​Seasons Greetings from the Financial Planning Team at HoyleCohen. Working towards financial wellness is often top of mind when setting New Year’s resolutions. With rising inflation and an uncertain economic and political climate looming it can make it difficult to plan for the future. Here are some important items to check so that you can begin the new year with peace of mind. 

To download the full checklist, click here.

INCOME TAX & CURRENT EMPLOYMENT

Review your tax withholdings. Have you had a major life change (employment change, marriage, divorce, a new child) that affects your income tax? Check to make sure your tax withholdings have been properly adjusted. Having low withholdings can lead to tax penalties while having too high of withholdings prevents you from accessing your money until your tax return is filed.

Estimate your AGI. Determine your adjusted gross income (AGI) with the help of your tax advisor. Your AGI will help determine your tax bracket, which you’ll need for investment and retirement planning.

Estimate your AMT. Determine whether you will be subject to the Alternative Minimum Tax (AMT) and if there are ways to mitigate your AMT liability.

Select next year’s employer benefits. Open enrollment is typically in December if you’re employed. Consider taking advantage of all available options, including a flexible spending account, health savings account, life insurance and more.

GIVING

Donate with a QCD. For instance, investors who are at least age 70½ can use a qualified charitable distribution (QCD). A QCD allows these investors to take up to $100,000 out of a traditional IRA to donate directly to a qualified charity. This charitable donation can also satisfy your Required Minimum Distribution (RMD), if desired. The benefit of a QCD is twofold, allowing investors to meet RMD requirements and avoid taxes on otherwise taxable distributions, while also fulfilling charitable-giving objectives. 

***Note the QCD amount must be noted directly on your tax form and labeled as such. Additionally, the donor must get a written acknowledgment of their contribution from the charitable organization, before filing their return.

Donate to charity to reduce taxes. When you donate cash to a public charity, you can generally deduct up to 60% of your adjusted gross income. Provided you’ve held them for more than a year, appreciated assets including long-term appreciated stocks and property are generally deductible at fair market value, up to 30% of your adjusted gross income. Combining more than one type of asset can be a tax-efficient move to maximize the amount that you can take as a charitable tax deduction.

Reduce your estate through gifts. You are permitted to give up to $17,000 ($34,000 for married couples) a year per recipient as an untaxed gift. Gifts above this value will consume part of your lifetime gift/estate tax exemption amount ($12.92 million per person in 2023 and is expected to return to approximately $7 million in 2026). If a gift directly funds education tuition or pays for qualified medical expenses, it will go untaxed no matter what the value.

Consider establishing a Donor-Advised Fund (DAF). A donor-advised fund (DAF) is a charitable investment account created to exclusively support the charitable organizations you hold dear. When you contribute securities, cash, or other assets to a DAF, you can typically claim an immediate tax deduction. You maintain control of the management of the donated funds, and any subsequent growth is tax-free. You can also distribute grants to any eligible IRS-qualified public charities.

RETIREMENT ACCOUNTS

If you are retired, make sure you have taken all necessary required minimum distributions (RMDs). RMDs may be one of the most important items to review when going over your finances at the end of the year. The SECURE Act 2.0 raised the age that you must take your first required minimum distribution to 73, effectively starting in 2024. The RMD age was 72 in 2022, so, if you turn 72 in 2023 you will reach your RMD start age next year (2024). In other words, if you were born in 1950 or earlier, you are required to take an RMD in 2023, while those born in 1951 or later are not subject to an RMD in 2023.

RMDs generally must be completed during each calendar year, by December 31st. Failure to take a RMD can trigger a tax penalty. A 25% tax penalty applies to the amount NOT distributed on time (aka the “undistributed portion” that failed to be distributed is penalized). To learn more about RMD’s click here.

Consider converting a traditional IRA to a Roth IRA. Is your taxable income lower this year than in previous years? It may be a good time to convert a portion of your traditional IRA to a Roth IRA and pay your taxes at a lower rate. The ability to make direct Roth IRA contributions are subject to income limitations, while Roth conversions are not. Your advisor can help you determine if a Roth conversion makes sense for you.

Max contributions and phase-out ranges to an IRA and employer retirement plan. Both IRAs and 401(k)s have annual contribution limits. This year (2023) the contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan increased to $22,500; the additional catch-up contribution limit for plan participants who are 50 or older increased to $7,500 ($30,000 total). Limits on contributions to traditional and Roth IRAs increased to $6,500 (the IRA catch-up contribution limit remains at $1,000 for a total of $7,500 if you are over 50).

If you find you have excess savings and have not reached your retirement account annual limits, it may be a good idea to make additional contributions. Similarly, you may also consider making greater monthly contributions to your retirement accounts next year. If you are married filing jointly, each spouse can contribute up to $6,500 for 2023 (plus the $1,000 catch-up contribution limit for those 50 or older), even if one spouse has no earned income (if the working spouse has income equal or greater than both contributions). The deadline for IRA contributions is usually April 15 of the following year, though this may vary; 401(k) deadlines may be restricted to the calendar year, depending on your employer.

Income (MAGI) phase-out ranges for 2023:

Traditional IRA contributions income phase-out ranges for 2023:

FAMILY

Check your flexible spending account (FSA). The government only permits a $610 annual rollover in an FSA (2023); any excess funds disappear if unused by the end of the year. (Some employers offer a 2.5-month grace period instead of allowing FSA rollovers). If you have extra money in your FSA, you may want to schedule necessary medical or dental procedures before the end of the year.

Check your health savings account (HSA). HSA funds don’t disappear at the end of each year like with an FSA and they are a great way to stash money for medical-related needs in retirement if you are eligible. If you haven’t maxed yours out this year, now is a good time to consider if this is beneficial for you – alternatively, you may consider reducing contributions if your account has reached a comfortable amount and you know of better uses for your money. For 2023, HSA contribution limits are $3,850 for individuals and $7,750 for family coverage. Those age 55 or older can contribute an additional $1,000 catch-up contribution.

Consider contributions to a 529 plan to fund your children’s or grandchildren’s education. 529 Plans allow for you to make contributions to a tax-free account that may be used to pay for qualifying education expenses. (Investors should consider investment objectives, risks, and costs associated with 529 plans before using them).

Consider a Roth IRA for children or grandchildren. The favorable tax treatment and flexibility of Roth IRAs make them an excellent tool to provide the young people that you care about with a head start in life. While there is no age restriction for the child, they must have earned income equal to or greater than the amount of the contribution for the year.

Review estate documents and insurance policies. Take some time to ensure that your estate planning documents accurately reflect your wishes, including beneficiaries, financial and medical powers of attorney, living wills, and that your assets are properly titled. It’s also wise to review your insurance policies to confirm that you have the appropriate coverage..

Tell your advisor about any major life events. As time passes and life events unfold, it’s crucial to inform your advisor about significant life changes. It’s also important to periodically review your financial plan and portfolio with your advisor to ensure they are appropriately updated. Major life events such as weddings, divorces, births, deaths, career changes, retirement, and relocations can all have a substantial impact on your financial plan, so please keep us informed.

INVESTMENTS

Consider tax-loss harvesting to lower taxes on capital gains. Losses realized this year by the sale of positions that are down can offset capital gains that are realized this year. If the realized losses exceed the amount of realized capital gains for the year, the excess amount can reduce taxable income up to $3,000. If you have excess realized losses beyond that $3,000, you can carry forward the remaining amount to offset ordinary income and capital gains in future years (up to $3,000 per year).

Check to make sure you did not make (or plan on making) any “wash sales.” A wash sale is the sale of an asset followed by a repurchase of a substantially identical asset within 30 days. The IRS disallows capital losses on wash sales; if you have already made a wash sale, do not plan on the capital losses being available.

Check to see when you last rebalanced your portfolio. We recommend reviewing your investment accounts and their allocation at least annually, up to a maximum of quarterly.

BOTTOM LINE

Financial reviews don’t have to take a lot of time and can actually be fun to discuss as a family. Looking back over the years at how far you’ve come and the progress you’ve made is one of the most satisfying feelings you can experience. The small steps that you’ve taken are now starting to form a larger picture that brings you closer towards your retirement and investment goals. Whether it be enriching your life, your family, or your community, make it a habit to take some time at the end of each year to review and plan for the coming year.

If you have questions about how these changes might affect you and your financial plans don’t hesitate to reach out to an advisor today!

Disclaimer: HoyleCohen is a fiduciary acting on behalf of our clients. We are a fee-based investment advisor and do not receive commissions for any investment strategies or products that may be discussed. This information is intended for informational purposes only. No decisions regarding investment strategies should be made based solely on this information and it should not be interpreted as investment advice. Any investment decisions should be discussed with your Advisor. Finally, all investments carry the risk of loss, including the permanent loss of principal and past performance is not a guarantee of future results.