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Now or Later: How to Weigh Giving During Life vs. Giving Through Your Will

Admin • April 12, 2024

You’ve worked hard to build wealth and hope to leave a legacy for family or friends after your death. But what if you could see those loved ones benefit from your resources while you are still alive? Let’s explore the possibilities and tax details around gifting your money or assets before you pass away. 

The Benefits of Giving

Most of us have been told at some point in our lives that “‘tis better to give than to receive.” In recent decades, several studies have explored what happens in your brain when you give a gift. 

In one study , experimenters found that happiness increased more when subjects were instructed to spend money on others than when instructed to spend on themselves. Psychologists have been able to confirm that there is indeed a neurological benefit to giving gifts.

In addition to this neurological boost, one reason you may want to give gifts during your life is to watch the benefit of your gift play out. Once your retirement and medical expenses are provided for, you stand to benefit more emotionally by giving during your lifetime.

Imagine the ability to choose how to apply your gifts. Maybe you want to share a love of travel with a family member and can enable them to take a trip they couldn’t otherwise afford. You’ll be able to hear their stories and see their pictures (or even take the trip with them) and enrich both your life and theirs through your gift.

Or if you are passionate about education, you might be able to ease the burden pursuing a higher degree often brings. Instead of watching your child or grandchild struggle to balance paid work and coursework, you could give them the gift of stability during a time of transition and changing circumstances. 

You could also give a gift that funds the start-up costs of a small business or the down payment on a home. In any of these circumstances, the joy is ongoing as you see the effects of your gift play out immediately and as time goes on.

Rules on Gifting Money to Family and Others

If giving during your life appeals to you, you may have wondered how much money can you gift tax-free. Below are some of the restrictions surrounding timing and amounts to help you plan.

  • Annual Exclusion Amounts: For 2024, the IRS has set the annual exclusion amount for gift taxes at $18,000 , meaning you do not need to report any gifts up to $18,000 for any individual donee.

This rate is from one individual to another, so if you are married, you and your spouse could each gift the same individual $18,000 for a total of $36,000 for that year. If you’re interested in gifting money to adult children or grandchildren, this type of gift allows you to give money without any party having to pay taxes on the gift. 

*If you exceed the annual exclusion amount in gifts to a single donee (whether cash or fair market value for assets such as stocks, real estate, or other property), you do need to report the gift to the IRS using Form 709 .

  • Lifetime Exclusion Amounts: In addition to the annual exclusion amount for gift taxes, you’ll also want to be aware of the lifetime exclusion amount. In 2024, the individual exclusion limit is $13.61 million per individual (again, doubled for married couples). This amount is scheduled to drop back to $5 million after 2025, so plan accordingly. 

Unlike the annual gift exclusion, the lifetime exclusion is tied to the donor, not the donee. If you decided to gift two adult children $68,000 each this year, each child would exceed the annual gift exclusion amount by $20,000, bringing your lifetime exclusion amount down to $13.51 million. You will only begin paying taxes on gifts after you have given more than $13.61 million cumulatively over the annual exclusions, including the value of your estate upon your passing. The gift tax rate varies depending on the value of the gift over the exclusion amount.

Charitable Giving 

Gifts to charities are considered donations under the tax code rather than gifts. They fall into a separate category and may be tax deductible, unlike personal gifts that will not affect your taxable income rates. This is different than donating to political parties, so if you are considering a large gift to an organization, you will want to look into their tax exemption status. 

How Lifetime Giving Fits into Estate Planning

As you plan to allocate your estate after your passing, consider the lifetime exclusion limit. This limit sets the cap on both lifetime gifts and inheritance gifts. With the cap set to drop to $5 million in 2026 , savvy investors will take stock of their total assets, including real estate, investment portfolios, and valuable property such as artwork or antiques. If the value of your total estate exceeds $5 million, it might make sense to set up a plan for lifetime giving to bring your estate’s worth under the tax-triggering amount.

These limits are for the IRS and federal taxes, but several states also levy inheritance taxes that you will need to consider. Additionally, it’s important to remember that tax rates change over time. Just because a tax rate is low now doesn’t mean it will always be, and there is no guarantee that annual exemption rates will remain high. 

Unlock the Future of Your Legacy with Five Pines Wealth Management

The team at Five Pines Wealth Management believes estate planning is more than just a financial strategy, it’s a powerful tool for shaping your legacy. We’re ready to help guide you through the complexity of gift planning to ensure every gift maximizes your happiness while minimizing your tax burden.

With our expertise in federal and state taxes, we tailor a customized plan that aligns with your unique circumstances. By scheduling a meeting with us, you’re taking the first step toward your future and the future of your loved ones. We can’t wait to connect with you!

From Full House to Financial Freedom: Smart Money Moves for Empty Nesters

May 23, 2025
The day your last child leaves home hits differently. It’s not just about the quiet hallways or fewer groceries in the cart. It’s the moment you realize that the life you’ve known for 20+ years is evolving into something new. For many, that change is deeply emotional. But it’s also a golden opportunity. At Five Pine Wealth Management, we work with parents who are entering this new season of life. Maybe you’re celebrating. Perhaps you’re feeling uncertain. Likely, you’re feeling a mix of both. This new chapter comes with financial freedom and decisions to match wherever you land. Let’s explore the smart financial moves you can make as empty nesters. Empty Nesters: A New Financial Season Meet Rob and Dana. After 25 years of raising three kids, their youngest finally left for college last fall. Their house, once bustling with backpacks, soccer cleats, and half-eaten cereal bowls, suddenly felt oversized and eerily quiet. They weren’t used to grocery bills being cut in half or weekends without games and activities. But what really surprised them? Just how much less money was going out each month. They came to us with a familiar feeling: a mix of excitement and uncertainty. "We think we're in a good place," Dana said. "But are we doing what we should be doing?" This is where a financial check-in becomes vital. With fewer day-to-day expenses and more flexibility, this is a time to refocus your finances. Here’s where to focus: Revisit your monthly budget. Your spending needs have probably changed. Without dependents at home, you may find new flexibility. Redirect those dollars toward long-term goals. Refresh your financial goals. That dream trip to Italy or the kitchen renovation you’ve put off? Let’s pencil it in, but also ensure your retirement accounts are getting the love they need. Update your estate plan. Now that the kids are young adults, your wills, healthcare directives, and beneficiaries may need adjusting. Freedom looks different for everyone, but for many, it starts with clarity. Pre-Retirement Planning: Your Next Big Financial Milestone For most empty nesters, retirement is no longer a distant concept—it’s getting real. Pre-retirement planning becomes a critical focus, especially in your late 40s to mid-60s. This is often the highest-earning period of your life and the sweet spot for pre-retirement planning. Here’s what we help our clients prioritize: Maximizing retirement contributions : As an empty nester, your cash flow could increase by 12% or more . Now’s the time to supercharge your 401(k), IRA, or other investment accounts with that extra cash. If you’re 50 or older, take advantage of catch-up contributions. Evaluating your risk exposure : Is your portfolio still aligned with your risk tolerance and timeline? Consider your tax strategy: With fewer deductions (like kids at home) and possibly a high-earning year, you may want to explore Roth conversions, charitable giving, or other tax-aware strategies. Running retirement projections : We help clients answer big-picture questions like: When can I retire? Will I have enough? What lifestyle can I realistically support? These aren’t always easy questions, but they’re essential. Planning for healthcare : Don’t wait until 65 to think about Medicare. Explore long-term care insurance and out-of-pocket expectations now. Rob and Dana sat down with us to run a retirement analysis. With only 8 years until Rob planned to retire, we helped them rebalance their portfolio to reduce risk, evaluate their pension and Social Security options, and make a plan to pay off their mortgage early. The result? They now have a clear retirement date and peace of mind. Should I Downsize My Home? One of the most common questions we get from empty nesters is, “Should I downsize my home?” It’s not just a financial question. It’s an emotional one, too. That house holds birthday parties, graduation photos on the stairs, and a dent in the drywall from a wild game of indoor tag. But it may also hold higher property taxes, more space than you use, and maintenance costs that don’t serve your current lifestyle. When deciding whether to downsize, we walk clients through: Total cost of ownership : What are you paying for the space? Emotional readiness : Are you ready to let go of the home? What would moving free up? : Cash for retirement? A move to your dream location? Family needs : Will your kids (or grandkids) be visiting regularly? Would a smaller home still support that? Downsizing doesn’t always mean moving into a tiny condo. Sometimes it means relocating to a one-level home with less yard or trading square footage for a better lifestyle. For Rob and Dana, downsizing meant moving to a townhome closer to their daughter and walkable to their favorite coffee shop, all while cutting their housing costs by nearly 35%. Give Yourself Permission to Dream Again One of our favorite things about working with empty nesters is helping them rediscover what they want. For years, life revolved around the kids. College tours. Dance recitals. Saturday mornings spent on the soccer sidelines. You were investing in their future. Now, it’s time to invest in yours. That might mean: Launching the business you put on hold Traveling during off-peak seasons (because you can!) Picking up a new hobby or volunteering more Creating a legacy through charitable giving or a family foundation Whatever it is, we want to help you align your money with your vision. Ready to Rethink the Next Chapter? This stage of life is full of opportunities, but it can also raise big questions. The good news is you don’t have to figure it all out on your own. Whether you're considering downsizing, exploring early retirement, or just want to know you’re on the right path, Five Pine Wealth Management is here to help you plan wisely, invest intentionally, and live fully.  Take advantage of this pivotal financial moment. Call (877.333.1015) or email us today to schedule your empty nester strategy session. The empty nest doesn't have to feel empty. It can be the launch pad for your next chapter of financial success.

Curious About a Roth Conversion Strategy? When It Actually Makes Sense (Or Not)

April 17, 2025
“Should I convert my traditional IRA or 401(k) to a Roth?” If you’ve asked yourself this question lately, you’re in good company. Perhaps you’re a high-earner who makes too much to contribute directly to a Roth IRA but wants access to tax-free growth. Or maybe you’re concerned about future tax rates and want to ensure more tax-free income in retirement. With market volatility and changing tax laws on the horizon, many of our clients are wondering if a Roth conversion could be a smart money move to save on taxes and provide more flexibility down the road. While we think Roth conversions are a great strategy, they don’t make sense for everyone. Let’s break down when Roth conversions actually make sense — and when they don’t — in plain English. Back to Basics: What is a Roth IRA? Before we dive into strategy, let’s recap the differences between a Roth retirement account and a traditional one. Traditional retirement accounts, such as a traditional IRA or 401(k), provide you with a tax deduction when you contribute. You save on taxes now , but you’ll pay taxes on that money in the future when you withdraw it as income in retirement. A Roth IRA allows you to contribute money that you’ve already paid income taxes on. You don’t enjoy savings this year, but the interest you earn on that money grows tax-free, and the withdrawals are 100% tax-free in retirement once you meet certain eligibility requirements. For many people, these lifetime tax savings are significantly greater , which is why a Roth conversion is such an intriguing strategy. What Is a Roth Conversion? Imagine you’ve been making retirement contributions to a traditional 401(k) for the past 25 years. You’ve enjoyed income tax deductions each year as you squirrel away money for your future. But as you’re scrolling through your newsfeed one night after dinner, you come across an article about the unexpected tax bills many retirees are faced with in retirement, significantly eating into their retirement income. The article suggests making contributions to a Roth account instead, in order to avoid this scenario in the future. But you’ve already been making contributions to a traditional account for 25 years. Have you missed out? Not necessarily. With a Roth conversion, you can move money from another retirement account, such as a Traditional IRA or 401(k), into a Roth IRA. Essentially, a Roth conversion allows you to “pre-pay” taxes so your future self won’t have to. For many people, this can be a smart move. But there are caveats: Convert too much at once, and you might push yourself into a higher tax bracket this year. Convert too little over time, and you might miss opportunities to lower your lifetime tax bill. The challenge lies in finding the right balance. When Roth Conversions Make Sense In general, Roth conversions can make sense for individuals in the following circumstances: 1. You’re a High Earner For 2025, direct Roth IRA contributions are phased out for single filers with incomes between $150,000-$165,000 and for joint files with incomes between $236,00-$246,000. If your income exceeds these thresholds, you can’t contribute directly to a Roth IRA. However, Roth conversions have no income limits. This creates a powerful opportunity for high-income earners to still enjoy tax-free growth in retirement. By making non-deductible contributions to a traditional IRA (which has no income limits) and then converting those funds to a Roth IRA — often called a “backdoor Roth” — you can effectively circumvent the income restrictions. 2. You’re in a “Tax Valley” You may be in a “tax valley” if you’re currently experiencing a period where your income is lower than you expect in the future. For example, you may be early in your career, taking a sabbatical from work, or starting a business. These can all be opportune years to make a Roth conversion. New retirees may also find themselves in a temporary “tax valley.” For example, if you’re recently retired but haven’t yet started collecting Social Security or required minimum distributions (RMDs), this window from your early 60s to 70s could be a golden opportunity to convert portions of your traditional retirement savings into a Roth. By strategically moving money over a few years, you can fill up the lower tax brackets and reduce your future RMDs, which might otherwise push you into a higher bracket later. This can also help reduce the tax burden on your Social Security benefits once you begin collecting them. 3. You Have a Long Time Horizon Younger investors in their 30s and 40s may benefit from a Roth conversion if they have decades for that money to grow tax-free. For example, $100,000 converted to a Roth at age 35 could potentially grow to over $1 million by retirement age — all of which could be withdrawn tax-free. That same conversion done at age 60 might only have time to grow to $140,000-$150,000 before withdrawals begin. 4. You Want to Leave a Tax-Free Legacy Roth IRAs are powerful estate planning tools. Your spouse can treat an inherited Roth IRA as their own, allowing the assets to continue growing tax-free without requiring distributions during their lifetime, creating the potential for decades of additional tax-free growth. Kids or grandkids who inherit a Roth IRA will also enjoy a tax-free inheritance, at least for a time. In contrast, inheriting a traditional IRA means your beneficiaries would pay taxes on every dollar they withdraw — potentially during their peak earning years when they’re in a higher tax bracket. When Roth Conversions Don’t Make Sense Of course, just because you can convert doesn’t mean you should . Here are a few situations when a Roth conversion strategy might not work in your favor: 1. You’re Currently in a High Tax Bracket If you’re currently in your peak earning years and already paying taxes in the 35% or 37% federal tax brackets, converting could mean handing over a substantial portion of your retirement savings to the IRS. For example, a $100,000 conversion for someone in the 35% federal tax bracket could trigger an additional tax bill of $35,000 or more. If you expect to be in a lower bracket during retirement — say 22% or 24% — waiting to pay taxes then might be more advantageous. 2. You Don’t Have Cash to Pay the Taxes The most efficient Roth conversion strategy requires having cash outside your retirement accounts to pay the resulting tax bill. Here’s why this matters: If you have to withdraw extra money from your traditional IRA to cover the taxes on the conversion, you’re reducing your future growth potential. For instance, if you want to convert $50,000 and are in the 24% tax bracket, you may need an additional $12,000 for taxes. If you take that $12,000 from your IRA too, you’d pay taxes on that withdrawal as well, creating a compounding tax problem. Even worse, if you’re under age 59½, you could face a 10% early withdrawal penalty on any funds used to pay the taxes, further reducing the effectiveness of your conversion. 3. You’ll Need the Money Soon In general, Roth IRAs have a five-year rule that states you must wait five years from the beginning of the tax year of your first contribution to make a withdrawal of the earnings. (You can withdraw contributions , not earnings, tax-free and penalty-free at any time.) For Roth conversions, however, a new five-year rule starts separately for each conversion. While there are exemptions to this penalty, such as disability and turning age 59½, it’s worth considering if you plan to use the converted funds in the near future. Enter: The Roth Conversion Ladder One strategy we often recommend to clients who want to implement a Roth conversion is the Roth conversion ladder. This approach helps work around the five-year rule while building a tax-efficient income stream, especially for those planning an early retirement. Here’s how it works: Year 1: You convert a portion of your traditional IRA to a Roth (let’s say $30,000). Year 2: You convert another $30,000. Year 3: You convert another $30,000. Year 4: You convert another $30,000. Year 5: You guessed it — you convert another $30,000. Year 6: Now the Year 1 conversion is available for withdrawal without penalties. Each following year : A new “rung” of the ladder becomes accessible while you continue adding new conversions at the top. Over time, you build a steady stream of tax-free income in retirement that you can predictably access. This strategy is particularly valuable for early retirees who need income before the traditional retirement age or for anyone looking to minimize RMDs down the road. For example, a couple retiring at 55 might build a conversion ladder to provide $30,000 of annual tax-free income starting at age 60, giving them a bridge until they begin taking Social Security benefits at age 67. Meanwhile, they can use other savings for the first five years of retirement while the initial conversions “season.” The ladder approach also allows you greater flexibility to manage your tax bracket each year by controlling exactly how much you convert, rather than converting a large sum all at once and potentially pushing yourself into a higher tax bracket. Making Your Roth Conversion Decision As you’ve seen, Roth conversions are far from a one-size-fits-all strategy. The right approach depends on your unique financial situation, current and future tax bracket, retirement timeline, and long-term goals. When considering a Roth conversion, remember that it’s not just about the math. Many of our clients initially hesitate at the thought of writing a big check to the IRS today, even when they know the long-term benefits. That emotional response is completely normal. This is where thoughtful financial planning comes in. At Five Pine Wealth Management , we help you look beyond the immediate tax bill to see how today’s decisions impact your retirement income, Social Security strategy, and even your legacy plans. Sometimes, what feels uncomfortable at the moment creates the greatest long-term benefit for you and your family. So, should you do a Roth conversion? The answer depends on:  Your current and projected future tax brackets Whether you’re above income limits for direct Roth contributions Your retirement timeline Whether you have cash available to pay the conversion taxes Your estate and legacy goals Your comfort with paying taxes now versus later A Roth conversion can be either a powerful wealth-building tool or an unnecessary tax expense. The difference comes down to proper planning and timing. The Next Step If you’re wondering whether a Roth conversion makes sense for your situation, let’s talk. Our fiduciary advisors will help you evaluate your options and develop a conversion strategy that aligns with your comprehensive financial plan. We’ll walk through different scenarios, look at the numbers together, and help you feel confident in your decision — whether that means converting, waiting, or taking a gradual approach with a conversion ladder. Ready to explore whether a Roth conversion is right for you? Give us a call at 877.333.1015 or send us an email at info@fivepinewealth.com to schedule a conversation.