6 Tax-Smart Portfolio Moves for the End of 2024

Appreciated shares may need to be reduced as part of portfolio rebalancing efforts, and gifting some or all of these shares to charity is a tax-efficient way to accomplish this. This removes them from a client’s portfolio, while the market value of the shares can be used as a charitable deduction, assuming the client can itemize deductions on that year’s tax return.

Lastly, there are no capital gains taxes from selling the shares since they are being gifted directly to the charity.

If clients can’t normally itemize, they might consider bunching charitable contributions, or other expenses that can be itemized, especially if they have substantial investment gains.

4. Qualified Charitable Distributions

For clients who are at least age 70.5, doing qualified charitable distributions from their traditional IRAs can be a tax-efficient way to give to charity, especially if they are unable to itemize deductions. Moreover, these distributions can be used to satisfy some or all of clients’  required minimum distributions if they’ve reached their required beginning date.

QCDs either before clients’ RMD beginning date or in excess of their RMD amount after they begin RMDs can be used strategically to reduce the level of future RMDs. 

They also can be used in conjunction with portfolio rebalancing. Holdings that need to be reduced for rebalancing can be sold in the IRA used to fund the QCD. This can avoid selling appreciated holdings in a client’s taxable account where applicable, reducing potential capital gains taxes incurred in the course of rebalancing.

6. Review Clients’ Asset Location

Year-end is a good time to review which assets are held in taxable accounts and which in tax-deferred or tax-free retirement accounts. 

Asset location likely can’t be change overnight but can be adjusted over time through directing future contributions to retirement accounts and taxable brokerage accounts. Rebalancing is also a tool to adjust clients’ asset location structure over time.

Credit: Chris Nicholls/ALM; Adobe Stock