Holiday Guide to Year-End Financial Gifting

Written by: Tim Raftis, CFP®
December 17, 2024

As the calendar year comes to a close, many individuals and families take stock of their financial standing and look for opportunities to make impactful decisions. One of the most beneficial and thoughtful ways to do this is through year-end financial gifting. Whether you’re aiming to express gratitude, support loved ones, or optimize your tax strategy, understanding the ins and outs of financial gifting can help you make the most of your generosity.

Key Benefits of Year-End Financial Gifting

Reduce Taxable Estate

For individuals with significant wealth, year-end gifting can reduce the size of your taxable estate, potentially lowering the estate tax burden. The IRS allows an annual exclusion amount for gifts, meaning you can give up to a certain value each year per recipient without incurring gift taxes. For 2024, this amount is $18,000 per individual ($36,000 for married couples)¹.

Immediate Financial Support for Loved Ones

Year-end financial gifting is a tangible way to assist family members or friends who may need financial support. Whether helping with college tuition, covering unexpected medical bills, or providing a down payment for a home, financial gifts can make a significant impact.

Charitable Contributions and Tax Deductions

Donating to qualified charitable organizations before year-end not only benefits the cause but also provides a potential tax deduction. This is particularly advantageous for those who itemize deductions on their tax returns. Keep in mind that contributions must be made to IRS-approved charities to qualify.

Share Wealth During Your Lifetime

Financial gifting allows you to see the joy and benefits your gift brings to recipients while you’re alive. It’s a way to share your wealth and support the goals or needs of loved ones in real time.

Strategies for Effective Financial Gifting

Use the Annual Exclusion to Your Advantage

The annual exclusion allows you to gift up to $18,000 per individual without incurring gift taxes or requiring a gift tax return. For example, if you have three children and four grandchildren, you could gift each of them $18,000, totaling $126,000 tax-free².

Establish a 529 Plan for Education

If you want to support a loved one’s education, consider contributing to a 529 savings plan. Contributions to these accounts grow tax-free and can be used for qualified education expenses. You can also front-load contributions using five years’ worth of the annual exclusion amount in a single year, which can significantly boost the account’s growth potential.

Donate Appreciated Assets

Donating appreciated stocks, mutual funds, or other assets to a charity is a tax-savvy move. By giving these assets directly, you avoid paying capital gains tax on the appreciation while still receiving a charitable deduction for the fair market value of the asset.

Fund a Donor-Advised Fund (DAF)

A donor-advised fund allows you to make a charitable contribution, receive an immediate tax deduction, and recommend grants to your favorite charities over time. It’s a flexible and efficient way to manage your philanthropic efforts.

Make a Qualified Charitable Distribution (QCD)

If you are 70 ½ years old or older, you may use a QCD to donate up to $105,000 in 2024 to qualified charities directly from an IRA and exclude it from taxable income³. If you are 73 years old or older, QCDs can be counted toward satisfying all or part of your annual required minimum distribution (RMD)³.

Pay Medical or Educational Expenses Directly

You can pay for someone else’s qualified medical or educational expenses without it counting toward your annual exclusion limit. Payments must be made directly to the institution or provider to qualify for this exemption.

Consider Lifetime Exemption Limits

For gifts exceeding the annual exclusion amount, you can use your lifetime gift tax exemption. For 2024, the exemption is $13.61 million per individual ($27.22 million for married couples)¹. These larger gifts reduce your estate tax exemption but can be part of a strategic wealth transfer plan.

Year-end financial gifting is a powerful tool to support loved ones, benefit charitable organizations, and optimize your financial strategy. By understanding the rules, leveraging available opportunities, and planning thoughtfully, you can make your gifts impactful and meaningful.

Written by,

Tim Raftis, CFP®

Tim Raftis is a comprehensive, fee-only financial planner with Insight Wealth Strategies. With over 30 years in the financial services industry, Tim draws on his extensive experience to offer clients customized solutions to managing their wealth.

Tim is a problem solver who works to simplify clients’ financial lives. He assists clients in identifying and prioritizing their various goals – including investments, tax planning, retirement income, and wealth transfer – then develops strategies customized to suit their personal circumstances and their own unique feelings and attitudes.

Sources:

Insight Wealth Strategies, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Insight Wealth Strategies, LLC and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Insight Wealth Strategies, LLC unless a client service agreement is in place.

Insight Wealth Strategies, LLC (IWS) and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.