Search Results for: 529

New Ebook: Cross-Border Implications of Holding a 529 Plan

April 5, 2022 By Cardinal Point Wealth

Many Canadians move for career opportunities to the U.S., work and raise families, and then plan to relocate back to Canada. A qualified tuition and educational savings plan for children (a 529 plan) is exempt from taxation in the U.S., in most cases even when a child attends a Canadian university. If you are a Canadian who is considering such a plan, and especially for anyone with an investment in a 529 plan who is moving back to Canada, clear expert advice from a cross-border financial specialist is a very prudent step.

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Cross-Border Implications of Holding a 529 Plan

August 25, 2020 By Cardinal Point Wealth

Thousands of Canadians relocate to the U.S. for career opportunities each year. They often envision staying a couple years to garner valuable experience before returning home. However, what was originally meant to be a short sojourn can quickly become a decade or more. Their life may change significantly during that time, perhaps due to a marriage or the birth of children. This article focuses on 529 plans for children and the tax implications of this educational investment vehicle in a move back to Canada.

Summary and Takeaways

So-called 529 plans are an investment vehicle you can take advantage of in the United States in order to help you save tuition money to fund your child’s future education. A 529 plan may be very beneficial in terms of offering savings growth that can be eligible for some tax deductions or tax-free withdrawals. However, if you move to Canada, that could result in taxation on the earnings in the account. But there are strategies to help avoid tax exposure, if you plan ahead before you move across the border.

Key Takeaways

There are two types of 529 plans, those for prepaid tuition plans and those for educational savings plans.
The plans are sponsored by states, and while 34 states allow income tax credits or deductions for 529 plans other don’t. Many people don’t legally reside in the same state where their 529 plan is based.
529 plans are deemed taxable brokerage accounts for Canadian income tax purposes. Investment income earned in the account is taxable annually.
To avoid Canadian tax on your 529 you may want to transfer ownership of the 529 account to a trusted U.S. citizen before you move to Canada.

529 Basics
As its name suggests, this plan is derived from Section 529 of the Internal Revenue Code. It states that a qualified tuition plan shall be exempt from taxation. There are two types of 529 plans: prepaid tuition plans and educational savings plans. For more information on the nature of these categories see Cardinal Point’s blog titled: Canada & U.S. Education Savings Options.

529 plans are sponsored by individual states, and it is not uncommon for a resident of one state to utilize another state’s 529 plan. Why? Because not all states allow for an income tax deduction or credit on the 529 contributions (34 states do). As such, the resident of that state may look for a 529 plan in a state where there are better investment options, lower fees, lower minimum contribution amounts, or higher total lifetime account balance thresholds.

529 Mechanics
As of 2022, contributions made to a 529 plan are limited to an annual $16,000 per beneficiary. This amount doubles to $32,000 if the donors are married filing jointly. There is also an option that exists to “front load” the 529 with up to five years’ worth of contributions ($160,000) if married filing jointly. As long as no additional contributions to that beneficiary are made within that five-year window, no gift tax filing obligations are required.

Money contributed does not receive a tax deduction at the federal level. However, if the contributor resides in one of the 34 states that allows for a state income tax deduction or credit, then there is a tax benefit that can potentially be utilized. The earnings on the associated investments within the plan grow tax free as long as future withdrawals are utilized for qualified higher education expenditures.

Expenses that do not qualify for tax-free withdrawal include room and board, transportation, and medical expenses to name a few. If the withdrawal is deemed unqualified, then the earnings on the distribution are subject to income tax and an additional 10% penalty per the “Kiddie Tax” rules (see below).

The Tax Cuts & Jobs Act (TCJA) of 2017 added a feature to qualified 529 withdrawals that allowed $10,000 of annual distributions to be used for K-12 school tuition. The Secure Act of 2020 preserved this condition in the legislation. In addition, the Secure Act revitalized the old “Kiddie Tax” regime.

Kiddie Tax Basics
The tax applies to children under the age of 19 unless they are full-time students. In the latter scenario, these tax rules apply until the young adult turns 24. Under these rules, a portion of a child’s unearned income could be taxed at the parent’s marginal income tax rate. This would include any unqualified distributions from a 529 plan.

When analyzing the federal income tax bill of the child subject to the “Kiddie Tax,” the standard deduction rules apply. For 2020, the child’s standard deduction is the greater of: $1,100 or earned income plus $350, not to exceed $12,950 for 2022. Any annual unearned income between the standard deduction and $2,200 is taxed at the child’s tax rate. Once the annual $2,200 threshold is exceeded, the remaining unearned income is taxed at the parent’s marginal tax rate, which could be as high as 37%.

Cross-Border Implications of 529 Plans
Let’s assume a Canadian family living in Texas had two children during their U.S. tenure. These children are dual citizens of Canada and the U.S., are currently in high school, and plan to go to a Canadian university for higher education. Now that the entire family has made the decision to return to Canada, how should they deal with the 529 plans they’ve accumulated and what are the tax considerations?

U.S. Taxation – If the Canadian college or university is eligible for Section 529, any qualified distributions are tax free for U.S. tax purposes. Many, but not all, Canadian institutions are eligible, and the list evolves over time. The Federal School Code Lookup Tool gives you an easy way to determine whether your chosen Canadian college or university is eligible for Section 529. The custodian of the 529 reports the distribution on a Form 1099-Q and, assuming the funds were paid to the 529 beneficiary, college/university, or student loan provider, the distribution would be reported on the child’s tax return.

Canadian Taxation – Although 529 plans provide income tax savings for U.S. residents, they are effectively taxable brokerage accounts for Canadian income tax purposes. As such, any investment income earned in the account would be taxable on an annual basis. Upon re-establishing Canadian tax residency, there is a step up in the cost basis (converted into CAD) that is applicable to certain assets inclusive of 529 accounts. This is called the “deemed acquisition date” and resets the book value for Canadian tax purposes to the fair market value on the date Canadian residency is established.

There is also an argument that the 529 plan would be a deemed resident trust that would require Canadian trust filings. In order to avoid Canadian taxation of these accounts in some form or another, you may want to consider transferring ownership of the account to a trusted family member or other individual who resides in the U.S. prior to your move to Canada. That transfer should not trigger any tax. After transfer of ownership, you could continue to contribute to the fund through gifts, and the account would avoid taxation in Canada. However, some do not feel comfortable transferring ownership of their 529 accounts.

In Conclusion – The future changes constantly, and it’s difficult to know with certainty where you’ll choose to reside or where your child will decide to pursue his or her higher education. If you are confident your child will choose to go to school in the U.S. or enroll in an international institution that is 529 eligible, then a 529 plan is worth exploring. For a more detailed analysis of the options available to meet this goal, it is prudent to have a conversation with a cross border expert. Contact Cardinal Point for more information.

Cross-Border Tax Planning for Americans Moving to Canada with Karen Rogers Sim, Tax Manager

February 5, 2025 By Cardinal Point Wealth

Moving to Canada from the United States can be an exciting endeavor, but it also involves complex tax considerations. In this comprehensive video, Karen Rogers Sim, Tax Manager at Cardinal Point Wealth Management, shares expert insights on how the Canadian and U.S. tax systems differ, what it means to be taxed in both countries, and which strategies can help you minimize your tax liabilities. She guides you through key concepts like filing an “entry return,” the Canada–U.S. Tax Treaty’s role in preventing double taxation, and how to handle worldwide income reporting. You’ll also learn how to manage U.S.-based accounts—from 401(k)s, Roth IRAs, and 529 plans to stock purchase plans—when transitioning to Canadian residency. Beyond income tax planning, Karen highlights the significance of currency exchange fluctuations and delves into the nuances of maintaining tax compliance with dual residency status. Whether you’re moving for work, retirement, or a new adventure, this video will equip you with valuable strategies to avoid potential pitfalls, including the Net Investment Income Tax (NIIT) and other unexpected costs. Let Cardinal Point’s cross-border advisors guide you toward a well-informed move, so you can confidently embrace your new life in Canada with peace of mind.

United States – Winter 2024-2025 Tax Highlights

December 19, 2024 By Cardinal Point Wealth

Don’t cheer or panic yet.

There is a barrage of news stories and social media posts about what the new Administration may or may not do with the Tax Code after Inauguration Day (January 20). It can all be a little distressing when you are trying to make long range plans, but you may not have a clear idea of what those changes will be until the fall of 2025, and they probably won’t go into effect until 2026.

Changing the tax laws takes time: new tax laws must pass both the House and Senate before landing on the Resolute Desk for signature. Note that The Tax Cuts and Jobs Act was proposed early in President Trump’s first year in office, signed into law in November of that year and took effect the following year. Relying on this precedent, we may not have new tax laws until 2026.

The Tax Cuts and Jobs Act of 2017 (TCJA) made sweeping changes to the Tax Code, lowering individual and corporate tax rates, eliminating the personal exemptions, expanding the standard deduction to make it a more attractive option than itemizing. The TCJA paused certain itemized deductions, such as the deduction for investment management fees, and it capped the deduction for State And Local Taxes (SALT) at $10,000. The TCJA expanded and complicated the international reporting of U.S. taxpayers and introduced the terms GILTI, FDII and a much-hated transition tax (Code S. 965) that subjected the retained earnings of foreign companies held by U.S. expatriate shareholders to U.S. domestic taxation as well as the foreign tax already paid on those earnings.

The Qualified Business Income Deduction (QBID) was a very taxpayer friendly addition to the Tax Code resulting from the TCJA. This deduction is intended to reduce the effective federal taxation of business income earned personally, to the 21% corporate tax rate.

The TCJA also substantially raised the lifetime gift and estate tax exemption and generation-skipping transfer tax exemption. It is $13,610,000 for 2024 and will be $13,990,000 for 2025.

As transformative as it was/is, many provisions in the Tax Cuts and Jobs Act of 2017 are temporary and are set to expire at the end of 2025. The sections related to controlled foreign corporations, i.e., GILTI, FDII and Subpart F, are not set to expire at the end of 2025. If Congress doesn’t extend the TCJA, we mostly revert to the pre-2018 Code as subsequently modified by tax legislation that is more permanent in nature.

There are two main pieces of ‘permanent’ tax legislation that have transformed our tax Code and will probably outlive whatever happens with the TCJA. They are commonly known as the SECURE Act and the Inflation Reduction Act or IRA.

The Setting Every Community Up for Retirement Act of 2019, a.k.a. the SECURE Act, was enacted in December 2019. This was followed by SECURE 2.0 Act of 2022 signed into law on December 29, 2022. These two pieces of legislation combined, contain dozens of provisions which empower individuals to save more for retirement. The SECURE Act also changes the rules for withdrawals from retirement plans.

The Inflation Reduction Act (IRA) created new and expanded existing tax credits and incentives for clean energy projects, electric vehicles and green/efficient energy home construction and renovations. Not all measures in the IRA are permanent, but all are to remain in-force for 2024 and 2025 tax return filings. The new Administration may ask Congress to repeal sections of this Act, but it is difficult to predict which sections because so many consumers, investors, and businesses made economic decisions in reliance on the IRA.

Anything could happen next year. We have to move forward with what we know now.

So, let’s run the numbers, assuming that the provisions of the TCJA, SECURE, Secure 2.0, and IRA remain as tax law through December 31, 2025.

This is the tax landscape, as Cardinal Point sees it, it for 2024 and 2025…

Gifts and Estate Tax

Each individual may gift up to $18,000 in 2024 and $19,000 in 2025 per recipient without using up any of their lifetime gift and estate tax exemption. Gifts over those amounts are allowed but start to use up the lifetime exemption. Charitable donations do not use up the exemption regardless of the amount. Be aware that if you split gifts with your spouse and jointly give $36,000 to a recipient, a gift tax return will need to be filed to keep the gifts exempt. It’s reporting, not taxation.

Gifts from a U.S. citizen spouse to a non-U.S. citizen spouse are limited to $185,000 in 2024 and $190,000 in 2025. Gifts to U.S. citizen spouses enjoy an unlimited marital deduction.

The lifetime gift and estate tax basic exemption is $13,610,000 for deaths in 2024, will be $13,990,000 for deaths in 2025, and is slated to drop to half that amount for deaths in 2026 if the TCJA is not extended or Congress takes some other action with regards to estate taxation.

When the estate of a married individual is less than the applicable lifetime exemption in that year, it is usually recommended to file an estate tax return anyway and to elect portability of the Deceased Spouse’s Unused Exemption (DSUE) in favor of the surviving spouse. The absolute dollar amount of the DSUE carries to the surviving spouse and adds to their own estate tax basic exemption, whatever that may be, when the survivor passes.

Federal estate tax on the amount over the basic exemption amount is graduated from 18% to a top rate of 40% when the excess is a million dollars or more. Different states may have their own estate, gift, and inheritance tax rules.

Federal Tax Brackets for 2024 and 2025

Federal Regular Taxes (not qualified dividend and long-term capital gains rates, AMT or NIIT)

The federal tax rates for each bracket, starting from taxable income, remain through the end of 2025 at 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

The top tax rate of 37% kicks in for the portion of your taxable income in excess of:

Married Filing Jointly and surviving spouse* (MFJ) – $731,200 in 2024 and $751,600 in 2025
Married Filing separately (MFS) – $365,600 in 2024 and $375,800 in 2025 – half of the MFJ brackets
Head of Household (HOH) – $609,350 in 2024 and $626,350 in 2025
Single – $609,350 in 2024 and $626,350 in 2025 – same as HOH
Estates and Non grantor Trusts – $15,200 in 2024 and $15,650 in 2025. (No, we aren’t missing any zeroes.)

*A surviving spouse may file MFJ for the calendar year that includes the death of the spouse and longer if there is a minor child as a part of the household.

Qualified Dividends and Long-term Capital Gains (QDCG Tax)

Qualified dividends and net long-term capital gains are taxed at special rates in lieu of the regular tax rates in the brackets earlier. Qualified dividends are generally taxed at 15% and long-term capital gains are taxed at 0%, 15% or 20%: 0% if taxable income is no greater than limit A, 15% if taxable income is greater than limit A and no more than limit B, and 20% if taxable income is over limit B. It also depends on your filing status. Be aware that the states often do not have special rates for QDCG, or they may have an entirely different way of taxing different baskets of income.

	2024	2024	2025	2025
Filing status	limit A	limit B	limit A	limit B
MFJ & Surviving Spouse	$94,050	$583,750	$96,700	$600,050
MFS	$47,025	$291,850	$48,350	$300,000
Head of Household	$63,000	$551,350	$64,750	$566,700
All Other Individuals (Single)	$47,025	$519,800	$48,350	$533,400
Estates & Non-grantor Trusts	$3,150	$15,450	$3,250	$15,900

Net Investment Income Tax (NIIT)

The Net Investment Income Tax is an additional 3.8% tax on the lesser of: (a) your net investment income for the year, and (b) your modified adjusted gross income for the year exceeding a threshold. The thresholds vary by filing status. $250,000 MFJ, $125,000 for MFS, and $200,000 Single or HOH. The disappointing aspect of the NIIT for U.S. citizens living abroad is that the NIIT cannot be offset by foreign tax credits. A battle is currently being fought to change this and we will let you know when the battle is won.

Alternate Minimum Tax and Kiddie Tax – Let’s skip talking about these this year. No significant modifications have been made to either.

Contributing to Social Security and Medicare (FICA)

You will contribute to Social Security at 6.2% on your first $168,600 in wages for 2024 and $176,100 for 2025. You will contribute to Medicare at 1.45% on all of your wages without limit. There is also an additional Medicare tax of 0.9% on wages over $200,000 for single filers and $250,000 for joint filers.

If you are self-employed, you pay both the employer’s and the employee’s share: 12.4% to Social Security and 2.9% to Medicare, but you deduct the employer’s half from taxable income.

Standard or Itemized Deduction?

Pre-TCJA, itemized deductions were the sum of:

Medical out of pocket subject to a 7.5% of AGI threshold,
State and local taxes (SALT), including foreign property taxes
Mortgage interest on home acquisition debt of up to $1 million plus a LOC of $100,000
Investment interest
Charitable donations
Casualty and Theft Losses
Gambling losses up to the amount of gambling winnings
“the 2% itemized deductions”, which were generally employment expenses and investment management expenses and were subject to a 2% of AGI haircut.

Pre-TCJA, personal exemptions for each of the eligible people in your household were deductible along with itemized deductions to arrive at taxable income.

Under TCJA, SALT is capped at $10,000 and only U.S. property taxes are allowed. Interest on home acquisition debt is limited to $750K of the mortgage, and the 2% deductions are not deductible at all. Personal exemptions have disappeared, but the standard deduction has been increased dramatically. Below, we show the standard deduction by filing status. There is an additional amount added for taxpayers who are 65 or older, or who are blind. These additional amounts can be doubled up for spouses and for spouses who meet both tests.

	Standard Deduction		Addtl if 65+ or Blind
Filing Status	2024	2025	2024	2025
MFJ & Surviving Spouse	$29,200	$30,000	$1,550	$1,600
MFS	$14,600	$15,000	$1,550	$1,600
Head of Household	$21,900	$22,500	$1,950	$2,000
Single	$14,600	$15,000	$1,950	$2,000

Retirement Plan Contributions and Catch-ups

The annual contribution limit for both traditional and Roth IRAs is $7,000 for 2024 and 2025. An additional $1,000 catch-up contribution can be made each year by individuals who are at least 50 years of age.

Roth IRA contributions may be disallowed if your income is greater than certain thresholds.

Traditional IRA contributions are subject to deductibility phase-outs depending on filing status and income level if the single taxpayer, or one of a married couple, is covered by a qualified retirement plan.

Remember that Roth IRA contributions are not deductible, but the income is also not taxable when it comes out, as long as you have met the five-year holding period. If you expect your income to increase (or income tax rates to rise) in the future, consider Roth contributions or Roth conversions that allow for tax-free withdrawals in retirement. If income is expected to decrease in the future, traditional contributions may be more tax effective.

There is something to be said for diversifying long-term tax strategies, rather than betting everything on one strategy. Going all-in on tax deferral is generally a bad idea: tax deferral makes a heavy bet on more favorable tax treatment in future years. Because we can’t know the future, consider instead building a wealth structure with tax-free, tax-deferred, and presently taxable assets. Such a wealth structure offers you freedom of choice in retirement: to draw from three pools, with three very different tax implications, depending on what your situation is at that moment. Talk with your Cardinal Point Private Wealth Manager about diversifying your tax strategies.

IRA contributions may be made up to the filing deadline of April 15th and still be counted for the tax year just ended but must be made before the return is filed.

Business owners, whether these businesses are sole proprietorships, Subchapter S corporations or C corporations, have the option to set up retirement plans with higher annual contribution limits. Talk to your Private Wealth Manager about solo 401(k)s, Roth solo 401(k)s and SEP (Simplified Employee Plan) IRAs.

For the most popular Qualified Retirement Plans, here are the maximum contributions.

Maximum Elective Deferrals to Qualified Plans	2024	Catch-up 50yrs + 2024	2025	Catch-up 50yrs + 2025	*Catch-up 60 – 63yrs 2025**
Retirement plans e.g. 401(k), 403(b), 457 (employee contribution)	$23,000	$7,500	$23,500	$7,500	$11,250
Starter 401(k)	$6,000	$1,000	$6,000	$1,000
Simple IRAs	$16,000	$3,500	$16,500	$3,500
Defined contribution plans or SEPs	$69,000		$70,000
* The $11,250 catch-up contribution is in place of, not in addition to the $7,500 for age 50 plus

Required Minimum Distributions (RMDs)

If you are making a Required Minimum Distribution for the first time, be sure to take it by the end of the calendar year. Yes, you can delay your first RMD until April 15 of the following year, but you will still need to make an RMD for that year as well. Consider what that will do to your taxable income in the second year before deciding to double up.

The RMDs from certain types of plans may be aggregated, which means you may be able to take a single distribution to cover the RMDs of multiple plans. RMDs from employer plans and inherited IRAs will need to be taken separately. The rules for calculating your RMD on inherited accounts have drastically changed throughout the SECURE Act and SECURE Act 2.0. Talk to your advisor about your specific RMD requirements if you inherited a retirement account after 2019.

Qualified Business Income Deduction (QBID)

Business Income on your personal tax return may be from your own self-employment “Schedule C income,” REIT dividends in your investment portfolio, or from a pass-through entity “K-1 income”. Only U.S. domestic business income qualifies for the QBID. Be aware that there are two categories of Qualified Business Income. Specified Service Business income is your typical consulting or professional practice where the business is built upon and reliant on the special skills or reputation of the individual business owner. The QBID phases out at different income levels for Specified Service Businesses.

Children and Dependents

We are jumping now from retirees to young families. The Child Tax Credit is up to $2,000 per qualifying dependent child. Up to $1,700 of this is a refundable credit. The credit phases out if the parent(s) income exceeds $200,000 for a single filer, or $400,000 for joint filers. It is especially important to note that a qualifying dependent child is a U.S. citizen, national or resident alien. The child must be under 17 years of age, have lived with you for at least half the year, be an eligible dependent and have a valid U.S. social security number at the end of the year. There is no change to the Child Tax Credit for 2025.

Be aware that there is an Adoption Tax Credit and a Credit for Dependent Care that may apply to you.

Consider setting up a 529 plan to fund your child’s education. Like a traditional IRA, income earned within the account is tax deferred, and you never pay tax at all on distributions to pay (or reimburse) for qualifying educational expenses. This is usually considered as saving for post-secondary education, but up to $10,000 per child per year may also be used for private K-12 education tuition. While the 529 plan is a great concept, be careful not to over-fund it: there will be tax penalties to take distributions for non-qualifying expenses or to unwind the account after your child completes his/her education.

If you or your dependents are currently post-secondary (college) students, take a look at which education credits you may be eligible for. Currently, there are really only two education credits: the American Opportunity Tax Credit for the first four calendar years of college, and the Lifetime Learning Credit for education beyond that. Each credit has different rules. These credits are phased out for higher income taxpayers.

Charitable Giving

Consider being charitable every other year in order to make the most of itemizing deductions alternately with taking the standard deductions. We call this ‘donation bunching.’ Donations to U.S. charities are deductible to the extent of 60% of your U.S. adjusted gross income (AGI), although there are limited circumstances where qualified donations can be deductible up to 100% of AGI. Donations to Canadian and Israeli charities are also deductible to the extent of 60% of the income sourced from each of those countries.

When you donate appreciated securities, you receive a donation deduction for the fair market value of the security at the date of gift, but you do not have to include the capital gain in your income. This is a big win for both the charity and the donor.

Lastly, if you have an RMD from your retirement plan, you can donate some or all of that RMD to charity. The Qualified Charitable Donation (QCD) meets the RMD requirement but is not included in your income.

Energy Credits

Since the incoming President has indicated that he doesn’t support the measures and tax credits in the Inflation Reduction Act, you may want to act quickly to take, or otherwise crystallize, your tax credits for electric vehicles (new and used), residential clean energy property, and energy efficiency improvements to your home. Contact your tax advisor to find out how each of these credits work.

And there is more…

U.S. tax law and regulations are voluminous and complicated. We hope the above helps you identify the key provisions to manage your everyday federal income tax burden as low as possible. Seven U.S. states have no personal income tax, which means that forty-three states have an income tax that may be similar or completely different from the federal system. Ask your tax professional about your state’s add-backs, deductions, and tax credits. Some states allow a deduction for contributions to a 529 plan or a foreign tax credit for taxes paid to other states or countries. Other states only tax investment income. Thirteen states do not recognize the U.S. – Canada Tax Treaty. Although Washington State does not have a personal income tax, it does have a capital gains tax and an estate tax.

In this environment of rapid change, it is easy to be anxious about tax planning. We get it. Rest assured that your Cardinal Point Team is continually monitoring the tax scene for changes that may affect you. Stay in touch with your Private Wealth Manager and team at Cardinal Point Wealth Management as well as your tax preparers. Keep us informed of your life events that may warrant changes in your planning, particularly your tax planning.

Key U.S. Financial and Tax Issues to Consider Before the End of the Year

December 2, 2024 By Cardinal Point Wealth

As the 2024 year-end approaches, it’s a great time to review your finances and make adjustments to optimize your tax situation, retirement savings, charitable giving, and more. Here are essential financial and tax planning considerations to help you make the most of 2024 and set yourself up for a stronger financial future.

1. Tax Planning and Income Management

Bracket Management: Review your income to understand where you stand in the tax brackets. For example:
- If your taxable income is below USD$191,950 (USD$383,900 for married filing jointly), you’re in the 24% tax bracket or lower. But be aware that any increase could push you into the 32% bracket.
- If your income is over USD$518,900 (USD$583,750 for married filing jointly), your long-term capital gains rate rises to 20%.
Net Investment Income Tax (NIIT): If your Modified Adjusted Gross Income (MAGI) exceeds USD$200,000 (USD$250,000 for married couples), you may be subject to the 3.8% NIIT. Managing income to stay below this threshold can help reduce your tax liability.
Medicare IRMAA Surcharges: Higher-income taxpayers may face increased premiums for Medicare Parts B and D. Avoiding or reducing surcharges involves strategically managing your MAGI by deferring income or maximizing deductions.

2. Retirement Account Contributions and Required Minimum Distributions (RMDs)

Maximize Contributions: Contribute the maximum to retirement accounts before the year ends:
- The 401(k) limit is USD$23,000, with a USD$7,500 catch-up for those 50 or older.
- For IRAs, the maximum is USD$7,500 if you’re 50 or older.
Roth vs. Traditional: If you expect your income to increase in the future, consider Roth contributions or Roth conversions that allow for tax-free withdrawals in retirement. If income is expected to decrease in the future, traditional contributions may be more tax-effective.
Required Minimum Distributions (RMDs): Ensure all RMDs are taken before December 31st to avoid penalties. Aggregation rules differ depending on account type:
- RMDs from multiple IRAs can be combined, but inherited IRAs require separate RMDs.
- RMDs from employer plans must be calculated separately.

3. Charitable Giving Strategies

Tax-Efficient Contributions: Consider gifting appreciated securities rather than cash, as this avoids capital gains tax and provides a full charitable deduction.
Qualified Charitable Distributions (QCDs): If you’re over age 70½, QCDs allow direct transfers from your IRA to a qualified charity, counting toward your RMD without increasing taxable income.
Bunching Donations: If you usually take the standard deduction, you might benefit from “bunching” contributions to exceed the itemization threshold. Donor-advised funds can also help group donations into a single year, allowing for itemization when it’s most beneficial.

4. Investment and Capital Gains Planning

Tax-Loss Harvesting: If you have unrealized losses in taxable accounts, consider realizing these losses to offset gains. You can offset up to USD$3,000 against ordinary income if losses exceed gains.
Capital Gain Distributions: Many mutual funds make capital gain distributions toward the end of the year. Review holdings to understand potential tax impacts and consider selling high-gain investments to offset distributions. Include any anticipated distributions in your 2024 tax estimate to ensure there are no tax surprises.

5. Business Owners: Qualified Business Income Deduction and Retirement Planning

Qualified Business Income (QBI) Deduction: Pass-through business owners should ensure they’re eligible for the QBI deduction. Income limits and business structure affect eligibility, so review the “Am I Eligible for a QBI Deduction?” flowchart.
Retirement Plans for Small Businesses: Setting up a Solo 401(k) or SEP IRA may allow for significant contributions and tax deductions. Remember, many retirement plans must be established by year-end, although some can be funded up to the tax-filing deadline.

6. Maximize Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs)

HSA Contributions: For those with high-deductible health plans, HSA contributions are tax-deductible, and growth is tax-free if used for medical expenses. Contribution limits are USD$4,150 for individuals and USD$8,300 for families, with an additional USD$1,000 catch-up for those over 55.
Use FSA Balances: Check to see if you have remaining FSA funds and is so, plan to use them before the end of the year. Some employers offer a grace period or limited rollover, but unspent funds may have to be forfeited.

7. Estate and Gift Planning

Annual Gifting: You can gift up to USD$18,000 per recipient per year without incurring gift tax. Consider using this exemption for family members, especially if you’re building a tax-efficient wealth transfer strategy.
529 Plans: Contributions to 529 education savings accounts are an effective way to help with education costs and reduce estate tax exposure. In 2024, you can contribute up to USD$90,000 per beneficiary (five-year lump-sum gifting) without being subject to gift tax.

8. Year-End Cash Flow Planning

Flexible Spending Account (FSA): Check your FSA balance and deadlines. You may have to forfeit unused FSA funds unless your employer offers a grace period or rollover.
Health Insurance Deductibles: If you’ve met your health insurance deductible, consider scheduling additional medical procedures or appointments before the end of the year to maximize your insurance benefits before the deductible resets.

9. Other Key Considerations

Life Changes: Review your finances if you’ve experienced major life changes, such as marriage, divorce, a new child, or the death of a loved one. These changes may impact your tax filing status, retirement beneficiaries, and estate plan.
College Financial Aid Planning: For families with children nearing college, reducing income during specific years can increase eligibility for financial aid.
New Tax Laws: Be aware of upcoming tax law changes that might affect your financial plan, as well as any adjustments in 2025 that could impact your investment and tax strategies.

By proactively addressing these year-end financial considerations, you can optimize your tax situation, enhance your financial strategy, and establish a strong foundation for the year ahead. Meeting with a financial advisor or tax professional can provide personalized insights to make the most of these opportunities. To discuss your unique situation with a qualified cross-border financial planner, please contact Cardinal Point.