Every successful team operates with a clear strategy, and your financial team is no different. Your advisor acts as your financial quarterback, aligning your entire team from your CPA to your attorneys.
Our job as your quarterback is to be proactive, setting plans in motion before the year ends so you’re not scrambling later. While many people wait until tax season to consider their next steps, the most strategic moves are made before December 31.
Here are three conversations we’re having in our huddles to help you control outcomes and secure peace of mind.
Conversation 1: Taxes
One of the most important discussions we have before the end of the year is about Roth conversions. In a Roth conversion, you move money from a traditional retirement account (like a 401(k) or IRA) to a Roth IRA, and pay taxes on that amount this year. While it might seem counterintuitive to pay taxes now, it can be a smart move if you believe you’ll be in a higher tax bracket in the future. This strategy also serves to reduce the size of your traditional IRA, which in turn leads to smaller Required Minimum Distributions (RMDs) later in life.
The Bottom Line: You’re prepaying some taxes today so you can have more tax-free income in retirement.
We also focus on tax-loss harvesting, or selling investments that have declined in value to intentionally lock in a loss for tax purposes. If you sold a stock or fund for a gain earlier in the year, that creates taxable income. By selling another investment that’s down, you create a loss that can offset those gains, potentially reducing your tax bill. If your losses are bigger than your gains, you can use up to $3,000 of extra losses to offset regular income and carry forward the rest to future years. You can reinvest the money right away, but you must avoid buying the same exact investment (the IRS “wash-sale rule”) for at least 30 days.
The Bottom Line: Tax-loss harvesting turns market lemons into tax lemonade, making the current investment year work in your favor.
Conversation 2: Charitable Giving
Many people write checks to their favorite causes at the end of the year. A more strategic approach, however, can be even better for both you and the charity. We often discuss donating appreciated stock instead of cash. If you have a stock that has grown in value, you would normally owe capital gains tax if you sold it. But if you donate the stock directly to a charity, you avoid paying that capital gains tax entirely and still get a charitable deduction for the full market value of the donation.
For clients who are regular givers, we often suggest a Donor-Advised Fund (DAF). This allows you to donate a lump sum, receive an immediate tax deduction, and then take your time deciding which charities to give to in the future.
The Bottom Line: Instead of giving cash, donate stock that has appreciated. Charities get the full benefit, and you save on taxes.
Conversation 3: Retirement
For clients in or near retirement, the most crucial year-end conversation revolves around Required Minimum Distributions (RMDs). The IRS requires you to begin taking money out of your pre-tax retirement accounts once you reach age 73 (for most people). If you don’t take your RMD by December 31st, the penalty can be 25% of the amount you should have withdrawn. Our goal is to ensure you meet this deadline while exploring smart, tax-efficient ways to do so. One option we frequently look at is a Qualified Charitable Distribution (QCD), which allows you to send up to $100,000 directly from your IRA to a charity. This fulfills your RMD requirement, but since the money never touches your bank account, you avoid paying income tax on it.
The Bottom Line / Simply Put: Year-end is when we make sure you’ve taken enough from your retirement accounts to meet IRS requirements, while also looking for smart ways, like charitable giving, to reduce the tax bite.
The Feeling of Peace of Mind
After these year-end huddles are complete and the plan is set, the feeling clients most often describe is peace of mind.
They gain confidence knowing that everything has been taken care of before the deadlines and that their entire financial team, from their CPA to their financial advisor, is aligned and working together. This gives them clarity and assurance that their financial plan is on track and optimized for the year ahead.
Don’t just take our word for it. Here are some of the feelings our clients share after their year-end huddle:
“I feel relieved knowing everything is taken care of before the deadlines.”
“It gives me peace of mind heading into the holidays.”
“I feel confident that my CPA, attorney, and you are all on the same page—I don’t have to worry about missing something.”
“I feel good knowing I’ve made smart moves with taxes, giving, and retirement accounts.”
CapRock was born from the idea that everyone has a different goal in life, and that you deserve a plan tailored to you. Let’s huddle on your year-end game plan.