Making A List and Checking It Twice

As we enter the holiday season—and approach the end of the year—it is a natural time to reflect on 2025 and look ahead to 2026, both personally and financially. This week’s Wealth Insights is designed to help you create a financial-planning to-do list … and start checking it twice.

The topics below might not be a fit for you this year, but they are all good to be aware of. You may find that one or more becomes relevant in the year to come, perhaps thanks to strong market performance.

First on your list should be taxable income estimates

Review where you are today and what you might expect for next year. Having at least an estimate of where you might be in terms of your marginal tax bracket for example is a really useful start to any planning to-do list. 

Knowing that one item will allow you to populate a number of planning considerations to discuss with your advisor. For example, you might explore whether there is room in your current tax bracket to realize some additional income with a Roth Conversion (converting pretax IRA assets to post tax Roth IRA assets) and still stay within the same tax bracket. By paying taxes on the converted portion now, you’d create a bucket of tax-free income in the future. Roth assets can also help reduce any strain created by minimum-distribution rules and may benefit your children if they are likely to inherit assets in your IRA during their own higher-earning years.

Tax filing status

There were a number of changes in the tax and budget bill that could impact how taxpayers prepare their returns. For example, if you have always itemized—or never could itemize—that could change this year.

Charitable giving

If I have charitable intent, would a qualified charitable distribution from my IRA make sense? Or, might funding charities with appreciated stock out of my taxable account be better?

• The qualified charitable distribution or QCD allows you to distribute directly from your IRA to a qualified charity of up to $108,000 in 2025 when you are at least 70 1/2 years old. This can satisfy your required minimum distribution (RMD) without it counting as income on your return. Or, if you are not yet in the required distribution state, a QCD can reduce your taxable income and your future RMD level. You do not get to use it as a charitable deduction, however.
• If you are not old enough to qualify or perhaps are “bunching” charitable contributions this year or next to itemize, consider using stocks that have very low tax basis that you might otherwise want to sell to fund your charities.

If you are interested in a larger legacy gift, there are many more potential strategies that might fit that are better discussed at length with your advisors during a review of your estate planning documents. After multiple years of extraordinarily strong markets, if either of these to-dos fit your fact pattern you might consider making these distributions or stock gifts again right after the first of the year to make use of the higher priced assets. You do not have to wait until the end of the year to act on your list!

How about children?

Do you want to give money to your children while you are living, perhaps because you want to see them enjoy it and see how they will handle a gift of some magnitude?

This year, for example, you can give $19,000 to a person for the year without impacting taxes, or future gift planning. This is called the annual exclusion gift. This is also a typical legacy planning technique that if you have not discussed could be part of your legacy planning to get more money to your heirs and pay less estate taxes potentially. 

Evaluating investment gains and losses

If you have a lot of gains from investments or other areas, even with the markets as a whole being higher, are there losses you could harvest?

This could go in either direction. If you have losses this year, or carried forward from prior years, or have large gains, harvesting losses or gains this time of the year again after what has been a very strong market is a great and easy way to manage your tax bill from a capital gains perspective — and potentially manage the risk in your portfolio at the same time by rebalancing. There are also ways to keep your exposure the same by exploring similar risk securities not in violation of the IRS wash rule should that fit your situation. 

Funding 529 plans for kids or grandkids

529 plans are a terrific way for you to provide a gift of future education in a tax efficient manner. The earnings are tax deferred or exempt if used for qualified expenses, such as K-12 schools with some limits, and college tuition, books, and room and board. This year, $19,000 can be contributed for each beneficiary without gift-tax implications. Plans are also flexible with respect to changing beneficiaries should the intended beneficiary not need all the plan assets. Additionally, they can be converted to Roth IRAs up to some limits for your beneficiaries if not used. For those residents of the state of Wisconsin who use the State of Wisconsin 529 program there could also be some tax benefits.

Evaluating bonds for taxable interest

Every once in while it is good practice to review whether municipal bonds are a better option for you than taxable bonds. In particular, this year, the yields on federally tax-exempt bonds can be a better option for those in the top two tax brackets potentially. Explore this with your advisor. A very rough calculation to use is a comparison of the yield of your taxable bonds versus the taxable equivalent yield of municipal bonds based on your highest marginal tax bracket. The formula for those interested is [(Muni bond yield) / (1 – marginal tax rate)]. If the calculated figure is higher than your taxable bond yield it might make sense to make a switch.

Other topics

There could be many more items on your specific to-do list. I would encourage those reviewing their situation to also set a list for next year and potentially not wait until the end of the year to execute those items. With markets having consecutive good return years recently asset prices are relatively attractive to fund early many items you might otherwise wait to do, such as a Roth conversion, QCDs, RMDs, gifting and legacy items.

It is also perfectly all right to add things to your list after you have completed them just for the pure satisfaction of crossing them off. You know who you are.

As we round out another great year, it’s a good time to schedule a review with your advisor. There is much to be thankful for this year. All of us at Johnson Financial Group wish you a good holiday season!