Financial Strategies

Opinion: Tax and estate plan deadline coming soon


It is never fun to think about taxes and even estate planning, but looming deadlines should push you to pay attention before it is too late. This December marks the last opportunity to impact your income taxes for the year and potentially your estate taxes for your heirs.

Let’s tackle income taxes first. You have eight to maybe 10 paychecks left for the year. Check and make sure you are maximizing your 401(k) contributions. Also, see if you are eligible to contribute to an after-tax account in addition to your employee salary deferral. This may allow you to exercise the backdoor Roth when you take funds out.

The backdoor Roth is under fire in one of the proposed tax bills. This is where an employee can overfund their 401(k) by first maximizing their pre-tax or Roth contribution and then volunteering to put additional funds into an after-tax account within the 401(k) plan. Then when you roll over those assets, the after-tax contributions can roll directly into a Roth IRA. You will need to leave the earnings in the pre-tax portion, as those have not yet been taxed.

Several proposals on Capitol Hill are targeting to eliminate this opportunity for workers to push more assets into a tax-free account through the rollover to a Roth IRA. Therefore, we would encourage as many people as possible to utilize this planning opportunity before it disappears.

The name of the game is to keep as many tax-free dollars as possible in your pocket. Therefore, the concern that income tax brackets may rise is also good reason to do as much tax planning before year-end as possible. This could include purposely realizing capital gains, while we still have a reduced long-term tax rate, or taking additional income, including Roth conversions, to use up your tax brackets before they increase.

Estate taxes and the current estate exemption of $11.7 million per person is also under scrutiny. We already know that beginning in 2026, the estate exemption will drop to $5.49 million (with inflation) if it is not changed before then. There are current bills that include reducing the estate exemption to $3.5 million, which would capture a large majority of the middle-class baby boomers who are planning for retirement.

Update your estate plan before year-end to make sure your plan captures the maximum estate exemption you are allowed before it drops. You may be eligible to transfer assets to heirs through a completed gift trust, family limited partnership or other vehicles designed to keep assets from being taxed upon your death, including charitable donations or trusts.

Owning more than one property, a business or having stock options are all good things to watch out for if the estate exemption declines. You will want to be ready to adjust your estate before the calendar turns to the new year. Once 2022 rolls around, Congress has all year to make changes that could affect us next year. Only you can take control this year and make changes that best suit you and your family.

Patricia Kummer has been a Certified Financial Planner professional and a fiduciary for over 35 years and is Managing Director for Mariner Wealth Advisors, an SEC Registered Investment Adviser.


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