In this letter
- Donor-Advised Funds (DAF) Now Available
- Roth Conversions - A Short Window
- Qualified Charitable Distributions (QCD): Give Before You Take
- Social Security: A 3.6% Raise in January
- Max Out Your Savings: For Those Still Drawing a Paycheck
I hear you. Let’s take a break from these long hypotheticals this month. Let’s move back into the realm of more actionable topics. But before I go there, I thought I’d bring another perspective to counterbalance the tech heavy topic from last month. You might have labeled me a technophile based on how deeply I dove into future technology. But, like you, I grew up reading physical books, know the distinct sound of a dial-up modem, and remember many days when I was bored and that was perfectly acceptable and generally expected. I loved the simplicity and honesty of it all.
I came across this article in the Wall Street Journal and it was strangely comforting. It’s called: The Brutal Harvard Class That Suddenly Everyone Wants to Take. It kind of gives the whole thing away in the title. Students have to write an essay to apply for this class because it is so popular. Once they’re in, they have the privilege of reading something from the likes of Homer, Jane Austen, Wordsworth (has there ever been a better name for an author?) or Shakespeare. Not just parts of it, the whole 541 pages of the Odyssey in one week, along with an essay. No electronic devices or AI allowed.
Some might describe it as refreshingly old school. I would describe it as the need to feel human that hasn’t gone away. Students get to be challenged, forced to focus for what would now be categorized as extreme periods, and are required to think for themselves. I had been concerned about students farming out their thinking to AI, which in my mind would defeat the classic ways in which we learn. It turns out, this is not a unique idea and that students do want to actually use their own brains to learn. Maybe the kids are alright after all.
Now let’s take a look at what we have in store this month. As a child, I loved the Choose Your Own Adventure books. Sometimes I wonder why that style never really translated into adult fiction. What we have here is a bit of a choose your own adventure of items to consider as we see the end of the year just around the corner. If you’re charitably inclined, start on the first section. If you’re 70½ or older and charitable, turn to the QCD section. If you’re still collecting a paycheck, your page is the last one. Everyone else, read on and choose wisely.
Donor-Advised Funds (DAF) Now Available
Until this month, opening a donor-advised fund meant opening it somewhere else. Another login and another statement, for an account sitting outside the view we have of everything else. As of October, we can open one for you directly on Altruist, alongside the accounts you already have with us.
If you haven’t used one before, a Donor-Advised Fund (DAF for short) works a bit like a gift card that can only be spent at charities. You load it with cash or investments and take your tax deduction in the year you put the money in. Then you decide which charities receive it, and when. That might be next month. It might be over the next ten years. While you decide, the money stays invested, and we manage it the same way we manage the rest of your portfolio.
The account is sponsored by Endaoment, a public charity, and once you contribute, the money legally belongs to them. You can’t take it back. What you keep is the right to recommend grants, which you can do yourself from the Altruist app or website. Endaoment confirms each charity is eligible, and most grants reach the charity in five to seven business days. Most U.S. charities are eligible, including houses of worship, and if yours isn’t in the directory, we can request that it be added.
Where a DAF earns its keep is with investments that have grown. Say you bought a fund years ago for $20,000 and it’s worth $50,000 today. If you sell it and donate the cash, you pay capital gains tax on the $30,000 first, federal and California both. So much for trying to do good. If you move the shares directly into the DAF instead, nobody pays tax on that gain, and you can still deduct the full $50,000 if you itemize (within the usual limits, and as long as you’ve owned the shares for more than a year). The charity gets the full $50,000 instead of what’s left after the tax bill.
It also solves a problem a lot of retirees have run into. With today’s larger standard deduction, many people no longer itemize, which means their annual giving produces no tax benefit at all. A DAF lets you bunch several years of giving into one year, itemize that year, and then send grants out at your usual pace. It also fits a year when your income runs higher than usual, like the year you sell a rental property or do a large Roth conversion. A deduction is worth more in a high-income year, and the DAF lets you take it now and give later.
And there’s a legacy piece I care about. You can name your children as successors on the account, so the giving continues after you’re gone and becomes something the family does together. I like the thought of my kids continuing to exercise their generosity muscles long after I’m gone.
Two cautions. If you’re 70½ or older and give from your IRA, a qualified charitable distribution is usually the better tool, and IRA gifts can’t go into a DAF at all. More on that below. And if you don’t itemize, a modest direct gift may serve you better: starting this year, non-itemizers can deduct up to $1,000 of cash gifts to charity ($2,000 for married couples), but gifts to a DAF don’t count toward it.
The account has no minimums and carries an administrative fee that starts at 0.50% a year and steps down as the balance grows. Our standard advisory fee applies to it, the same as your other accounts with us. If you already have a DAF elsewhere, you now have another option. If you’d like it under the same roof, it can transfer in, though the other sponsor controls the timing and it can take six weeks or more.
If you’re thinking about a gift for 2026, let’s talk in November rather than the week after Christmas. Contributions have to be complete by December 31 to count this year, and moving shares takes some lead time. Reply to this email or give us a call, and we’ll help you figure out whether a DAF fits the way you like to give.
Roth Conversions - A Short Window
Some employers give you vacation days that vanish on December 31 if you don’t use them. Your lower tax brackets work the same way. Every January you get a fresh allotment of room in them, and whatever you don’t fill by year-end is gone for good.
A Roth conversion is how we use those days. You move money from a traditional IRA into a Roth IRA and pay income tax on it this year. From then on, it grows and comes out tax-free, and you’ll never be forced to withdraw it during your lifetime because they do not have Required Minimum Distributions like a 401(k) or IRA does.
Why pay tax before you have to? For many of our clients, the years between the last paycheck and the first required distribution are some of the lowest-income years of their adult lives. That window closes. At 73 (or 75, depending on your birth year), the IRS starts requiring withdrawals whether you need the money or not, and they stack on top of Social Security and any other income you may have. And if one spouse passes away, the survivor usually ends up filing as a single taxpayer, with much of the same income squeezed into narrower brackets. This is where people can get caught off guard by a meaningful jump in the tax rate. It’s one of the less charitable corners of the tax code. A grieving spouse can end up paying a higher rate on less income.
Then there’s the next generation. When your children inherit a traditional IRA, most of them will have to empty it within ten years, often during their own peak earning years and at their tax rates. A Roth comes out tax-free for you, and it stays tax-free when they inherit it. Converting is one of the few ways you get to choose whose tax bracket that money lands in. This is inter-generational planning that can save the family from avoidable tax bills. We do everything for these children, don’t we?
The reason to convert has shifted a little. Last year’s tax law made today’s brackets permanent, so we’re no longer converting because rates are scheduled to jump. The case now rests on the structure above, and that structure doesn’t depend on guessing what Congress does next.
Getting the size right is the whole ballgame. Convert too little and you leave cheap bracket space on the table. Convert too much and you trip wires that don’t appear on the tax table. Medicare premiums look back two years, so a large conversion this year can raise what you pay for Medicare in 2028. The new $6,000 senior deduction (per person age 65 and older, available through 2028) starts shrinking once income passes $75,000 for single filers or $150,000 for married couples. If you’re under 65 and buy coverage through Covered California, conversion income can cut into your premium subsidy too.
Two practical notes. A conversion has to be completed by December 31 to count for 2026. There’s no extending it into April the way you can with an IRA contribution. And once it’s done, it can’t be undone, so we’d rather run the numbers carefully in November than rush in the last week of December.
Over the coming weeks, we’ll be reaching out to clients about conversions. If you’d like to get to the front of the line, reach out to Kimberly at [email protected] or (925) 587-8883. She works with our advisors on exactly this kind of planning, and we’ll get you taken care of.
Qualified Charitable Distributions (QCD): Give Before You Take
If you’re 70½ or older and give to charity, your IRA may be a better checkbook than the one in your desk drawer. A qualified charitable distribution (QCD) sends money straight from your IRA to a charity, and it never shows up as income on your tax return. That means it helps whether or not you itemize. Once you’re taking required minimum distributions, it counts toward those too. For 2026, each IRA owner can give up to $111,000 this way.
Because a QCD keeps your income lower, it can also help with the things that key off your income, like Medicare premiums and the senior deduction mentioned above.
Like horses and carts, the order matters here. The IRS counts the first dollars out of your IRA each year toward your required distribution. So if you took your full RMD back in the spring and make a QCD in December, the December gift can’t reach back and make the spring withdrawal tax-free. You’ve already paid tax on it. Think of a QCD like a coupon at the grocery store. Hand it over before the cashier rings you up and it comes off the bill. Hand it over after you’ve paid and the store won’t give you the money back. And asking for a manager here won’t change anything. So make your QCDs first, then take whatever is left of your RMD. If you’ve only taken part of your RMD so far this year, a QCD can still cover the rest.
One rule catches people every year: a QCD has to go directly to the charity. It can’t go into a donor-advised fund, including the new one described above, or into most private foundations.
Charities move slowly in December, and the money has to leave your IRA by December 31. Please send us your QCD requests by the end of November so there’s time for everything to clear. And when tax season comes, make sure whoever prepares your return knows about your QCDs, so each gift gets reported as tax-free instead of as ordinary income. This is when it is reasonable to be vocal about the good you’re doing.
Social Security: A 3.6% Raise in January
Social Security announced on October 14 that benefits will rise 3.6% in 2027, up from 2.8% this year. For the average retiree, that works out to about $75 more a month, starting in January. You can read the announcement directly from Social Security.
A cost-of-living adjustment isn’t a raise in the sense of getting ahead. It’s Social Security catching your check up to prices you’ve already been paying for the past year.
The Medicare Part B premium for 2027 hasn’t been announced yet. It comes out of most people’s Social Security check, so if it rises, as it has in most years, part of this increase will go to cover it.
You’ll be able to see your exact new benefit in your my Social Security account starting in late November. If you’d like to see it online and don’t have an account yet, create one by November 18. Otherwise your notice arrives by mail in December. And for those still working, the maximum earnings subject to Social Security tax rises from $184,500 to $192,300 next year.
When you get those updates on your new figures, please send them to us to update our projections. A simple email works great, but feel free to upload the full Social Security statement to us using the Vault on Right Capital.
Max Out Your Savings: For Those Still Drawing a Paycheck
If you’re still working, there’s one year-end move that takes no analysis at all: fill up your retirement plan before December 31. This is where the cycling class instructor shouts too enthusiastically “5 minutes left!” and what it means is let’s see if we can challenge ourselves to save a little more. Here are the 2026 limits for the plans we see most often.
- 401(k), 403(b) and most 457 plans: $24,500. If you’re 50 or older, you can add $8,000 more. If you’re 60 through 63, that catch-up rises to $11,250.
- Traditional and Roth IRAs: $7,500, plus $1,100 if you’re 50 or older. You have until April 15, 2027 to make 2026 IRA contributions. (Roth IRAs have income limits. If you’re over them, ask us about potential workarounds.)
- SIMPLE IRAs: $17,000 for most plans, plus $4,000 if you’re 50 or older, or $5,250 if you’re 60 through 63.
- SEP IRAs and solo 401(k)s: if you’re self-employed, total contributions can reach $72,000 before catch-ups, depending on your income. Some of these deadlines run into next year, so check with us before assuming you’ve missed the window.
If you’re 60 through 63, pay attention to that larger catch-up. It’s a four-year window, and it closes the year you turn 64.
One change this year. If you earned more than $150,000 in wages from your employer in 2025, your 2026 catch-up contributions have to go into the Roth side of your plan. Your first $24,500 can still go in pre-tax. Only the catch-up portion changes. If your plan doesn’t offer a Roth option, you may not be able to make catch-up contributions at all, so it’s worth a quick email to HR.
You may only have a handful of paychecks left this year, and payroll often needs a cycle or two to process a change. If you’re not on pace to hit the limit, log into your plan this week and raise your percentage for the remaining checks. The IRS will announce the 2027 limits in the coming weeks, and we’ll pass them along.
Choose Wisely
In the books I read as a kid, the wrong choice usually ended with a cave-in on page 47. Year-end planning is more forgiving. Almost everything above is one short phone call with us, as long as that call happens in November instead of on December 30th.