Time Keeps on Ticking, Ticking …

As a reminder every morning, my daughter announces the days until Christmas and New Years Eve…in case you’re wondering, there are 46 days left until Christmas and 53 days left in 2021).  The television is playing Christmas commercials constantly, and all the stores are decked out for the holidays. Year end is definitely coming up fast. Even the doggies are in their Christmas jammies early this year.

With only 53 days in the tax year, Meridian is busy helping our clients plan for year end. And this year and is particularly interesting, because of the legislative changes going through Congress currently.  Of particular interest are the parts related to Roth IRAs and the estate tax changes.

The first item of note is that Congress is considering eliminating the “back door Roth IRA”.  As Nathan explained last week, currently, if you make too much money to contribute directly to a Roth IRA, you may make a nondeductible IRA contribution. You may then convert this IRA into a Roth IRA, as there are no income limitations on Roth conversions at the moment. Congress is considering eliminating this “back door” entry into a Roth by disallowing any conversions of post-tax money. So, when this law passes, only conversions of pre-tax money will be allowed…for now…

Congress is also considering disallowing any Roth conversions of even pre-tax money from IRAs or 401Ks for any individual making over $400,000 annually (or $450,000 for a married couple).  This rule would take effect in 2031, so not imminent, but would curtail some tax panning for individuals.

The proposed changes to the estate tax exemption matters to a very few folks, as the limit is currently $11.7 million per person. That means that you can pass during lifetime or at your death up to $11.7 million of assets to your heirs without paying estate tax. The amount Congress had been considering was $6 million per person. That may seem like a very large number, but for a folks with small businesses, real estate holdings, life insurance policies, or large investment portfolios, this could be a drastic shift, and requires further planning.  That language was dropped from the bill on October 29, 2021, but it is not uncommon to have things added back in…so just something we are watching.

Aside from being busy with accelerating after tax Roth contributions and conversions, the Meridian team is busy doing our regular year end planning, which includes:


  1. Tax planning—In the fall, we work with clients and their accountants to look at their current taxable events to date. We work together with our client’s accountants to uncover any tax efficient or tax savings strategies and get them implemented before year end.
  2. Tax harvesting—in taxable portfolios at Meridian, we review the capital gains and losses for the year to determine if we can use them to our client’s advantage. If these funds/stocks are sold and replaced by another similar (but different) fund or stock, the loss will be realized and can be used to offset other gains or income.  And, the portfolio still maintains its desired exposure to the asset class, so there is no disruption to the overall investment strategy.
  3. Required minimum distributions—IRA owners who have reached age 72 must take a required amount out of their IRA annually
  4. Accelerated IRA distributions—for some IRA owners, it may make sense to take additional distributions this year to take advantage of low tax brackets.  While we are never certain where tax rates will be in the future, the general consensus is that they will be higher than they are today.  President Trump’s tax cuts expire in 2025, and the proposals discussed during the election campaigns have been higher as well…so general trend seems to be up.  For clients who have room in the 12% tax bracket for 2021, we are reviewing their tax situation to determine if it makes sense to take enough IRA income to take full advantage of that lower tax rate!
  5. Review of portfolio objective and current positioning—while we are reviewing this all year long, we do a full review of the portfolio performance and current positioning as we close the year out. It is also a great time to confirm the portfolio strategy with clients, as their circumstances or preferences may have changed throughout the year.
  6. Look forward into 2022 cash needs, gifting desires, and other desired distributions to make sure the portfolio is positioned correctly for the upcoming cash flow needs.

It is a lot to go over, but we love making sure our clients are well positioned heading into the new year.  But it sure makes fall crazy busy time, all around!

Hope you are enjoying your fall season—as the doggies are…


Categories : Financial Planning

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