These Subtle Tax Planning Moves Can Improve Client Outcomes

Here are five technical considerations for year-end planning, and two provisions of the recent legislation that could affect a client's financial plan.

1. RMDs and Qualified Charitable Distributions

Taxpayers who have reached age 73 are required to take minimum distributions from retirement plans. Advisors should evaluate the use of qualified charitable distributions, which permit IRA owners age 70.5 or older to transfer up to $108,000 in 2025 to a qualified 501(c)(3) charity.

Qualified charitable distributions satisfy the RMD requirement while excluding the distribution from adjusted gross income, reducing exposure to Social Security taxation and Medicare premium surcharges. For some higher-net-worth clients, it may even help them stay under the income limit to receive the new senior deduction.

2. Medicare Brackets and Income Thresholds

Medicare Part B and Part D premiums are subject to income-related monthly adjustment amounts, commonly known as IRMAA surcharges. Thresholds are determined by modified adjusted gross income, generally defined as AGI plus tax-exempt interest. Exceeding a bracket by as little as $1 can trigger significant additional annual costs.

Financial professionals may find it useful to explore how projected adjusted gross income could be influenced by factors like distributions, capital gains and Roth conversions — especially when trying to manage potential shifts in income brackets. While the expanded senior standard deduction offers some relief, the timing of income still plays a meaningful role. Strategic decisions such as delaying the realization of capital gains or aligning income with charitable giving might help reduce exposure to higher Medicare premiums.

3. Education-Related Planning and 529 Contributions

For clients saving for education, contributions to qualified tuition programs may provide state-level tax benefits if made before Dec. 31. For clients funding education expenses directly from retirement accounts, the Internal Revenue Service provides an exception to the 10% penalty for withdrawals used for qualified higher education expenses, although the distribution remains subject to ordinary income tax.

Financial professionals should weigh the effect of such withdrawals against long-term compounding growth for retirement.

4. Capital Gains and Tax-Loss Harvesting

Tax-loss harvesting remains a cornerstone of year-end planning for taxable portfolios. Individuals may deduct up to $3,000 of net capital losses annually against ordinary income, with excess losses carried forward indefinitely.

Financial professionals should be mindful of the wash-sale rule, which disallows the deduction if the same or substantially identical securities are repurchased within 30 days. Coordinating capital loss harvesting with other planning moves — such as partial Roth conversions — can create more tax-efficient outcomes by offsetting income spikes.

5. Maximizing Retirement Plan Contributions

Elective deferrals to employer-sponsored plans such as 401(k)s and 403(b)s remain deductible. For 2025, contribution limits increase due to inflation indexing. Financial professionals should ensure that clients maximize contributions before Dec. 31, including catch-up contributions for individuals age 50 or older. In addition to the tax component, clients may also be eligible for employer matching that can help with the long-term compounding growth of the account.

Self-employed clients should consider establishing and funding a SEP IRA, which provides significant above-the-line deductions. In addition, contributions to health savings accounts remain a highly tax-efficient way to reduce taxable income, with unused balances growing tax-free for qualified medical expenses.

Key Tax Aspects of the 2025 Megabill

This year's tax and spending legislation introduced two provisions with direct year-end tax planning implications:

Expanded senior deduction: This increases the additional standard deduction for taxpayers older than 65. This deduction does not lower AGI. The deduction is worth up to $6,000 for qualifying individuals, and a married couple could claim up to $12,000. The senior deduction is scheduled to expire after the 2028 tax year unless Congress chooses to extend it.

For individuals, the deduction begins to phase out when modified adjusted gross income exceeds $75,000. For married couples, the deduction begins to phase out when modified adjusted gross income exceeds $150,000. The full phase-out occurs at $175,000 and $250,000 respectively. This adjustment enhances after-tax income and may reduce effective tax rates for retirees but requires careful coordination with distribution strategies and Social Security benefit taxation. In addition, clients with high-net-worth beneficiaries who do not intend to take income from their IRA may want to consider partial Roth conversions to make beneficiary planning strategies more tax efficient.

Charitable deduction floor: The provision implements a 0.5% of AGI floor before charitable contributions are deductible starting in 2026. This provision reduces the benefit of modest annual gifts, encouraging strategies such as charitable bunching and the use of donor-advised funds to aggregate deductions into a single tax year while maintaining multi-year giving capacity. Advisors may want to discuss the possibility of putting together a charitable giving strategy to maximize the effect of charitable gifts on clients' taxes.

Tyler De Haan is director of advanced sales at Sammons Institutional Group, which provides retirement solutions to financial professionals.