Important year-end financial conversations every advisor must have

The end of the year comes up incredibly fast. We celebrate Labor Day and the unofficial end of summer and then move right into football season. Before you know it, we are getting the turkey out of the oven and preparing for the holidays.

In my two decades of experience, I have noticed that critical financial conversations are often put off. By the time they occur after the new year, it is too late, and valuable year-end opportunities are missed. While life moves quickly, here are a few important items to add to your year-end to-do list to help your clients reflect on their financial goals and have important financial conversations with their loved ones.

Medicare open enrollment

If your client is eligible for Medicare, the annual enrollment period runs from Oct. 15 through Dec. 7. Many people over 65 may overlook the importance of reviewing their coverage each year. The open enrollment period is an opportunity for your clients to evaluate their Medicare coverage, especially their prescription drug coverage, to make sure it still aligns with their healthcare needs.

This is the time to remind clients to review their coverage and determine whether any changes are necessary given their current circumstances. Refer your clients to a Medicare specialist if this isn’t something you are qualified to advise on.

Tax planning in a lower-income year

Will your client realize additional income this year? If your client or their spouse is in a job where income fluctuates, it may be worth evaluating whether it makes sense to realize some income in this tax year. Although this may sound counterintuitive, a lower-income year can create planning opportunities. Depending on their tax brackets, intentionally recognizing income now may improve your client’s long-term tax efficiency. 

Consider discussing whether a Roth conversion aligns with your client’s financial goals and circumstances, as it involves recognizing income today while allowing assets to grow tax-deferred. There are no required minimum distributions, and as long as the account meets the five-year rule, qualified withdrawals will be tax-free. A Roth conversion can provide greater tax flexibility in retirement and is worth discussing based on your client’s current situation.

If your client anticipates ongoing tax issues during their retirement, another strategy is tax-gain harvesting. Long term, it may be to your client’s advantage to sell nonqualified mutual funds with high turnover ratios and frequent capital gains distributions, recognize the tax now, and reinvest the proceeds in investments such as an annuity or municipal bond fund portfolio. Over time, this strategy could reduce future tax liability and improve after-tax returns, depending on individual circumstances and market conditions. 

Tax planning in a high-income year

On the flip side, did your client have a monster year with significantly higher income? If so, strategies exist to help reduce their tax burden.

Tax-loss harvesting may be useful during a high-income year. While it is nothing new, tax-loss harvesting is often overlooked at year-end, especially when markets are sitting at all-time highs. Even so, it can be an important tax-planning tool and is worth discussing. 

If your client has the financial flexibility to do so, increasing or maximizing their 401(k) contributions may help reduce their adjusted gross income while allowing them to save more for retirement. And if your client is a small-business
owner, don’t overlook the SEP IRA. A SEP IRA can provide an opportunity to save for retirement while potentially offering an above-the-line tax deduction. 

Charitable giving

Charitable giving can lower your client’s potential taxable exposure. For individuals over age 70½, a qualified charitable distribution can satisfy their RMDs while allowing you to take money from their traditional IRA tax-free, if they send the money directly to a qualified charity. 

If your client has a highly appreciated asset, they may also want to consider giving it to charity rather than selling it. Donating appreciated assets to a qualified charity may help support their charitable goals while potentially providing tax benefits, including avoiding capital gains tax that could result from a sale.  

Year-end is when most people in the United States make charitable gifts. Discuss how your client wants to give this year. Does it make sense to write a check, gift appreciated securities or make a QCD? The outcome is the same, and the chosen method can have different tax implications. 

The most important takeaway is not any one strategy — it is making the time to have these conversations before the end of the year. 

Once Labor Day passes, the calendar fills up quickly. By setting time aside now for these conversations, you can enter the new year with confidence, knowing you’ve helped your clients take advantage of opportunities that may no longer be available once the calendar turns.