OCTOBER 2024 E-NEWSLETTER

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OCTOBER 2024 Q & A

Q: My daughter is paying private high school tuition for my two grandchildren. Is it true that I can take tax-free distributions from a 529 plan to help pay these costs?

A: Federal tax laws allow tax-free distributions of up to $10,000 per student per year to pay tuition for elementary and secondary private and parochial schools. However, each state manages its own 529 plan limits and potential tax deductions, so check with your state before taking action.

Take advantage of the new tax law, but also look into giving up to $18,000 annually tax-free to each grandchild (or $36,000 a year if you and your spouse make gifts).

3 Tips for Employers

Consider tightening up the following three communication areas to make sure your open enrollment is a success.

First, make sure to get the word out about the value of your benefit offerings regularly. Benefits can comprise 20% to 40% of an employee’s total compensation, so sharing this information is important to help your company attract and retain the best and brightest.

Second,communicate through channels most likely to reach your employees throughout open enrollment. This means via smartphones and apps for younger workers and print and in-person presentations for an older workforce.

Third,make sure you communicate simply in a language your employees understand. Eliminate jargon to increase understanding. As important, give employees easy-to-reach resources should they have questions.

Tax-Loss Harvesting

If investments you sold in 2024 lost money, you may find some solace in the IRS tax code. You can deduct certain losses from your taxable income — called tax-loss harvesting — when you understand the rules. Here they are briefly:

TERMS DEFINED

For starters, the IRS has separate tax rates for long-term investments — those which you have held for at least a year. The capital gains tax rate on net realized long-term investment gains, or capital gains, is 15% for most people.

You realize losses and gains only on investments you sell, not on those you still hold. Investments held for a year or less trigger ordinary income tax rates, which are typically higher. The IRS taxes some or all net capital gains at 0% if your income is low enough. You'll pay 20% on net capital gains if your taxable ordinary income exceeds $518,900 if filing as a single, $583,750 if filing jointly, $551,350 if filing as head of household, and $291,850 if married and filing separately.

THE CALCULATION

To figure net losses, subtract what you realized from selling your investment from the original amount invested and then deduct any sales charges. If your realized capital losses are greater than realized capital gains, deduct up to $3,000 a year for individuals and married filing jointly or up to $1,500 if married and filing a separate return. You may carry forward any losses over this annual cap to future years.

LONG-TERM VIEW

Don't sell investments just for tax reasons. Keep those that lost money last year if they continue to have long-term prospects and sell winners if they don't fit your investment strategy.