A friendly reminder as we approach the end of the year to be aware of some key items for financial planning. Some have hard deadlines like December 31, or more realistically, December 29 this year. December 29 is really the last business day of the year for 2023. Don’t wait until the last week of December to start these items if they are applicable to you. Many professionals are overwhelmed at this time of year, people are on vacation, and some firms are not fully staffed, or are not taking on client requests. So, start early!
Max out qualified plan contributions. Max out your 401(k) plan contributions for 2023. You can increase payroll withholding to hit the $22,500 employee limit before year end. If you are over age 50, you can add another $7,500 catch-up contribution to that for a total of $30,000. Most companies these days have online access to allow you to increase your contributions, but you still need to do this while you have a pay period or two left.
Max out IRA contributions. In total you can contribute up to $6,500 for 2023 to your IRA (traditional and Roth). Folks over age 50 can contribute an extra $1,000 catch-up contribution. Remember, this is a cumulative total for all IRAs. So, if you have two or more IRAs, your total contributions across all IRAs cannot exceed the annual maximum contribution limit.
Review RMD distributions. If you have an IRA (or qualified workplace plan), and are old enough, you have a Required Minimum Distribution (RMD). You need to keep an eye on the calendar because if you take an RMD, you need to take it by December 31. If you just turned 73 this year and delay your RMD until April 1, 2024, keep in mind you will have two RMDs for 2024. If you are in the situation of already taking RMDs, be sure to do this by December 31 to avoid any costly penalties (25% of the amount you should have taken, plus tax). Of note, Roth IRAs have no RMD if the account owner is living.
Make charitable contributions by December 31. If you plan to take a tax deduction that is. Keep in mind that under the 2017 Tax Cut and Jobs Act, making that deduction is more of hurdle for some folks. You need to itemize, and you need to exceed the standard deduction ($13,850 for single filers, $27,700 for married filing joint, 2023) for the contribution to be deductible and have an impact. You can, and should, donate to your favorite charity even if you won’t make the deductibility limit. If you are close to these totals, you might want to consider bunching your contributions or a donor advised fund.
Tax-loss harvesting. If you have unrealized losses (i.e., you haven’t sold that underwater stock), consider selling by December 29, 2023 so you can take the loss to offset other gains or write-off $3,000 against ordinary income. Any remaining, unused loss gets carried over to subsequent years.
Fund that HSA. If you have a Health Savings Account, be sure to fund it to the max by the April 18, 2024 tax filing deadline to claim that deduction against 2023 income. The maximum is $3,850 (Single)/$7,750 (MFJ) for 2023.
Use that FSA balance – or lose it! If you have an FSA balance, use it on qualified purchases and medical procedures by December 31. You can carryover of up to $610 into 2024. Any more than that, if you don’t use it, you lose it. The funds go back to your employer’s plan. Check your plan specifics!
Line up tax preparation now. Whether you are filing on your own, or looking to hire a tax professional, now is the time to start. A little work on your part now will save you a lot of frustration during tax filing season. Start gathering receipts, research tax planning software, gather records such as property taxes paid, and create folders for these documents and for tax documents that start to arrive in January. If you need a tax preparer, now is the time to ask friends, family, colleagues, and advisers who they recommend. Get on the preparer’s radar now, before they get overwhelmed.
Set that holiday budget. Decide now how much you want to spend during this upcoming holiday season. If you made a budget at the beginning of the year, revisit that budget and make sure it’s still going to work for you. If it's not, now is the time to revise and course correct.
Review your goals. Take a look at what your goals were at the beginning of the year and see if you are on-track to meet them. If not, take some time to assess which goals are really important to you and which you still have time to act on.
There will likely be additional items on your personal list and Congress may pass last-minute legislation that affects financial planning and tax preparation. As always, if you are not sure, check with your financial planner to confirm the latest information. As an independent Certified Financial Planner™, I can help you with these and other updates. Contact me and let’s get started! #talktometuesday #education #Hireaplanner #stressfree #IRS #401k #403b #Roth #IRA #RothIRA #Tax #TaxFiling #yearend #HSA #FSA