We are nearing the end of 2023. What financial actions should you actually take before time runs out?
Luckily, financial planners spend the last few weeks of the year thinking about just that. We consulted some of them and created a list of six key financial steps to take by December 31st.
This advice ranges from saving for retirement to insurance coverage to smart tax planning.
Update the beneficiary on your 401(k) or life insurance policy.
A typical investment account or life insurance policy requires you to name a beneficiary, a loved one who will receive money when you die. For many of us, beneficiary designation serves as estate planning. Beneficiary designations are legally binding and determine what happens to most of your assets.
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Some people may not feel comfortable naming a beneficiary. Births, deaths, and family feuds can change the landscape of estate planning. The end of the year is a good time to look back.
“It’s a good idea to make sure your beneficiaries have up-to-date information on their investment accounts,” says Colin Day, a certified financial planner in St. Louis.
“It may not be the first thing people think of, but during the holiday season you’re going to be surrounded by your loved ones,” Day said. “This is a great reminder that you love and support these people, and that you want to make sure your hard-earned money gets to them if something were to happen.” Thing.”
Check your estate plan and insurance coverage
More broadly, the end of the year is a good time to review estate plans, powers of attorney, and insurance coverage. paul mendelsohna certified public accountant in Livingston, New Jersey.
“Do you have life insurance, long-term disability insurance, long-term care insurance?” Mendelsohn said. Long-term care insurance, perhaps the least known insurance of the three, helps cover the cost of assisted living and nursing facilities.
And don’t forget, Mendelsohn said that if one spouse has insurance through work, “it doesn’t apply to the other spouse.”
If you haven’t done so recently, it says, “schedule an appointment with an estate planning attorney to create or update your will, medical directives, and other legal documents.” Niv Persauda certified financial planner in Atlanta.
Make a Charitable Donation and Give a Gift
Philanthropy is a big part of my vacation. The IRS also allows you to deduct cash donations to qualified charities, up to 60% of your income in some cases.
Donations are tax deductible only if given to a recognized charity.you would do that Documentation is required for large donationssays NerdWallet.
And charitable donations only act as a tax dodge if you itemize your deductions instead of claiming the standard deduction at tax time. (Most of us don’t bullet points.)
“Charitable donations should be made by the end of the year if you want a deduction for 2023,” he said. Seth Benjamin Mullikina certified financial planner in Charlotte, North Carolina.
Mullikin says this season is also a great time to give financial gifts to loved ones.
“Individuals will be able to gift up to $17,000 per recipient in 2023 without filing a gift tax return,” he said.
Gift tax is a federal tax on the transfer of money or property to someone. Who does not give something of equal value in return?According to NerdWallet.
If you gift more than the $17,000 annual gift tax limit in 2023, you must report it to the IRS.
Make the most of your pre-tax retirement savings
December is a good time to “make sure you’ve maxed out your retirement plan contributions,” he said. Catherine Varegaa certified financial planner in Winchester, Massachusetts.
Tax-advantaged retirement accounts allow investors to save a portion of their income before taxes are deducted.
But there are limits. For an Individual Retirement Account (IRA), the annual contribution limit is $6,500, or $7,500 if you are over 50 years old.
For employer-sponsored 401(k) plans, employee contribution limits are even higher: $22,500, or $30,000 if you’re 50 or older.
These limits will increase in 2024. So now is also a good time to update payroll deductions and IRA contributions to reflect the new limits, he said. rob schultza certified financial planner in Encino, California.
Are you over 73 years old?Receive required minimum distributions to your retirement account
The required minimum distribution (RMD) is the amount you must withdraw from your IRA or 401(k) once you reach age 73.
“If you have not already done so, you must complete the required minimum distributions from your IRA by December 31st.” Devin Popea certified financial planner in Salt Lake City.
The IRS requires savers to begin withdrawing money from their retirement plans after reaching a certain age in exchange for tax benefits. RMDs are a way for tax authorities to take a cut from your retirement account.
Your financial advisor may be able to tell you how much you need to withdraw by the end of the year, or you can refer to your RMD table. If you fail to withdraw funds, you will be subject to 25% sales tax on the amount not withdrawn.
more:Half of Americans leave their FSA medical expenses on the table. Here are 10 ways to spend your time.
Harvest tax loss
The end of another year is an ideal time for an investment strategy called tax loss harvesting.
This technique is a tax-time staple for the wealthy, turning investment losers into tax winners.
You sell an investment that has declined, exchange it for a similar one, and use that loss to offset the gains you make from selling other investments.
“If you have a harvest tax loss, let’s take advantage of it,” Mullikin said.
Recovering losses may reduce your taxable capital gains. You can also reduce your taxable “ordinary income” (such as wages) by up to $3,000.
Answers to other questions about the 2024 tax season
The IRS has announced new tax numbers for 2024. What does this mean to you?
With a flood of new funds, the IRS will focus on taxes for the ultra-wealthy
Need a new tax strategy? These money-saving tips for December 31st may help line your pockets
Your best payday may come before your 2023 tax return.Apply early to get your refund faster
Should you pay someone to do your taxes for you or do it yourself? We can help you decide.
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Daniel de Visse covers personal finance.Don’t forget to subscribe for free daily money newsletter Get personal finance tips and business news every Monday through Friday morning..