A Message from Canty Financial

Tax season is in full swing, but tax planning isn’t just about filing—it’s about long-term strategy. Whether you're still working or fully retired, making smart moves now can reduce your lifetime tax bill, minimize investment drag, and preserve more of your wealth for the future. Below, we outline key tax strategies for pre-retirees (50s-60s) and retirees (65+) to ensure you're making the most of tax laws in 2025.

Tax Strategies for Pre-Retirees (Ages 50-65, Still Working or Recently Retired)

1. Maximize Tax-Advantaged Contributions Before Retirement

• 401(k), 403(b), & 457 Plans (2025 Limits): Contribute up to $23,500 (+$7,500 if 50+) to reduce taxable income now and take advantage of employer matches. In 2025, the catch-up contribution limit for those aged 60–63 is $11,250, according to the IRS. This is known as the "super catch-up" contribution. 
• Deferred Compensation Plans & Cash Balance Plans: If available, these can be powerful tools for deferring taxes in peak earning years and smoothing your taxable income in retirement.
• Health Savings Accounts (HSAs): If eligible, max out your HSA ($4,150 individual / $8,300 family, plus $1,000 catch-up if 55+) for tax-free healthcare spending in retirement.

2. Tax-Efficient Investment Strategies Before Retirement

• Avoid Excessive Short-Term Capital Gains: Trades held less than a year are taxed at ordinary income rates (37% max) vs. long-term gains (20%)—holding investments longer can save thousands.
• Reposition Low-Basis Stock Gradually: If you have concentrated stock positions, strategically selling over multiple years can help manage tax exposure.
• Tax-Loss Harvesting: Offset taxable gains by selling underperforming investments to realize losses. We implement this automatically for our clients using advanced portfolio rebalancing software 55IP.

3. Selling a Primary Home—Capital Gains Considerations

• Home Sale Exclusion: If you sell your primary residence, you can exclude up to $500,000 (married) or $250,000 (single) in capital gains, provided you lived in the home for at least two of the last five years.
• What If Your Gain Exceeds the Exclusion? Any amount over the exclusion is subject to capital gains tax, so planning the timing of a sale can help minimize your tax burden.
• Cost Basis Adjustments: Track home improvements (renovations, additions) as these increase your cost basis, reducing taxable gains.

4. Be Strategic About Selling a Business or Rental Properties

• Use Installment Sales for Lower Tax Brackets: Spreading the sale proceeds over multiple years can help avoid the highest capital gains brackets (20% + 3.8% NIIT).
• 1031 Exchanges for Real Estate: If selling a rental property, a 1031 exchange can defer capital gains taxes by reinvesting in a similar property.

5. Smarter Wealth Transfer & Inheritance Planning

Even if your estate isn’t large enough to trigger Federal or State estate taxes, careful planning ensures your assets pass efficiently to heirs while minimizing unnecessary taxes or complications.

• Avoid Gifting Pitfalls: Many assume gifting assets early is the best strategy, but holding onto appreciated assets allows heirs to receive a step-up in basis, eliminating capital gains tax.
• Inherited IRAs & the 10-Year Rule: If your children inherit a Traditional IRA, they must now withdraw the full balance within 10 years, potentially pushing them into higher tax brackets if not planned for.
• 529 Plan to Roth IRA Transfers: New rules allow a $35,000 lifetime rollover from a 529 to a Roth IRA—a tax-efficient way to pass down wealth.

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Tax Strategies for Retirees (Ages 65+, Living Off Investments & Withdrawals)

1. Tax-Efficient Withdrawal Strategies—The Order Matters

The sequence of withdrawals from your accounts can significantly impact your tax bill and portfolio longevity:

• First: Use dividends, interest, and taxable account withdrawals to stay in lower brackets.
• Second: Withdraw from tax-deferred accounts (IRAs, 401(k)s) up to the top of your current bracket without crossing into a higher one.
• Last: Use Roth IRAs (if applicable) for tax-free withdrawals.

This approach minimizes taxable income spikes, helps avoid IRMAA surcharges, and keeps more of your wealth compounding.

2. Managing RMDs—Minimize Taxes with Smart Planning

Even if you’re not 73 yet, planning ahead for Required Minimum Distributions (RMDs) can help prevent unexpected tax increases.

• Qualified Charitable Distributions (QCDs): If you don’t need your full RMD, you can donate up to $108,000 directly to charity tax-free, keeping it out of your taxable income.
• Proactive Tax Planning: Since RMDs are mandatory once you reach the required age, we can help you develop a strategy to minimize their impact—especially if they might push you into a higher tax bracket in future years.

3. Avoid the Hidden Tax on High-Income Retirees

• If your modified AGI exceeds:
  • $212,000 (married) / $106,000 (single) → You’ll pay higher Medicare Part B & D premiums due to IRMAA surcharges (extra $1,052+ per year).
  • $44,000 (married) / $34,000 (single) → Up to 85% of Social Security benefits become taxable.
• How to minimize these taxes:
  • Control taxable withdrawals—avoid large IRA/401(k) distributions in one year.
  • Use tax-efficient investments—many ETFs offer lower capital gains distributions compared to mutual funds which will lower your taxable income.

4. Wealth Transfer & Estate Planning—Avoiding Common Pitfalls

Making large lifetime gifts isn’t always the best move. Instead, consider:

• Holding Appreciated Assets Until Death—your heirs receive a step-up in basis, wiping out capital gains taxes on stocks and real estate. Selling assets before death could trigger unnecessary taxes.
• Inherited IRA Pitfalls: The 10-year withdrawal rule for inherited IRAs means your heirs can’t stretch distributions over a lifetime anymore—this can create unexpected tax burdens for them.
• Using Trusts to Protect Beneficiaries: While estate tax planning may not be necessary, trusts can help safeguard assets for long-term care, divorce settlements, creditors, or financial mismanagement—especially for larger inheritances.

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Final Tax Season Reminders from CFM

• Review Your W-2s, 1099s, & K-1s: Double-check for accuracy—occasionally some investment firms issue corrected 1099s in March.
• Check Estimated Tax Payments: Ensure you include estimated tax payments made in 2024 when submitting your tax documents.
• Schedule a Tax Review: We prepare taxes for 99% of our investment clients—please feel free to reach out, we are here to help.

If you have questions about how your tax strategy coordinates with your investments, retirement planning, or estate planning, reach out to us today.

Canty Financial Management

Bill Canty, CFP®, CPA, Financial Planner

Ed Canty, CFP®, Financial Planner

Joe Canty, CFP®, Financial Planner

Tina Alteri, CPA, Tax Advisor

Maureen Walsh, EA, Tax Advisor