Checklist: 5 Financial Decisions to Make Before The Year Ends

Before the year ends, consider these 5 financial, retirement and tax actions you may need to take before it’s either too late or very costly for your family. And if you have living parents in their 70s, make sure you cover these considerations with them this week. 

01 - Review Your Investments to Harvest Losses This Year

If you have investments in a taxable account (including cryptocurrency investments), you may want to consider selling off any losers to offset any gains you have made. Selling losses can help reduce your tax liability for the year, if you have any capital gains, and then you can carry forward investment losses to offset capital gains in the future. 

If you are sitting with cryptocurrency losses that you haven’t recognized yet because you haven’t sold your cryptocurrency due to wanting to stay in the market for when crypto goes back up, you can have the best of both worlds. Sell your cryptocurrency  now before the end of the year, and because the “wash sales” rules don’t apply to crypto tokens, you can buy the exact same tokens right back. In contrast,  with non-crypto investments, you’d have to wait 30 days to buy back into the same investment, in order to harvest non-crypto losses.

Once the year 2023 ends, you can no longer harvest losses to offset against 2023 capital gains.

02 - Contribute to a Retirement Account

If you have not yet reached your retirement account contribution limits for the year, you may want to consider contributing to a retirement account such as a 401(k) or traditional IRA. 

Highlights of changes for 2023

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan is increased to $22,500, up from $20,500.

The limit on annual contributions to an IRA increased to $6,500, up from $6,000. The IRA catch‑up contribution limit for individuals aged 50 and over is not subject to an annual cost‑of‑living adjustment and remains $1,000.

The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan is increased to $7,500, up from $6,500. Therefore, participants in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan who are 50 and older can contribute up to $30,000, starting in 2023. The catch-up contribution limit for employees aged 50 and over who participate in SIMPLE plans is increased to $3,500, up from $3,000.

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs, and to claim the Saver's Credit all increased for 2023.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or the taxpayer's spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor the spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase‑out ranges for 2023:

• For single taxpayers covered by a workplace retirement plan, the phase-out range is increased to between $73,000 and $83,000, up from between $68,000 and $78,000.

• For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is increased to between $116,000 and $136,000, up from between $109,000 and $129,000.

• For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the phase-out range is increased to between $218,000 and $228,000, up from between $204,000 and $214,000.

• For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.

The income phase-out range for taxpayers making contributions to a Roth IRA is increased to between $138,000 and $153,000 for singles and heads of household, up from between $129,000 and $144,000. For married couples filing jointly, the income phase-out range is increased to between $218,000 and $228,000, up from between $204,000 and $214,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.

The income limit for the Saver's Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $73,000 for married couples filing jointly, up from $68,000; $54,750 for heads of household, up from $51,000; and $36,500 for singles and married individuals filing separately, up from $34,000.

The amount individuals can contribute to their SIMPLE retirement accounts is increased to $15,500, up from $14,000.

03 - Required minimum distributions (RMD) and qualified charitable distributions (QCD)

If you have a traditional IRA and you (or your parents) are age 73 or older, you (or they) need to take an RMD for 2022 by the end of the year. 

If you are 72 in 2022, you have until April 1, 2023 to take your first RMD. Failing to take an RMD can result in a penalty of 50%. If you don’t need the income, consider converting your RMD into a qualified charitable distribution (QCD), which is a tax-free transfer directly from your IRA to a charity of your choice, up to $100,000 per year. 

You must take RMDs or make a qualified charitable distribution by December 31, 2023, or you’ll pay the 50% penalty. Don’t miss this one.

04 - Inherited IRA Required Minimum Distributions 

If you reached age 72 on or before December 31, 2022, you were already required to take your RMD and must continue satisfying that requirement.  However, if you had not yet reached age 72 by December 31, 2022, you must take your first RMD from your traditional IRA by April 1 of the year after you reached age 73.

Calculating the required minimum distribution

The required minimum distribution for any year is the account balance as of the end of the immediately preceding calendar year divided by a distribution period from the IRS’s “Uniform Lifetime Table.” Use a different table if the sole beneficiary is the owner’s spouse who is ten or more years younger than the owner.  The following can help determine the payout periods and the amount of your required distribution:

• worksheets to calculate the required amount

Note: Extra taxes for not taking RMDs

If you don’t take any distributions, or if the distributions are not large enough, you may have to pay a 50% excise tax on the amount not distributed as required.

05 - ROTH IRA Conversion

If you are considering converting to a Roth IRA, now may be a good time to do so, as tax rates are currently low and markets have come down from their previous highs.

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This article is a service of Legally Remote, PLLC, your local Gainesville, Florida, Personal Family Lawyer®. We do not just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That's why we offer a Legacy Planning Session™, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today! (352) 660-4021