Fall Planning for Your Equity Compensation

As fall arrives, the change of seasons can be an ideal time to revisit your financial plans with fresh perspective. Ask yourself: What goals do you still need to tackle this year? And which ones do you want to pursue next year?

For your finances, there are a number of moves you can make to help set yourself up for success for the next year and beyond.

Revisit Your Asset Allocation

The end of the year is a good time to revisit your investment strategy and asset allocation to help ensure your portfolio is still apportioned among stocks, fixed income, cash and other asset classes in a way that fits your goals and risk tolerance. 

In periods of uncertainty, active management strategies, where portfolio managers aim to identify potential outperformers and manage risk, may outperform passive investment strategies that track an index.  (An investment cannot be made directly in a market index.) 

This is also an opportunity to make sure your equity compensation is a part of the conversation when it comes to your overall portfolio, and that you are folding your company stock shares into your overall financial strategy.

Plan for Tax Season

Whether or not you live in a state with high taxes, consider how minimizing the impact of taxation on your portfolio (including equity compensation) can help you build and sustain your wealth over time. For example, a tax-aware asset location strategy, which accounts for differences in the way different types of accounts are taxed, may help increase after-tax returns. And, for taxable accounts, a strategy known as tax-loss harvesting can help minimize taxes owed from capital gains. Speak with your tax advisor about which strategies may be most appropriate for your individual tax situation.

If you’re not doing so already, consider fully funding your employer-sponsored retirement plan, such as a 401(k), since your contributions can be made on a pretax basis. In 2024, you can save up to $23,000 through your 401(k) plan, with up to $7,500 in additional contributions if you are age 50 or older. In addition, for the 2024 tax year, you can save up to $7,000 in an individual retirement account (IRA), plus an additional $1,000 if you are age 50 or older.¹

Update Your Estate Plan

It’s important to consider periodically updating your wills and other estate planning documents, and year-end can be a good time to review the changes the past year brought to your family—as well as your overall estate plan—to make sure it still reflects your situation and objectives.

If you’re planning to give financial gifts to family members, keep in mind that there is an annual gift tax exclusion limit of $18,000 for 2024 ($36,000 for couples) and look to make those gifts before year-end. Though the federal estate tax deduction rose to $13.61 million per person in 2024, individual states often have lower exemptions. Given that, you may want to share some of your estate with your family today to help them with their own finances. Ideas you might want to consider include providing for education expenses for family members through a 529 plan or direct gift to an institution.² 

Consider Investing With Impact

Year-end may also be a good time to examine how well your overall portfolio—again, including your equity compensation—aligns with your personal values. For investors concerned about issues such as climate change, gender equality and access to education, investing in companies that lead in environmental, social and governance best practices can help them seek to generate positive financial returns while also driving positive change on the issues they care about.³ 

Plan Your Charitable and Holiday Giving

During the holidays, many feel the call to give back through charity. When making your gifting plans, you need to also decide whether you want to give cash or appreciated securities, or volunteer your time.

Another option for giving back is through a donor-advised fund,⁴ which provides potential tax advantages while helping you support your favorite causes. Otherwise, if you’re more interested in creating a more substantial structure and commitment, you might want to consider a family foundation in which you engage your family members in the philanthropy as well.

Before you wind down the year by buying gifts for everyone on your list, consider first setting a budget for planned year-end spending. And if you’re looking to make any money moves, update your investment strategy, or simply want access to additional insights on your financial planning choices, your Executive Services Relationship Manager can help—and even connect you to additional choices offered through a Morgan Stanley Financial Advisor.⁵

Footnotes:

1. IRS.gov – Retirement Topics – IRA Contribution Limits. 

2.  Investors should consider many factors before deciding which 529 plan is appropriate. Some of these factors include: the Plan’s investment options and the historical investment performance of these options, the Plan’s flexibility and features, the reputation and expertise of the Plan’s investment manager, Plan contribution limits and the federal and state tax benefits associated with an investment in the Plan. Some states, for example, offer favorable tax treatment and other benefits to their residents only if they invest in the state’s own Qualified Tuition Program. Investors should determine their home state’s tax treatment of 529 plans when considering whether to choose an in-state or out-of-state plan. Investors should consult with their tax or legal advisor before investing in any 529 plan or contact their state tax division for more information. Morgan Stanley Smith Barney LLC does not provide tax and/or legal advice. Investors should review a Program Disclosure Statement, which contains more information on investment options, risk factors, fees and expenses, and possible tax consequences.

Assets can accumulate and be withdrawn federal income tax-free only if they are used to pay for qualified education expenses, including tuition, fees, room and board, books and supplies.  Earnings on nonqualified distributions will be subject to income tax and a 10% federal income tax penalty tax. State taxes may apply.

If an account owner or the beneficiary resides in or pays income taxes to a state that offers its own 529 college savings or prepaid tuition plan (an “In-State Plan”), that state may offer state or local tax benefits. These tax benefits may include deductible contributions, deferral of taxes on earnings and/or tax-free withdrawals. In addition, some states waive or discount fees, or offer other benefits for state residents or taxpayers who participate in the In-State Plan. An account owner may be denied any or all state or local tax benefits or expense reductions by investing in another state’s plan (an “Out-of-State Plan”). In addition, an account owner’s state or locality may seek to recover the value of tax benefits (by assessing income or penalty taxes) should an account owner roll over or transfer assets from an In-State Plan to an Out-of-State Plan. While state and local tax consequences and plan expenses are not the only factors to consider when investing in a 529 plan, they are important to an account owner’s investment return and should be taken into account when selecting a 529 plan.

Tax laws are complex and are subject to change. This information is based upon current tax rules in effect at the time this was written. Morgan Stanley Smith Barney LLC and its Financial Advisors do not provide tax or legal advice. Individuals should always check with their tax or legal advisor before engaging in any transaction involving 529 plans, Education Savings Accounts, trust and estate planning, charitable giving, other tax-advantaged investments, and other legal matters.

Investments in a 529 plan are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so an individual may lose money.

3. Investing in the market entails the risk of market volatility. The value of all types of investments may increase or decrease over varying time periods. The returns on a portfolio consisting primarily of sustainable or impact investments may be lower or higher than a portfolio that is more diversified or where decisions are based solely on investment considerations. Because sustainability and impact criteria exclude some investments, investors may not be able to take advantage of the same opportunities or market trends as investors that do not use such criteria.

4. The Morgan Stanley Global Impact Funding Trust, Inc. (MS GIFT) is an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended that sponsors a donor advised fund program. MS Global Impact Funding Trust (MS GIFT) is a donor advised fund. Back office administration is provided by RenPSG, an unaffiliated charitable gift administrator. While we believe that MS GIFT provides a valuable philanthropic opportunity, contributions to MS GIFT are not appropriate for everyone. Other forms of charitable giving may be more appropriate depending on a donor’s specific situation. Of critical importance to any person considering making a donation to MS GIFT is the fact that any such donation is an irrevocable contribution. Although donors will have certain rights to make recommendations to MS GIFT as described in the Donor Circular & Disclosure Statement, contributions become the legal property of MS GIFT when donated. 

Although the statements of fact and data herein have been obtained from, and are based upon, sources that the firm believes to be reliable, we do not guarantee their accuracy, and any such information may be incomplete or condensed. This material does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The strategies and/or investments discussed in this material may not be appropriate for all investors.

Morgan Stanley Smith Barney LLC recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a Financial Advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Asset allocation and diversification do not guarantee a profit or protect against a loss. Investing in the market entails the risk of market volatility. The value of all types of investments may increase or decrease over varying time periods.

Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice. Clients should consult their tax advisor for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning, charitable giving, philanthropic planning and other legal matters.

5. Eligibility requirements may apply and certain products and services are not available to all clients.

The source of this Morgan Stanley article, Fall Financial Tips: Planning for the New Year, was originally published in August 2023