2024 Spring Cleaning: 14 Ways to Spruce Up Your Finances This Year - Part 1

It’s April and we’ve made it through tax season. Spring is in the air and we’re starting to come out of hibernation. In Illinois, were excited to pack up the winter coats and start getting our spring cleaning and house projects in order. As we’re drawing close to wrapping up the month of April, naturally our finances, taxes and spring cleaning are all top of mind. So, we thought it would be a great time to discuss how to spruce up your finances and do a bit of spring cleaning for your long-term financial success, so we all can make 2024 a fantastic year.  

This week, we explore seven tax planning tips that will help to not only secure your financial future but allow you to start considering smart planning decisions that may apply to your family and assets. In this 2-part article, we’ll explore some simple and straightforward tactics and financial strategies that will allow you to set your family up for success and give those you cherish most a gift that will last long beyond 2024.

1 | Make a Qualified Charitable Distribution (QCD)

If you, or a relative are retired and taking their required minimum distributions (RMD’s), consider making a Qualified Charitable Distribution (QCD). Is there a charity you're passionate about, or a local organization that is working hard to make a meaningful impact in your community? If your retirement account is where you want it to be and looking better than expected with the market near all-time highs this year? Consider making a Qualified Charitable Distribution from your account directly to charity. Not only does this fulfill your required minimum distributions, but it also exempts the amount from your taxable income. By giving back to causes close to your heart, you can make a meaningful impact while reducing your taxable income and tax burden in 2024.

2 | Front-load your 401(k), IRA and Roth contributions

If you have the money to do so, you may want to consider maximizing your retirement contributions early in the year as opposed to spreading them out over 2024. By reaching the 2024 limits sooner, your investments will have more time to grow, potentially enhancing your retirement nest egg even more. It's a proactive step toward securing financial stability for yourself and your family down the road.

In 2024, the IRS contribution limits for your retirement accounts are:

• 401(k), 403(b), most 457 plans and Thrift Savings Plan:         $23,000
• Annual IRA Contributions (for adults under 50):                        $7,000
• Annual IRA Contributions (for adults over 50):                           $8,000
• There are phase out ranges you need be aware of for contributing to an IRA that are dependent on whether you are single, married, contribute to a workplace retirement plan, or if your spouse does.

3 | Set Up a Roth IRA for a Child

Do you want to inspire your kids to get excited about finances and begin developing the knowledge and skills to manage money and retirement, while getting a tax advantage? Start planting the seeds to develop generational wealth and teach your children the value of financial planning by setting up and contributing to a Roth IRA for a child with earned income. Whether it's from babysitting, odd jobs, or payroll from your business, every dollar invested will grow tax-free, providing a solid foundation for their future financial well-being.

Instead of wasting money on gifts that would inevitably pile up in the basement or good-will donation pile, over the past 20 years I’ve always sat down with my nieces and nephews and asked them what they would buy if I gave them $1 million.  It always led to funny and interesting conversations, but I’ll never forget googling their favorite toys and video game companies and helping them look up and buy the stock of the company making their favorite toy or the latest fad in the E-Trade custodial brokerage account I set up for them. The look on their face and the pride beaming in their voice as they told all their friends that they own the company making their favorite toy, video game, movies or sneakers  is something that I will always remember and a bond with them that is extremely meaningful to me. Now that some of them are approaching 18, it’s amazing to see how it’s impacted them and how our chats at family parties are now usually about their accounts, the market, crypto or why they shouldn’t be listening to some hair brained reddit or wall street bets investment idea. I love it and am proud that I was a part of developing their interests in something that will impact them and their long-time financial success for a lifetime. 

More importantly, Albert Einstein said “Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.”  Please consider this hypothetical as an example, if your child contributed one annual Roth IRA deposit of $6,500, after 50 years it could be worth over $190,000 and just 10 years later, at 60% it could be worth more than $375,000, assuming a 7% annual return. If the child continues to contribute $6,500 a year, they could have almost $3 million after 50 years and $6 million in 60 years, assuming the same rate of return. For most people, you contribute to your retirement during your working years, over a 30-40 year period of time. If you start early enough, your kids can get 50-60 years of tax-free growth by contributing to a Roth IRA.

4 | Make Donations During Spring Cleaning

Ah, the annual ritual of spring cleaning. In my house, we have a baby due in May and are going room by room to clear things out to make room, but for most of us we use this time of year to do the same (on a much smaller fashion that I’m being forced too). So, like us, I hope you can infuse this mundane and difficult task with a dose of generosity. As you sift through your belongings, consider the items that no longer serve you but could bring joy to others. From gently used household furnishings to clothing and books, each item holds the potential to make a difference in someone's life.

The cherry on top for clearing clutter out of the house: for items in good condition, you may claim a charitable deduction on your 2024 income tax return, making your act of kindness even sweeter. So, as you purge the old and welcome the new, keep receipts of your donations and take photos of what you donate and stick them away in a file for when you file your 2024 taxes in April of 2025 – it may add up to some real tax savings.

5 | Give the Gift of Appreciated Stock Shares

This spring we’ve seen all-time highs in the stock market. Whether you think the economy is weak or strong, we can all debate and prognosticate over the future of the stock market, but if you own stocks you’re probably sitting on some big winners.  If you want to support a charitable cause and trim your portfolio a bit while we’re at all-time highs in an election year, you can gift appreciated securities and stock shares directly to your favorite charity. By donating and gifting your stock instead of selling it, you can potentially avoid recognizing the gain as your income, maximizing the impact of your charitable giving while minimizing your tax liability.

6 | Establish a 529 College Plan

Invest in the educational future of your loved ones by setting up a 529 plan in Illinois. In Illinois we have two 529 college savings plans, as well as prepaid tuition. The direct sold Bright Start College Savings Program and the Bright Directions Advisor-Guided 529 College Savings Program, which are managed by Union Bank in Trust. In Illinois, these contributions may even be tax deductible up to $10,000 as an individual, or up to $20,000 a year for a married couple.  Regardless of the tax impact for you in 2024, contributions to these plans grow tax-free and can be withdrawn tax-free when used by your loved one for qualified education expenses like housing, books, tuition, and more. Whether it's for your child, grandchild, niece, nephew, or another family member, a 529 plan is a gift that keeps on giving.

Not to mention, we wrote an article earlier this year detailing the new benefits that came into effect in 2024, allowing kids to roll their unused 529 college savings into a Roth IRA under the Secure 2.0 Act.  

7 | Roth Conversion

If you’re retired, your income has naturally gone down. If that’s the case, we highly recommend giving your advisors a call and discussing your retirement savings and considering doing Roth conversion from your pre-tax retirement accounts. If you’d like to learn more about Roth Conversions, here is good article. Yet, if your traditional IRA or your income has declined in value, now is the ideal time to convert it to a tax-saving Roth. Doing so can reduce your income tax liability down the road and let you potentially enjoy tax-free withdrawals in retirement. It's a strategic move that can optimize your retirement income while minimizing tax obligations. It’s also a gift that you can give your family after you’re gone, so they’re not subject to the difficult new rules under the Secure Act, requiring them to withdraw all of the funds from your retirement fund within 5 – 10 years.

Let Us Help You With a Spring Cleaning and Spruce Up Of Your Finances This Spring

Spring is in the air, and it offers a perfect opportunity to dig into your finances and do a bit of house cleaning with a Family, Wealth & Legacy Plan. By incorporating financial organization and tax planning tips into your overall planning strategy, you can secure a brighter future for yourself and your loved ones while making a positive impact on your community.

Not sure where to start? We’re here to guide you through every step of your planning journey, from taking inventory of what you have and what’s important to you, to the practical steps of how to plan for the life and legacy you dream of.

Click Here to schedule a complimentary 15-minute call with our office today to learn more.

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This article is a service of Family Wealth & Legacy Legal Solutions (FWLLS). At FWLLS, we do not just draft documents; we ensure you make educated, informed and empowered decisions for yourself and the people you love. That's why we offer a Family Wealth & Legacy Strategy Session™, during which you will get educated and begin to prepare to avoid life’s most common legal problems and get a plan in place to make the best possible choices for the people you love. You can begin by calling our office today to schedule a Family Wealth & Legacy Strategy Session and mention this article to find out how to get this $750 session at a significantly discounted rate, or even for free.