February 9, 2024

10 Essential Tax Planning Strategies

In Tax Planning, Wealth Strategy

As the saying goes, “in this world nothing can be said to be certain, except death and taxes.” While we may not have control over the inevitability of taxes, we do have tax planning strategies at our disposal to minimize the impact. When utilized productively, tax planning can be a strategic approach to optimize your financial well-being and keeping more of what you earn.

In this article, we’ll dive into a handful of new and expiring provisions to help you navigate the complex tax landscape.

1. Rollover of 529 Funds

In the past, if you had excess 529 funds, you had two options; 1) name a new beneficiary of the account or 2) close the account and request a non-qualified withdrawal which would result in paying income taxes and a 10% penalty. Starting in 2024, a new option is available where you can roll over up to $35,000 of the 529 assets into a beneficiary’s Roth IRA, tax free, without a penalty.

To take advantage of this new rollover feature, the following requirements need to be met:

  • The 529 plan account owner must have owned the account for at least 15 years.
  • The rollover cannot exceed the annual Roth contribution limit.
  • The beneficiary of the 529 plan must also be the owner of the Roth IRA.
  • The Roth account owner must have earned income.

2. The SECURE Act and Inherited IRAs

Starting in 2020, the SECURE Act changed the time frame in which beneficiaries had to withdraw from their inherited IRAs. For most non-spousal beneficiaries, the entire balance of the account had to be withdrawn within 10 years of the original owner’s passing. The IRS subsequently clarified that annual distributions were required in addition to withdrawing the entire balance by year 10.  As a result of this confusion, the IRS has waived any penalties for failing to take required distributions from 2021 to 2023.

Starting in 2024, failure to take required annual distributions from your inherited IRA may be subject to tax penalties.

3. The Sunset of the Current Lifetime Estate and Gift Tax Exemption

The 2024 federal estate and gift tax exemption is $13,610,000 per person. The exemption is expected to drop by half at the end of 2025. While there is still time to execute sophisticated wealth transfer strategies, we strongly encourage you to consult with your financial advisor, estate planning attorney, and accountant to start the discussion. Careful consideration and evaluation are needed in addition to the time needed to draft legal documents.

4. The Sunset of the Qualified Business Income (QBI) Deduction

Among the various tax changes from the 2017 Tax Cuts and Jobs Act was the QBI deduction – which allowed an automatic 20% deduction for pass-through entities (e.g., S corporations and partnerships). This provision is scheduled to sunset at the end of 2025, so you may consider changing your business entity structure for a more tax effective option.

5. Roth Conversions

Roth conversions have been a popular tool utilized by high income earners who are ineligible to contribute directly to a Roth IRA. Converting funds from your Traditional IRA to a Roth IRA may result in increased taxable income now but may be outweighed by the future benefits of a Roth IRA. Roth IRA accounts have the benefit of growing tax-free and can be withdrawn tax-free after the age of 59 ½ if the account has been open for at least five years.

The best time to take advantage of a Roth conversion is in a year when you find yourself in a lower tax bracket. Since you cannot undo a Roth conversion, we often recommend waiting towards the end of the year to determine if a Roth conversion makes sense with your year-to-date income and deductions.

6. IRA Contribution

If you did not make an IRA contribution in 2023, you still have time as long as the contribution is made by the tax filing deadline (April 15, 2024). This contribution rule applies whether you are making a Roth IRA contribution, or a deductible or non-deductible IRA contribution.

7. Qualified Charitable Distributions

If you are age 70 ½ or older and are charitability inclined, you may want to look at utilizing Qualified Charitable Distributions (QCDs). A QCD is a distribution from your IRA directly to a non-profit organization and counts towards your annual required minimum distribution (if applicable). This strategy is the most tax effective if you currently do not itemize your deductions and have a relatively high balance in your IRA.

8. IRMAA Thresholds

While Medicare Part A is free, Medicare Part B premiums are based on your modified adjusted gross incomes (MAGI). You should be mindful of the annual income you accrue to maintain the premium tier you’re aiming for.

Some people experience a taxable income increase in retirement; withdrawals and income from pensions, tax exempt interest, and taxable social security benefits are included in that MAGI calculation.  Learn more on how to avoid the IRMAA surcharge in this helpful article.

9. Asset Location

Not as critical as asset allocation, asset location is important to factor into portfolio management to lower your taxes. For example, high yield interest investment vehicles may be best invested inside tax exempt accounts such as an IRA.  Certain alternative investments may also be invested inside IRAs to mitigate the tax complexity.  There are several ways to maximize asset location and it is important to work with your Wealth Manager to utilize the strategies that work best for you.

10. Washington State Capital Gains Tax

Washington state residents may be liable for a 7% tax rate on long-term capital gains exceeding $262,000. Throughout the year, be mindful of the long-term gains realized and if possible, generate long-term capital losses to offset those long-term gains.

Note: Long-term capital losses carryforward incurred prior to 2021 cannot be used to offset long-term capital gains.


Tax planning should be an integral part of your financial picture and implementing effective tax planning strategies is essential for individuals and businesses alike. If you have questions about any of these strategies, reach out to a Coldstream advisor to learn how we can help you take a proactive tax planning approach.

Disclaimer:  This material provides general information only. Coldstream does not provide any specific tax or legal advice; you should consult your tax, legal, or other advisors before implementing any changes to your current financial situation.
To ensure compliance with requirements imposed by the IRS, we inform you that any federal tax advice contained in this communication (including attachments) is not intended or written to be used and cannot be used for (1) avoiding penalties imposed under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any transaction or matter addressed herein unless the communication contains explicit language that it is a tax opinion in compliance with IRS requirements.  Please contact your tax advisor for guidance on your individual situation.

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