Investing

Year-end Planning

If the current stock market rally added profits to your portfolio, tax-gain harvesting could help rebalance your assets or reduce future taxes.
The lesser-known approach involves strategically selling profitable brokerage account assets while in the 0% long-term capital gains bracket.
“Tax gain harvesting is like a strategic chess move in the world of investing,” said CFP Sean Lovison, founder of Purpose Built Financial Services.

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If the current stock market rally added profits to your portfolio, a lesser-known strategy could help rebalance your assets or reduce future taxes.
The strategy, known as tax-gain harvesting, allows you to leverage lower earning years by strategically selling profitable brokerage account assets.

“Tax gain harvesting is like a strategic chess move in the world of investing, ideal for those in the 0% long-term capital gains tax bracket,” said certified financial planner Sean Lovison, founder of Philadelphia-area Purpose Built Financial Services.

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“Combined with multi-year tax planning, it is a smart play when you’re in a low-income year but expect to be in a higher tax bracket in the future,” said Lovison, who is also a certified public accountant.

How tax-gain harvesting works

You can use tax-gain harvesting when you fall into the 0% capital gains bracket, which applies to long-term capital gains or assets owned for more than one year. 
For 2023, you may qualify for the 0% rate with taxable income of $44,625 or less for single filers and $89,250 or less for married couples filing jointly. Those thresholds are even higher for 2024, adjusting to $47,025 for single filers and $94,050 for married couples.
These rates apply to your “taxable income,” which is calculated by subtracting the greater of the standard or itemized deductions from your adjusted gross income.

However, you also need to consider state capital gain taxes because “every state is a bit different,” warned Stephen Maggard, a CFP and enrolled agent with Abacus Planning Group in Columbia, South Carolina.

Resetting the basis can be a ‘game-changer’

One of the perks of tax-gain harvesting in the 0% bracket is the chance to reset the asset’s purchase price, or “basis,” according to Lovison. 
“This move can be a game-changer” because it can significantly reduce future taxable gains, especially when selling profitable assets in higher earning years, he said.

While the so-called wash sale rule blocks a tax break for losses when investors repurchase the same asset within 30 days, that doesn’t apply to harvested gains, Lovison said. This means you can sell and immediately repurchase the same asset to increase the basis.
The 0% capital gains bracket could also be an opportunity to “rebalance or divest of a concentrated position,” especially for new retirees who haven’t yet started required minimum distributions, said CFP Edward Jastrem, chief planning officer at Heritage Financial Services in Westwood, Massachusetts. More

The resumption of student loan payments this fall means borrowers can claim the interest deduction again at tax time.
Here’s what to know.

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There’s one piece of good news for student loan borrowers bummed out by the resumption of their bills this fall: They may be eligible for a break on their 2023 taxes.
The student loan interest deduction allows qualifying borrowers to deduct up to $2,500 a year in interest paid on eligible private or federal education debt.

During the pandemic-era pause on student loan bills and interest accrual, which spanned more than three years, most borrowers with federal loans lost their eligibility for the break because they weren’t making payments on their debt, and most loans were set to a 0% interest rate.
“You can claim the student loan interest deduction based only on amounts actually paid,” said higher education expert Mark Kantrowitz.
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Interest on federal student loans began accruing again in September, and the first post-pause payments were due in October. That means borrowers could have three or four months’ worth of payments to deduct for 2023, which may reduce their tax liability.
Before the Covid pandemic, nearly 13 million taxpayers took advantage of the tax break.

Here’s what else borrowers need to know:

Look out for a 1098-E from your servicer

Income, employer aid may reduce eligibility

Depending on your tax bracket and how much interest you paid, the deduction could be worth up to $550 a year, Kantrowitz said.
The deduction is “above the line,” meaning you don’t need to itemize your taxes to claim it.
There are income limits, however.
The deduction starts to phase out for individuals with a modified adjusted gross income of $75,000, and those with a MAGI of $90,000 or more are not eligible at all. For married couples filing jointly, the phaseout begins at $155,000, and those with a MAGI of $185,000 or more are ineligible.
Borrowers’ eligibility for the deduction may also be reduced if their employer made payments on their student loans as a work benefit, said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit.

Lawmakers want to expand break

House lawmakers introduced a bill this month to expand the student loan interest deduction from $2,500 in annual interest to $10,000. Under the proposed law, eligible borrowers could also claim an extra $500 deduction for each dependent, and they’d be able to deduct all student loan payments, not just the interest portion.
The deduction’s $2,500 cap hasn’t been raised since 2001, despite the fact that student borrowers’ balances have ballooned. More

Your Money

Over the next decade, women in the U.S. will capture a significant share of the money changing hands as part of the greatest generational wealth transfer in history.
Experts weigh in on how to maximize this unprecedented opportunity.

Women control only about one-third of all financial assets in the U.S., but that is about to change.
As part of the great wealth transfer, women are expected to inherit much of the $68 trillion in wealth that baby boomers are passing down, according to research by McKinsey.

Whether husbands are leaving money to their wives, or couples are passing a nest egg down to their children, women stand to benefit disproportionately, the research showed.
“It’s an unprecedented time in history that is giving women an opportunity to put themselves in a financially secure position,” said Stacy Francis, a certified financial planner and president and CEO of Francis Financial in New York. She is also a member of the CNBC Financial Advisor Council.

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Here’s a look at more coverage in CNBC’s Women & Wealth special report, where we explore ways women can increase income, save and make the most of opportunities.

How the great wealth transfer may benefit women

Until now, women have lagged in financial resources and opportunity, largely due to a persistent gender wage gap. Women today still earn only 80% of what their male counterparts do. 
Women are also more likely to work part-time and take time off over the course of their careers, often to care for children or other family members, according to the Pew Research Center.
At the same time, their life expectancy is five years longer than that of men.

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“The statistics are sobering,” said Kelly O’Donnell, chief client officer at Edelman Financial Engines. “The math tells us it’s harder for women because they are going to live longer and have less.”
But by 2030, the next generation of women stand to inherit a significant portion of the $68 trillion being passed down as part of the greatest generational wealth transfer in history.
“This is the first time in history that women are able to gain significant wealth,” Francis said.

How women can set themselves up for success

“My hope is that this opportunity can put women on a financially secure path, but it’s not a no-brainer,” Francis said. “We just need to make sure they have the tools to keep that financial stability.”
Those who take a proactive role in their financial lives face fewer risks, but the first steps to getting there also don’t have to be overwhelming.
“If you are set to inherit a significant amount of money, you are going to need financial advice,” said Maggie Wall, head of diverse growth markets at Citizens.

Even before meeting with an advisor, women should “go in prepared,” Wall said, including compiling a rundown of assets and a list of goals, which may include securing a retirement plan, paying off student debt, buying a home or traveling, as well as what they hope to leave behind for their families.
“That knowledge creates confidence, it creates peace of mind, and it creates more engagement,” Francis said. And with that, “women can use a large inheritance and set themselves up for the rest of their life.” More

The Seraya Partners Fund I has raised $800 million, closing above its target of $750 million, according to a statement Tuesday by its Singapore-based managers, Seraya Partners.
Other major investors include China-led Asian Infrastructure Investment Bank (AIIB) and pension fund Alberta Investment Management, as well as sovereign wealth funds and family offices from North America, Europe and Asia-Pacific.
Investor interest in this asset class in the last few years largely stems from a desire for stable returns at a time of high inflation and heightened volatility in public markets.

Wind turbine blades rotate in the tidal flat in Yancheng city, Jiangsu province, China, November 18, 2023.
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Top global asset managers including BlackRock are among investors in an Asia-focused infrastructure private equity fund that raised $800 million, underscoring growing interest in the asset class amid market volatility.
The Seraya Partners Fund I closed above its target of $750 million, according to a statement Tuesday by its Singapore-based managers, Seraya Partners.

The fund targets mid-market investments aimed at enhancing energy transition and digital infrastructure development in Asia-Pacific markets and Southeast Asia.
“Infrastructure remains an attractive asset class,” said James Chern, chief investment officer and managing partner at Seraya Partners.
“Most major players have yet to put focus on capital deployment in the mid-market infrastructure space in Asia. The mid-market valuation is typically 30% lower than large cap deals in Asia, U.S., Europe deals generally.”
Investor interest in this asset class has been rising in the last few years, largely stemming from a desire for stable returns at a time of high inflation and heightened volatility in public markets.
KKR reportedly raised nearly $6 billion for its second Asia-Pacific infrastructure fund in October last year, closing seven months after its launch.

Seraya Partners counts China-led Asian Infrastructure Investment Bank (AIIB) and pension fund Alberta Investment Management among its major investors, as well as sovereign wealth funds and family offices from North America, Europe and Asia-Pacific.
The Asia-managed fund says it has already deployed half the money raised in three platforms.
The AIIB estimates $1.7 trillion of investment have to be made annually through 2030 to meet current demand for sustainable infrastructure.
“Asia’s rapidly expanding cities, intensifying climate change, and aging infrastructure have created a pressing need to address the region’s burgeoning trillion-dollar infrastructure gap,” said Chern, who was formerly with Morgan Stanley.
“Energy transition and digital infrastructure will be the twin engines to bridge this gap and lead us toward net-zero ambitions,” he said.

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Since the Secure Act of 2019, Roth individual retirement account conversions have become more attractive for legacy planning, experts say.
When retirees pass away, their adult children are often in their “peak earning years” and they generally must empty inherited IRAs within 10 years.
However, a Roth IRA provides tax-free withdrawals, as long as the account has been open for five years.

Only 41% of investors with more than $1 million have a plan for passing on their wealth to future generations, UBS says.
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As retirees consider their legacy, a popular income tax-saving strategy has become more common, experts say.
The strategy, known as a Roth individual retirement account conversion, transfers pretax or nondeductible IRA money to a Roth IRA, which begins future tax-free growth. The trade-off is upfront taxes on the converted balance.

“Roth conversions are now becoming more of a piece of legacy planning for some clients,” said certified financial planner Ashton Lawrence, director at Mariner Wealth Advisors in Greenville, South Carolina.
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Before the Secure Act of 2019, heirs could stretch IRA withdrawals over their lifetime, which helped reduce yearly income and tax liability. However, certain heirs, including most adult children, now have a shorter timeline to empty inherited IRAs.
When retirees pass away, their children will “probably be in their peak earning years” with a relatively high tax bracket, Lawrence said.
That can create a tax problem because adult children generally must empty inherited IRAs over 10 years following the original account owner’s death, he said. The rule applies to accounts inherited on Jan. 1, 2020, or later.

How Roth conversions can benefit heirs

With many IRA heirs facing a 10-year withdrawal window, “Roth conversions look even more attractive today,” said Robert Dietz, national director of tax research at Bernstein Private Wealth Management in Minneapolis.
Generally, adult children still must empty inherited Roth IRAs within 10 years. However, withdrawals are typically income tax-free, as long as the account has been open for at least five years.
Sometimes, the tax burden is lower when parents pay levies on the Roth conversion upfront, rather than their children paying taxes on IRA withdrawals, Lawrence said. But families need “legacy conversations” and tax projections before making that decision. 
Of course, the original IRA owner should also weigh the financial consequences of boosted income for Roth conversion years, such as higher Medicare Part B and D premiums.

Planning for higher income tax brackets

With income tax hikes on the horizon, some investors may consider a few partial Roth conversions, according to Dietz.
Without changes from Congress, lower income tax rates will sunset after 2025. Prior to 2018, the individual brackets were 10%, 15%, 25%, 28%, 33%, 35% and 39.6%. However, five of these brackets are lower through 2025, at 10%, 12%, 22%, 24%, 32%, 35% and 37%.

“For a lot of our clients, we’re looking at Roth conversions over a three-year period,” Dietz said.
The plan is to complete partial Roth IRA conversions from 2023 through 2025 and fill up the client’s desired tax bracket each year, depending on projected taxable income, he explained.Don’t miss these stories from CNBC PRO: More

As the Federal Reserve’s last meeting of the year gets underway, inflation continues to drift lower, increasing the possibility of securing a sought-after soft landing.
Consumers should start to see borrowing costs ease in 2024 but prices aren’t coming down anytime soon, experts say.

The Federal Reserve is expected to announce it will leave rates unchanged at the end of its two-day meeting this week after recent signs the economy is in fairly good shape and as inflation continues to drift lower.
“While there’s been talk about an imminent recession going back to early last year, the U.S. economy has remained substantially more resilient than expected,” said Mark Hamrick, senior economic analyst at Bankrate. 

“A soft landing appears to be the greatest likelihood for next year,” he said. However, the economy isn’t out of the woods just yet, Hamrick added, and “a mild and short recession can’t totally be ruled out.”
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Even though inflation is still above the central bank’s 2% target, markets have already been pricing in the likelihood that the Fed is done raising interest rates this cycle and is now looking toward potential rate cuts in 2024.
For consumers, that means relief from high borrowing costs — particularly for mortgages, credit cards and auto loans — may finally be on the way as long as inflation data continues to cooperate.
And yet, “continued slowing in inflation doesn’t mean price decreases, it means a price leveling,” said Columbia Business School economics professor Brett House.

Hope for a ‘softish’ landing

If the central bank can continue to make progress toward its 2% target without bringing the economy to a more abrupt slowdown, there is the possibility of achieving the sought-after “Goldilocks” scenario.
In that case, the economy would grow enough to avoid a recession and a negative hit to the labor market, but not so strongly that it fuels inflation.
For consumers, that means “we are likely to see interest rates come down slowly and growth to remain relatively robust and we are likely to see the jobs market remain relatively strong,” House said.
For some, that expectation may be too optimistic.
“While we also expect a softish landing, the pace of the recent rally in stocks and bonds looks unlikely to be sustained,” Solita Marcelli, UBS Global Wealth Management’s chief investment officer Americas, wrote in a recent note.
“Equity markets are already pricing in plenty of good news, pointing to an unrealistic level of confidence from stock investors,” Marcelli said.
Markets are now even showing a roughly 13% chance of a rate cut as early as January, according to the UBS note.

Fears of a hard landing

Central bank policymakers, however, won’t cut for the sake of cutting. More likely, that kind of policy easing would be in response to a sharply slowing economy and rising unemployment, neither of which would be good news for most Americans.
“Aggressive rate cutting cycle would be a sign of deep worry that we are heading toward a hard landing,” House said. That has negative implications for the labor market and, therefore, consumers. “The most important determinant of household finances is whether people have a job or not,” House said.
And economists still haven’t ruled out a recession in the second half of 2024.
The job market already shows signs of slowing. While the unemployment rate declined to 3.7%, the Labor Department reported that job openings also fell to 8.73 million in October, the lowest level since March 2021.
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Year-end Planning

Several key provisions from the Republicans’ signature 2017 tax overhaul are slated to expire after 2025, including a higher federal gift and estate tax exemption.
The exemption rises to $13.61 million per individual or $27.22 million for spouses in 2024 but will revert to 2017 levels in 2026 without changes from Congress.
It’s “the biggest issue that we’re talking with clients about right now,” said Robert Dietz, national director of tax research at Bernstein Private Wealth Management.

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As financial advisors weigh year-end tax planning strategies, there’s a looming issue on the horizon for high-net-worth clients.
Several key provisions from the Republicans’ signature 2017 tax overhaul are slated to expire after 2025, including a higher federal gift and estate tax exemption that allows more wealthy Americans to transfer tax-free assets to the next generation.

Also known as the “basic exclusion amount,” the exemption rises to $13.61 million per individual or $27.22 million for spouses in 2024. These are the tax-free caps on gifts during life or at death.
But those limits will drop by roughly half in 2026.
It’s “the biggest issue that we’re talking with clients about right now,” said Robert Dietz, national director of tax research at Bernstein Private Wealth Management in Minneapolis.

More from Year-End Planning

Here’s a look at more coverage on what to do finance-wise as the end of the year approaches:

“You’re going to have a lot more people with estate tax issues,” said certified financial planner Ashton Lawrence, director at Mariner Wealth Advisors in Greenville, South Carolina. “You’re talking about potentially 40% of your estate being taxed.”
There are still about two years until the provision sunsets, but Dietz said certain estate planning strategies take more than a few months or even more than a year to implement.

“What we’re trying to get across to clients is they definitely should not be waiting” until 2025 to use the exclusion, he said.

How to leverage the higher exclusion before 2026

One way for married couples to leverage the higher exemption is to start removing assets from their estate now via lifetime gifts, experts say.
For married couples who will be affected by the lower exemption in 2026, the “number one” strategy is to use up one spouse’s higher exclusion before the provision sunsets, Dietz said.

In some cases, spouses are tempted to split gifts down the middle, only using half the current exemption each, which wouldn’t optimize the temporarily higher limit.
“The reality is you have to give away more than half to see any benefit from the gift in terms of the exclusion going away,” Dietz said.
If clients aren’t comfortable making irrevocable gifts now, it’s still possible to be proactive before 2026 by opening and funding a trust. But they can keep control of the assets with a “promissory note” that outlines a plan to receive the assets back, he explained.
Congress could still intervene and extend the estate and gift tax exclusion beyond 2025. However, it’s impossible to predict amid other legislative priorities. More

If it seems like your paycheck disappears as quickly as it hits your bank account, you’re not alone. More than 60% of Americans live paycheck to paycheck as of September 2023, according to a LendingClub report. Even people in higher income brackets are affected. More than half of Americans earning over $100,000 a year live paycheck to paycheck.
So what’s going on?

Many experts point to a phenomenon called lifestyle inflation as one of the culprits. Lifestyle inflation, or lifestyle creep, is the pattern of spending a little more as a person’s income increases.
“I think people hold these benchmarks in their mind [of], if I reach this position or I get this promotion or I make it to this age, then I can live this life, or then I deserve to have these things,” said Sabrina Romanoff, a clinical psychologist who works with clients struggling with financial stress. “Then they kind of go a little crazy or go a little wild on it, and then it becomes like a trade-off, like they only can enjoy their present happiness and they’re not able to save or plan for the future.”
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But spending more may not be as simple as people wanting to indulge. Many Americans simply don’t have enough money to make ends meet because their incomes have not been keeping up with the rise in costs of living.
“The idea that people save and they just hit a point where they feel like they deserve [to spend more]; I fully disagree with that,” said Saprina Allen, a budgeting coach who offers insights and guidance to her more than 100,000 TikTok followers on how to be more conscious about money. “When most people don’t have $1,000 in the bank, like most people cannot handle a tire blowout or they’re going to put it on credit.”

Allen breaks down lifestyle inflation into two buckets.
One is that “general idea of what lifestyle inflation is, which is the buying fancy cars, the buying nice things along those lines,” she said.
The second bucket, she said, is more about “everyday things that, if you’re living paycheck to paycheck, you’re going without.” These may be necessary goods or services, such as going to the dentist or getting the car’s oil changed regularly.
“There was a time in my life when [an] oil change was just like, not even a priority,” Allen said. “I’m trying to keep tires on my car. I’m trying to keep it running. I’m trying to keep the registration paid. I’m not concerned about an oil change.”

Living paycheck to paycheck makes people vulnerable to accumulating high-interest credit card debt. Almost half, 46%, of Americans said they held a balance on their credit card because of an emergency expense, according to a September 2022 CreditCards.com survey. Experts recommend having an emergency fund to fall back on with roughly three to six months’ worth of living expenses.
“The goal here is to find balance,” Romanoff said. “It’s about enjoying your life, but not being so focused in a future that hasn’t come yet or too much focus on the present. The idea is having your cake and eating it too. You can have bites of your cake right now and then save some cake for later.”
Watch the video above to learn more about why Americans are struggling to keep their money in their pockets. More