Tax tips for the 2024 filing season

Prudential's Robert Fishbein highlights important financial planning to-dos before April 15.

By John Chartier

"Some people are calling 2025 the Super Bowl of taxes," says Robert Fishbein, vice president, Tax. Many tax cuts and provisions enacted in 2017 are due to expire then, raising the likelihood of significant tax legislation.

For now, the 2024 tax filing season has few changes from last year, which should make it simpler for many as the April 15 deadline approaches. Fishbein once again offers several tips to consider when planning your financial and tax strategy, including estate planning, which he says is often overlooked.

Tax planning

• Many tax filers often forget, or do not realize, that if you sell furniture, clothing, tickets or anything else through a third-party marketplace, like eBay, Amazon or StubHub, the sale is reportable on your income tax return. The implementation of a new law intended to ferret out those who do not pay taxes on these sales has been delayed by the IRS, but you still may get tax reporting. Regardless of whether you do, you are obligated to pay income tax on these types of personal property sales if you sell an item for more than what you paid for it.
• Fishbein notes that a Health Savings Account is an often-overlooked opportunity to build retirement savings. In 2024, individuals can deposit up to $4,150 in an HSA, while the limit is $8,300 for a family. If you are 55 or older, you can add an additional $1,000. While an HSA is intended to reimburse you for health care costs, it can also be a retirement savings vehicle. That is, you can consider paying your health care costs out-of-pocket and investing and accumulating the HSA account value on a tax-favored basis to pay for your health care needs in retirement. Given the benefits of saving in an HSA, this can be a powerful tool to save for what is typically the No. 1 expense in retirement.
• Consider making contributions to a Roth 401(k) or Roth IRA. Unlike a traditional 401(k) or traditional IRA, with a Roth you pay the tax up front, so there is no tax on qualified withdrawals. Fishbein covers multiple reasons why Roths are preferable to traditional accounts, such as no required annual payments, but cautioned that this approach may not be beneficial if you know you will be in a lower tax bracket in retirement than when you were working.
• A so-called "back door Roth IRA" is a way to get around contribution limits for Roth IRAs. According to Fishbein, it works like this: Fund a traditional IRA with after-tax money. Next, convert it to a Roth IRA. Doing so means you will only pay tax on the earnings when you make contributions. But be careful if you already have an existing traditional IRA since the rules about what is taxable are more complicated.
• Having tax diversification across retirement assets can make your retirement savings go farther, explains Fishbein. For example, having a mix of tax-deferred and tax-free assets can help you avoid a higher tax bracket, while tax-free assets typically do not come with a required minimum distribution.

Estate planning

"Estate planning is for everyone, not just the wealthy," says Fishbein.

• Consider this: In New Jersey, if the spouse of a married couple passes away without a will, the surviving spouse gets the first $200,000, and the rest is split with 75% going to the spouse and 25% going to a sibling. "Given that most people would want their spouse to take 100% of the estate, this is one example of why you need to have a will," says Fishbein. In addition to allowing you to choose who gets your assets, a will allows you to decide who will serve as legal guardian for your minor children and as the trustee(s) to manage the money for your children, explains Fishbein.

Other factors to keep in mind during estate planning include:

• Probate vs. non-probate assets - Non-probate assets automatically pass outside of the will to a beneficiary. Examples include your 401(k) account or a life insurance policy. That's why Fishbein says it's important to name beneficiaries on all non-probate assets. But disposal of probate assets is controlled by your will. Examples of probate assets include your personal property, a car, or any asset for which you do not have a designated beneficiary.
• Power of attorney - Naming someone you trust as power of attorney gives them the legal right to manage your financial affairs if you are unable to.
• Living will/health care proxy - A living will specifies the type of care you want to receive in an end-of-life scenario. With a health care proxy, you appoint someone to make health care decisions on your behalf if you are unable to.

When it comes to estate planning, Fishbein says the bottom line is to "understand that estate planning is not just for the wealthy, and that without a plan you will lose the ability to control what happens to your assets and increase the cost and complexity for your family." And once you have developed an estate plan, remember that "communication about that plan will help your family understand your wishes and know what is expected of them."

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Prudential Financial Inc. published this content on 25 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 25 March 2024 11:40:01 UTC.