As the year comes to a close, it’s time to turn your attention to your tax and retirement planning. With the tax deadline well behind us, accountants have more availability for tax-planning meetings. This is an opportune time to reflect on the year and make any necessary changes to your financial strategy. You can start by checking off these seven year-end financial tasks.
1) Tax-loss harvesting
Take the time to analyze your portfolio and determine if you can offset taxable income by harvesting any capital losses. Additionally, investigate if you have any tax-loss carryforwards that can potentially lower your 2023 tax bill. Consulting with your financial adviser can shed light on whether tax-loss harvesting is a viable option.
2) Contributions to pre-tax retirement
Next, review your contributions to pre-tax retirement accounts such as 401(k)s, 403(b)s, and SIMPLE IRAs. Double-check that you are on track to maximize your contributions. If you are 50 years or older, you may be eligible to contribute an additional catch-up amount. While the deadline for these accounts is December 31, you have until April 15, 2024 (and potentially until October 15 with an extension) to make traditional, Roth, and SEP IRA contributions.
3) Roth conversion
Have you considered converting your traditional IRA to a Roth IRA? It can be a smart financial move. Roth IRAs come with benefits such as exemption from required minimum distributions (RMDs) and tax-free withdrawals. Evaluating whether a Roth conversion aligns with your financial goals is crucial, and if you wish to make the conversion for the 2023 tax year, it must be completed by December 31. It’s important to note that you will have to pay taxes on the amount being converted.
4) Reevaluate your accounts
Reevaluate how much risk you’re willing to take. Life and career changes throughout the year may have significantly impacted your optimal level of risk tolerance. An annual review with your financial adviser can help determine if adjustments to your portfolio are necessary to align with your new risk tolerance.
Additionally, don’t forget to review your RMDs (required minimum distributions). If you turn 73 this year, it’s imperative that you begin taking RMDs. Failing to do so on time can result in significant tax penalties. Ensuring compliance with RMD requirements is one of the most critical tasks to complete before year-end.
6) Charitable donations
Explore strategies for making charitable contributions that maximize impact while minimizing taxes. To avoid capital gains tax, donate appreciated stock instead of cash. Another option is making a qualified charitable distribution (QCD) to fulfill your RMD. Lastly, opening a donor-advised fund allows you to take a tax deduction for your contributions while enjoying tax-free growth.
7) Investments for your children
Finally, if you plan to contribute to investment accounts for your children, now is an ideal time to ensure they are funded adequately. Consider options such as custodial Roth IRAs, which offer tax-free growth and tax-free withdrawal of contributions. Alternatively, 529 college savings plans provide high contribution limits with tax-free withdrawals for qualified education expenses.
With multiple items on your year-end financial checklist, it can undoubtedly feel overwhelming. Relying on your tax accountant and financial adviser for guidance is crucial during this time. They can help you navigate the choices that suit your unique situation and steer you toward a solid financial strategy.