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How to Set Yourself up for Success for 2023 Thumbnail

How to Set Yourself up for Success for 2023

By Dan Miller, CFP®

The end of the year is fast approaching, which brings about a number of planning opportunities and issues to discuss. Potential areas to consider include tax planning, investment and retirement accounts, charitable giving, cash flow and savings, insurance, and estate planning.

Now is a great time to take a look at your whole financial picture, and see what opportunities and threats lie ahead for the next year.

What are your goals for the next year? Do you want to go on vacation to Mexico? Buy a new house?

What things put you at risk in the next year? Will you be in a higher tax bracket? Do you have a big expense coming up?

We will cover several issues that are important for people to consider prior to year-end in order to stay on track. For the full checklist, Download Here.

Asset & Debt Issues

Do you have unrealized investment losses in your taxable accounts? It’s been a down year, so a lot of people could potentially have this opportunity. If you do, consider realizing losses to offset any gains and write off $3,000 against ordinary income.

Do you have investments in taxable accounts that are subject to end-of-year capital gain distributions? If so, talk to your tax professional to come up with strategies to minimize tax liability.

Are you 72 or older, or are you taking an RMD from an inherited IRA? If you are, you have a few things to consider:

  • RMDs from multiple IRAs can generally be aggregated; however, RMDs from inherited IRAs can’t be aggregated with traditional IRAs.
  • RMDs from employer retirement plans generally must be calculated and taken separately, with no aggregation allowed. However, 403(b) plans are an exception, and RMDs from multiple 403(b)s can be aggregated.

Tax Planning 

Do you expect your income to increase in the future? If so, consider the following strategies to minimize your future tax liability:

  • Make Roth IRA and Roth 401(k) contributions and Roth conversions.
  •  If offered by your employer plan, consider making after-tax 401(k) contributions.
  • If you are age 59.5 or over, consider accelerating traditional IRA withdrawals to fill up lower tax brackets.

Do you expect your income to decrease in the future? If so, consider strategies to minimize your tax liability now, such as traditional IRA and 401(k) contributions instead of contributions to Roth accounts.

Do you have any capital losses for this year or carryforwards from prior years? If so consider the following:

  • There may be opportunities to take offsetting gains.
  • You may be able to take the loss or use the carryforward to reduce your ordinary income by up to $3,000.

Are you charitably inclined and want to reduce taxes? If so, consider these options:

  • Explore tax-efficient funding strategies, such as gifting appreciated securities or making an ACD.
  • If you expect to take the standard deduction ($12,950 if single, $25,99 if MFJ), consider bunching your charitable contributions every few years which may allow itemization in specific years.

Will you be receiving any significant windfalls that could impact your tax liability such as an inheritance, stock options, or bonus? If you are, review your tax withholdings to determine if estimated payments may be required.

Do you own a business? If so, consider the following:

  • If you own a pass-through business, consider the QBI Deduction eligibility rules.
  • Consider the use of a Roth vs. traditional retirement plan and its potential impact on taxable income and Qualified Business Income.
  • If you have business expenses, consider if it makes sense to defer or accelerate the costs to reduce overall tax liability.
  • Many retirement plans must be opened before year-end (if you follow a calendar tax year).

Have there been any changes to your marital status? If there is a change, consider how your tax liability may be impacted based on your marital status as of December 31st.

Cash Flow 

Are you able to save more? If that is possible, consider these things:

  • If you have an HSA, you may be able to contribute $3,650 ($7,300 for a family) and an additional $1,000 if you are age 55 and over.
  • If you have an employer retirement plan, such as a 401(k), you may be able to save more but must consult with the plan provider as the rules vary as to when you can make changes.
  • The maximum salary deferral contribution to an employer plan is $20,500, plus the catch-up contribution if age 50 or over is $6,500 per year.

Do you want to contribute to a 529 account? If so, consider the following:

  • You can use your annual exclusion amount to contribute up to $16,000 per year to a beneficiary’s 529 account, gift tax-free.
  • Alternatively, you can make a lump sum contribution of up to $80,000 to a beneficiary’s 529 account and elect to treat it as if it were made evenly over a 5-year period, gift tax-free.

Insurance Planning

Will you have a balance in your FSA before the end of the year? If so, consider the following options your employer may offer:

  • Some companies allow up to $570 of unused FSA funds to be rolled over into the following year.
  • Some companies offer a grace period up until March 15th to spend the unused FSA funds.
  • Many companies offer you 90 days to submit receipts from the previous year.
  • If you have a Dependent Care FSA, check the deadlines for unused funds as well.

Did you meet your health insurance plan’s annual deductible? If so, consider incurring any additional medical expenses before the end of the year, after which point your annual deductible will reset.

Estate Planning

Have there been any changes to your family, heirs, or have you bought/sold any assets this year? If so, consider reviewing your estate plan.

Are there any gifts that still need to be made this year? If so, gifts up to the annual exclusion amount of $16,000 (per year, per done) are gift tax-free.

In Conclusion

No one likes to look back and say, “I wish I would’ve taken advantage of that.” In order to not have regrets, timely planning is necessary. Don’t miss out on some of the end-of-year planning opportunities that are available to you now. Talk to your financial professionals and CPAs in your network about how to set yourself up for success next year.

If you’d like to download the full End-of-Year Planning Checklist, go HERE. Print it out and give it to the financial professionals you work with, so they can make sure you are taking advantage of the opportunities in front of you.

Daniel S. Miller, Kaleb Robuck, and Marcus Taylor are investment adviser representatives of, and securities and advisory services are offered through, USA Financial Securities Corp. Member FINRA/SIPC. A Registered Investment Advisor located at 6020 E Fulton St., Ada, MI 49301. Miller Financial Group and Milestone Financial Group, Inc. are not affiliated with USA Financial Securities Corp.