2023 is rapidly coming to a close and with it there are things you can be doing right now to make smart moves with your money. We want to lay out some strategies and tips to help you make great year end money moves.
If you are charitably inclined, make sure to do a Qualified Charitable Distribution (QCD) from your IRA
A qualified charitable distribution (QCD) allows individuals who are 70½ years old or older to donate up to $100,000 total to one or more charities directly from a taxable IRA instead of taking their required minimum distributions. This helps to lower your RMD and reduces your tax bill. Do well by doing good this year!
Set up a Donor Advised Fund to lower your tax bill
A Donor Advised fund is an account that you fund with cash or appreciated stock that gives you a tax deduction for making the contribution. You invest the proceeds to let them grow and then make a donation to the charity or charities of your choice in the future. This is a great way to lower your tax bill while helping causes that matter to you. We have attached an article here that further discusses this concept if you are interested in using it before the end of the year.
Lump and Clump if you no longer itemize
Contributing to a Donor Advised fund helps you from a tax perspective if you itemize your deductions. But what if you no longer itemize now that the standard deduction is so much higher? “Lumping and clumping” your deductions is a strategy where you lump together your charitable contributions, donations and contributions to Donor Advised funds every 2-3 years in order to get a large enough deduction to itemize on your tax return. The downside to this is many people who are charitably inclined want to be able to give annually rather than every 2-3 years.
Do not forget to take your Required minimum Distribution by 12/31/2023
If you have not already taken your RMD now is the time to do it. You have until December 31st to get it done. If you do not take it during this calendar year you will be subjected to a penalty of 50% of the RMD amount. This is steep and easily avoided.
Make sure to Tax Loss Harvest in 2023
This has been another volatile year for the stock market, though much better than 2022. When markets are down you can take advantage of it by tax loss harvesting which is the process of selling an investment at a loss in order to get a tax benefit and replacing it with a similar investment to participate in the eventual market recovery. Around here we like to make lemonade out of lemons and that is what tax loss harvesting is. Each year you can reduce your Adjusted Gross Income by $3,000 by using your capital losses. You can carry them forward forever until they are used up. If you want a greater understanding of tax loss harvesting, click here.
The Tax Cuts and Jobs Act will be expiring in 2026 and with it, tax rates will be going up. You can shift money from a taxable bucket (your traditional IRA) to a tax-free bucket (The Roth IRA) and doing so in a lower tax bracket means your tax liability will be lower. The process of converting is a taxable event so make sure to pay attention to where you are within your tax bracket so as not to trigger an outsized tax bill.
Make sure to Max your 401(k) out for 2023
The 2023 401(k) maximum employee deferral is $22,500 and the catch-up contribution is $7,500 enabling you to contribute $30,000 for this year. It’s a wonderful tax savings so try to max it out if you can.
Adjust your 401k contribution amounts for 2024
As we think ahead to 2024 it’s a good time to be adjusting your retirement savings amounts for next year. For your employer sponsored retirement plan like a 401(k) the contribution amount has increased to $23,000 plus the catch-up contribution amount which has increased to $7,500 for a total contribution amount of $30,500 if you are over the age of 50. Make sure to adjust your payroll to account for the increase so you can take advantage of it.
Take advantage of the catch-up contribution amount if you turn 50 in 2024
If you are turning 50 in 2024 make sure to take advantage of the catch-up contribution amount for your 401(k) and IRA. In 2024, the 401(k) catch up provision enables you to contribute an additional $7,500 to your 401(k). For IRA’s, you can contribute an additional $1,000 if over the age of 50.
Even if you turn 50 later in the year, you can take advantage of the catch-up contribution amount as of January 1st. Take this into account when making your contributions and managing your cash flow for next year.
Max out your Roth IRA early in the year
It’s typically best to make your contributions early in the year and give yourself months of extra time for the investments to compound. Be ready to contribute in January if you can. This means having some extra cash on hand to make the contribution. You may need to watch your Christmas spending, but it will be worth it in the end!
Make sure to Max out your Health Savings Account
You can contribute up to the annual maximum amount to your HSA as determined by the IRS. Maximum contribution amounts for 2023 are $3,850 for self-only and $7,750 for families. The annual “catch-up” contribution amount for individuals aged 55 or older will remain $1,000.
Take advantage of the annual gift tax exclusion amount-make your gifts by December 31st
The annual gift tax limit is $17,000 per person for 2023. This means you can give $17,000 to your child and not have it count against your lifetime exclusion amount. If you are married, you and your wife can give a total of $34,000 per child and not have this reduce your lifetime exemption amount. Make sure to get the gift complete by December 31st. Next year, the annual gift tax limit will increase to $18,000.
Will you have a balance in your FSA before the end of the year?
If so, consider the following options your employer may offer:
Some companies allow up to $610 of unused FSA funds to be rolled over into the following year. Some companies offer a grace period up until March 15th to spend the unused FSA funds. Many companies offer you 90 days to submit receipts from the previous year. If you have a Dependent Care FSA, check the deadlines for unused funds as well.
Did you meet your health insurance plan's annual deductible?
If so, consider incurring any additional medical expenses before the end of the year, after which point your annual deductible will reset.
I encourage you to take this opportunity to implement some of the strategies we have laid out here. There are changes coming to the tax code and it’s important to use the current rules to your advantage. We will continue to monitor the proposed changes coming out of Washington and are here to help you navigate through them next year.
Enjoy the year-end festivities coming up and most importantly, enjoy some time with your family. If you have any questions about this or would like to explore it further, please do not hesitate to contact our office. We are happy to help you navigate year end planning strategies.
This commentary reflects the personal opinions, viewpoints and analyses of the Seaside Wealth Management, Inc. employees providing such comments, and should not be regarded as a description of advisory services provided by Seaside Wealth Management, Inc. or performance returns of any Seaside Wealth Management, Inc. client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Seaside Wealth Management, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.