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/ Blog / Navigating the Financial Landscape: Fidelity Bank Wealth Management’s 2023 Year-End Review
December 12, 2023
In this blog, Cathy Mihalick, Esq., CTFA, Fidelity Bank’s VP and Trust Officer shares her expertise in estate and financial planning, offering insightful takeaways for the year-end review and planning process.
It is hard to believe we are approaching the end of calendar year 2023. At the beginning of 2023, economic uncertainty remained in the stock market, and around interest rates, inflation, and recession concerns. Despite these uncertainties, the stock and bond markets have provided opportunities for investors, specifically in the areas of estate and financial planning. Below are some key takeaways for 2023.
Key Takeaways for End of Year Review and Planning:
1. Tax Loss Harvesting
2. RMD And IRAs
3. Estate and Gift Tax Review to consider strategies for an overall estate plan
4. Review Your Estate Plan or Create an Estate Plan
Tax-loss harvesting is a strategy by which taxable investment assets such as stocks, bonds and mutual funds are sold at a loss to lower one’s tax liability. As a result of varied economic and market moves, your portfolio should be reviewed annually for tax losses. End-of-year tax loss harvesting provides an opportunity for you and your advisor to review your investment losses as an offset against capital gains from assets that may have outperformed. Excess capital losses may be carried forward and used against ordinary income up to $3,000 in future tax years. Investors should carefully review tax losses with their advisor as part of their financial year-end check-up to be sure that all investments remain aligned with their portfolio’s long-term investment strategy.
On December 19, 2022, the SECURE Act 2.0 was signed into law. How these new rules may affect your income tax planning is an important discussion to have with your advisor. For example, under the new Act, there are certain provisions that directly impact the distribution phase of tax-advantaged accounts such as individual retirement accounts (“IRAs”). Note the change to the beginning age for taking required minimum distributions (RMDs). The beginning age rose to 73 from 72 for owners of traditional IRAs and SEP and SIMPLE IRAs, 401(k)s, and other workplace retirement plans. Under the new rules, if you turned or will turn 73 in 2023, you must take your first RMD by April 1, 2024. However, if you work past the age of 73, you can delay taking RMDs from your employer’s 401(k) until retirement. Additionally, the penalty imposed on IRA account owners who failed to take their full RMD amount by the deadline has been reduced from 50% of the amount not taken to 25%, and if the account owner remedies the issue by taking the full RMD amount and reports this by the end of the second year after it was initially meant to be taken, the penalty further reduces to 10%.
On another planning note, the Internal Revenue Service (the “IRS”) increased maximum contribution limits for 401(k), 403(b), and 457 plans by $2,000 to $22,500 for 2023 and there is an additional catch-up contribution of $7,500 for those over the age of 50. Additionally, the contribution limit amounts to traditional IRAs increased to $6,500 in 2023, with an additional catch-up contribution of $1,000 for those over the age of 50. A review of possible contributions to these tax-advantaged accounts is a positive way to leverage your wealth plan.
If you are charitably inclined and would prefer not to increase your taxable income, you may want to consider a Qualified Charitable Distribution (“QCD”) directly from your qualified account to a public charity. Talk to your trust advisor about the benefits of this gifting strategy as QCDs are limited to $100,000 per year and you may begin as early as 70 ½.
The federal unified estate and gift tax exemption for 2023 is $12.92 million ($25.84 million per married couple), due to a significant inflation adjustment. The projected inflation adjustment to the exemption amount for 2024 will result in a significant increase of approximately $740,000, bringing the federal unified estate and gift tax exemption to approximately $13,610,000 million ($27,220,000 for married couples). Absent some bipartisan compromise that would either extend or otherwise alter current legislation, many of the changes imposed under the TCJA will sunset after December 31, 2025, with the laws currently scheduled to revert to those that existed prior to the TCJA to a pre-2017 level of $5 million, adjusted for inflation. As the law is currently written, there are still about two (2) years to take advantage of the increased exemption amounts. However, any difference in these higher exemption amounts and the post-2025 reduced amounts may be lost if not used. There is a significant planning opportunity with the exemption, however, proactively designing and implementing the proper gifting and estate plan remains important.
Depending on your assets, current estate and gift tax exposure, and broader cash flow and estate planning goals, there are several enhanced gifting strategies, including outright gifts and gifts to trusts, to consider implementing prior to January 1, 2026, to take advantage of the current exemption amounts. Whether you are utilizing gifting strategies to take advantage of the increased exemption or have fully utilized the current exemption amount, building flexibility into your estate plan and continuing to use future exemption planning strategies to reduce your overall estate tax liability is an important strategy.
Annual exclusion gifting allows each individual (or married couple) to make gifts in 2023 on a tax-free basis up to $17,000 ($34,000 for a married couple) to as many beneficiaries as desired. These gifts can be made directly to a beneficiary or in trust. Annual gifting strategies are an effective way to gift assets that may have decreased in value due to current market conditions; for example, assets to consider are those that have the potential to appreciate in value over time, thereby limiting your lifetime estate and gift tax exemption while removing future growth from your taxable estate. Similarly, gifts may be made directly to 529 plans and there is an unlimited exclusion from gift tax for tuition payments made directly to an educational provider and medical expenses paid to the medical provider.
It is advisable to review financial plans periodically to evaluate your current plan and assess whether it is still meeting your goals and objectives. Working with your advisor to determine if the plan and your objectives are still in alignment is critical to achieving your long-term goals.
If you have not already created an estate plan that includes a Last Will and Testament, Power of Attorney, and Advanced Health Care Directive, now is the perfect time to begin working with your trusted advisors to start the estate planning conversation.
Similar to reviewing your financial plan, you also want to review your estate plan to be sure it remains relevant and current. Have you experienced changes in your family or financial circumstances that merit a review of beneficiaries, trusts and/or fiduciary appointments? Have there been changes in tax laws that may impact your planning that necessitates a review? Reviewing your Last Will and Testament and other estate planning documents allows you to consider changes to distributions schemes, fiduciary appointments such as executors, trustees and agents, and to make any necessary changes based on changed circumstances, i.e., marriage, births, death, divorce, and/or finances. You should consider your overall plan along with how your assets are titled, specific bequests, changes in asset values and inter-vivos gifts. Lastly, review your primary and contingent beneficiary designations on life insurance, IRAs and other non-probate property.
Updating your estate plan provides you and your family with peace of mind. You and your loved ones will benefit from an estate plan that is reflective of your current life needs and financial situation. An up-to-date estate plan ultimately makes it easier to settle your estate for your appointed executor/trix and provides continuity of management if coordinated with your financial advisor for a trust and investment review.
Working with your trusted advisors to develop and enhance your estate and financial plans helps to ensure your financial stability and gives you peace of mind. Fidelity’s team of experienced Wealth Management Advisors is here to help.
Let’s get there, together.
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About Fidelity BankFidelity Bank has built a strong history as a trusted financial advisor and continues its mission of exceeding client expectations through a unique banking experience. It operates full-service offices throughout Lackawanna, Luzerne, Lehigh, and Northampton Counties, along with a limited production commercial office in Luzerne County and a Fidelity Bank Wealth Management Office in Schuylkill County. Fidelity Bank provides a digital banking experience online at www.bankatfidelity.com, through the Fidelity Mobile Banking App, and in the Client Care Center at 1-800-388-4380. Part of the Company’s vision is to serve as the best bank for the community, which was accomplished by having provided over 4,100 hours of volunteer time and over $1.7 million in donations to non-profit organizations directly within the markets served throughout 2022. Fidelity Bank’s deposits are insured by the Federal Deposit Insurance Corporation up to the full extent permitted by law.
