be evaluating lots of things, especially in the current investment environment. This year was ripe with opportunities to make tactical portfolio moves that impact your taxes. Early April saw crazy volatility which allowed for tax-loss harvesting. With a quick run back to the top, equity markets are now dancing with all-time highs again. Now most, if not all, portfolio positions are likely at gains. Investors may want to be evaluating their portfolios and consider harvesting gains against previously realized losses (or even better, against capital losses carried forward from prior years) to help rebalance their portfolio to ensure it remains aligned with their bigger picture goals and investment needs.
It’s also a great time to assess concentration risk. Have you worked for the same employer for 30 years? Do you have options, RSUs (vested or unvested), ISOs or employer stock in your retirement plan? Did you get lucky on a stock like NVDA or PLTR that has gone gangbusters over the past few years? Bitcoin? Getting a clear picture as to your true exposure to a company, sector or specific asset can help you be prepared in the event that asset class or the market as a whole takes a step in the other direction. Depending upon how concentrated your net worth is, it may be time to evaluate something simple like systematic liquidations of the concentrated position (coordination with your tax strategy is key here, see gain/loss harvesting, above), or consider more advanced hedging strategies such as options or even an exchange fund to help mitigate the single-stock risk in your household.
Those with large retirement plan balances should be evaluating the efficiency of ROTH conversions. With the recently enacted OBBBA (One Big Beautiful Bill Act passed 7/4/25) and extension of the more favorable tax rates under the TCJA (Tax Cuts and Jobs Act of 2017), those with pretax retirement accounts should have an idea of how they can manage their tax bill not just this year, but really until they reach 73 and beyond. Timing ROTH conversions with things like business losses, substantial itemized deductions, charitable bequests or net operating losses can further increase the bang-for-your-buck with respect to converting pretax retirement dollars to a future tax-free asset in a ROTH IRA.
Speaking of charity, 2025 marks a major shift in how the charitable deduction is calculated for tax purposes. Those most affected are high earners, who may see their charitable deductions reduced or eliminated in 2026 even though they give thousands (or tens of thousands) to charity each year. The OBBBA instituted a 0.5% of AGI (adjusted gross income) floor that is applied to the charitable contribution deduction, meaning that a taxpayer with a $1.0mm AGI would need to give a minimum of $5k before they could deduct even $1 of charitable bequests (assuming they already itemize). High earners are also subject to a cap that limits the dollar value of their charitable deduction to 35%, less than the top marginal rate of 37%, meaning you don’t get the full value of the deduction. Considering these significant limitations, high-income taxpayers may be wise to consider accelerating charitable gifts into 2025, bunching them in one tax year (i.e. making larger bequests every-other-year rather than annually), utilizing donor advised funds or evaluating the efficiency of charitable trusts.
But hope is not entirely lost for those charitably inclined. Those over 70.5 still have access to one of my favorite planning tools – the qualified charitable deduction (QCD). And given the limitations described, above, it will become even more powerful in the future than it has been in the past. By contributing to charity directly from your IRA, you can make cash gifts to the organizations that you want to support, without adding to your top-line income number. This has the added benefit of not being subject to the charitable deduction floor as it is not considered an itemized deduction. Did I mention it also helps those subject to required minimum distributions satisfy their annual requirement?! Talk about a win-win.
This list can go on-and-on depending upon your specific situation and analyzing all of these items should not be deferred until the week between Christmas and New Year’s when you’ve finally started to think about the new year. Comprehensive and forward-thinking planning can sometimes take months to execute properly and often involves a team of professionals looking out for your bottom line. As a trusted advisor (and business owner myself), this is not an exercise in ‘do what I say, not what I do.’ This is advice I take to heart and evaluate with respect to my own financial picture each year, as I know the long-term effects on myself, my business and my family will have far greater ramifications than what’s on the menu for Christmas Day.
This material is for informational purposes only and does not constitute tax, legal, or investment advice. Please consult a qualified tax professional regarding your individual circumstances.
All investing involves risk including loss of principal. No strategy assures success or protects against loss.
Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.
A Roth IRA conversion—sometimes called a backdoor Roth strategy—is a way to contribute to a Roth IRA when income exceeds standard limits. The converted amount is treated as taxable income and may affect your tax bracket. Federal, state, and local taxes may apply. If you’re required to take a minimum distribution in the year of conversion, it must be completed before converting.
To qualify for tax-free withdrawals, you must generally be age 59½ and hold the converted funds in the Roth IRA for at least five years. Each conversion has its own five-year period, and early withdrawals may be subject to a 10% penalty unless an exception applies. Income limits still apply for future direct Roth IRA contributions.
Disclosure: Advisors associated with Nexa Financial Group may be either (1) LPL Financial Registered Representatives offering securities through LPL Financial, Member FINRA and SIPC, and investment advisor representatives offering investment advice through Great Valley Advisor Group; or (2) solely investment advisor representatives offering investment advice through Great Valley Advisor Group and not affiliated with LPL Financial. Great Valley Advisor Group, and Nexa Financial Group are separate entities.
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