2023 Year-End Planning Reminders

As the year comes to a close, it's essential to review your financial strategies and take advantage of various tax planning opportunities designed to optimize your savings and minimize your tax liability. In this blog post, we highlight some year-end tax planning reminders to ensure you are well-prepared for the upcoming tax season. Let's explore some critical points to consider as 2023 draws to a close.

1. Review Your Income and Expenses

Begin by evaluating your income and expenses for the year. Understanding your cash flow will empower you to make strategic decisions regarding deductions and credits, potentially reducing your taxable income.

2. Contribute to Retirement Accounts

Maximize your contributions to retirement accounts, such as 401(k)s and IRAs before the year-end deadline. This action can help secure your financial future and can also help lower your taxable income for the current year.

Be mindful of the contribution limits for Qualified Plans in 2023. The current IRA maximum is $6,500 (plus a $1,000 catch-up if over age 50), and 401(k) limits are $22,500 (plus a $7,500 catch-up if over age 50).

Looking ahead to 2024, contribution limits increase to $23,000 for 401(k)s and $7,000 for IRAs.

3. Roth Conversion

The deadline to convert from a Traditional to a Roth IRA for the 2023 tax year is December 31st. A Roth Conversion is a strategy to move retirement funds from a pre-tax IRA or 401(k) to a Roth IRA and pay the income tax on the amount converted to Roth IRA now.

You should consider a Roth Conversion if:

• You believe your tax bracket will be higher in retirement.
• You want to maximize your estate for your heirs.
• Your accounts are diversified by tax treatment.
• You have irregular income streams and lower than usual income this year.

There is more to consider regarding a Roth Conversion, and you may NOT wish to employ this strategy if:

• You’re nearing or in retirement and need your Traditional IRA to cover your living expenses.
• You’re currently receiving Social Security or Medicare benefits.
• You don’t have money to pay the conversion tax.
• You plan on giving a substantial amount of your IRA to charity using a Qualified Chartable Distribution (QCD).

4. 529 Contributions

For Virginia residents, take advantage of the up to $4,000 state tax deduction per Virginia 529 account. Contributions must be made by December 31st. If you are a Virginia resident and age 70 and above, you may deduct the entire amount contributed to a Virginia 529 account this year on your Virginia income tax return.

5. Health Savings Account (HSA)

If you are on a qualifying high-deductible Health Insurance Plan, an HSA is a great way to minimize your taxes. The IRS contribution limits for HSAs in 2023 are:

• $3,850 for single coverage,
• $7,750 for family coverage,
• An additional $1,000 catch-up contribution for accountholders aged 55 or older.

Contributions for 2023 can be made until April 15, 2024.

6. Required Minimum Distributions (RMDs)

If you are over the age of 73 or are the beneficiary of an inherited IRA before 2019, you must take the RMD from your account before the end of each calendar year.

7. Tax Loss Harvesting

This year presents an excellent opportunity for tax loss harvesting. If eligible, consider harvesting losses before the year-end. Joint filers may deduct up to $3,000 ($1,500 for singles) in losses each year.

8. Gifting

For 2023, there is no gift tax liability on gifts of money or property up to $17,000 per recipient. For joint gifts made by a married couple, the limit is doubled to $34,000. Gifts must be made by December 31^st to have the 2023 gift tax exemption amount applied.

As you navigate the complexities of year-end tax planning, remember that preparation and informed decision-making are key. By proactively addressing these important reminders and working closely with your financial advisor, you can make the most of your financial resources and set the stage for a successful financial future. Don't hesitate to reach out if you have any questions or need assistance. Here's to a financially secure and prosperous year ahead!

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of the author and are not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

RMD's are generally subject to federal income tax and may be subject to state taxes. Consult your tax advisor to assess your situation.

Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.

Neither Raymond James Financial Services nor any Raymond James Financial Advisor renders advice on tax issues, these matters should be discussed with the appropriate professional.

Investors should consider, before investing, whether the investor's or the designated beneficiary's home state offers any tax or other benefits that are only available for investment in such state's 529 savings plan. Such benefits include financial aid, scholarship funds, and protection from creditors. As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also a risk that these plans may lose money or not perform well enough to cover education costs as anticipated. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents. The tax implications can vary significantly from state to state.

Like Traditional IRAs, contribution limits apply to Roth IRAs. In addition, with a Roth IRA, your allowable contribution may be reduced or eliminated if your annual income exceeds certain limits. Contributions to a Roth IRA are never tax deductible, but if certain conditions are met, distributions will be completely income tax free.

Contributions to a traditional IRA may be tax-deductible depending on the taxpayer's income, tax-filing status, and other factors. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty.