7 Smart Year-End Money Moves

I bet if I asked you for a list of things you’re looking forward to during the upcoming Holiday season, tackling a list of personal finance items would not appear in your top 10. Or top 100 for that matter. That’s why I like to send out our year-end Friday Brief early in the fall. As I write this, there are sixty-five days left in 2023. That should give you plenty of time to get through your list, and if you start now, you’ll be done in time to kick back, relax, and enjoy the Holidays. With that in mind, here’s a quick list of seven things you might consider doing before 2023 draws to a close.

1. Check your workplace retirement plan contributions: Now is a great time to ensure that you’re on track to contribute your planned amount to your 401(k), 403(b) or other retirement plan.  At a minimum, that should be up to the amount your employer matches. The current annual limit for 401(k)s and 403(b)s, effective through the end of 2023, is $22,500 for anyone under 50. If you’re over age 50 and participate in one of the above retirement plans you can take advantage of the $7,500 catch-up provision that raises your annual contribution limit to $30,000 for 2023.  If you happen to participate in a SIMPLE IRA, the contribution limit for 2023 is $15,500. Those 50 or older can save an additional $3,500 as a catch-up contribution. The IRS will announce the limits for 2024 soon – we’ll keep you posted.

2. Take your annual Required Minimum Distribution (RMD): If you’re 72 or older (73 if you reach age 72 after Dec. 31, 2022) and own a traditional IRA , 401(k) or 403(b), there’s a very good chance that you’ll need to take a Required Minimum Distribution from your account by year end. The penalty for failing to do so is a 50 percent tax on what should have been withdrawn so pay attention. The rules on this continue to get more and more complex so I won’t try to outline them here. If you’re a Beacon client and haven’t yet taken your 2023 RMD, we’ll be in touch shortly. Not yet a Beacon client? Let us know if you have questions about your RMD situation. We’re here to help.

3. Review your charitable giving strategy: If you’re charitably inclined and usually give cash directly to your charitable organization of choice it may make sense to consider one of the following options:

Donate appreciated shares of stock instead of cash: If you donate stock that has increased in value since you bought it more than a year ago – and if you itemize deductions — you can take a charitable deduction for the stock’s fair market value on the day you give it away. And your favorite charity or donor advised fund can turn around and sell those shares immediately and tax free and use the proceeds to carry out their mission.  You can even give shares of a stock away and immediately use the cash you would have given to charity to buy back the same number of shares in the same stock!  Doing so means you’d potentially reduce the tax bill due when you sell your shares in the future. This can also be a great strategy if you own a stock that has appreciated in value and you’re ready to sell it or even just want to reduce your exposure but don’t want to pay taxes on the appreciation.

Donate your RMD from your IRA directly to charity: It’s called a qualified charitable distribution (QCD) and it’s basically a tax-free donation made directly from your traditional IRA to a qualified charity. Why would you want to do this? Gifts given via QCD are not included in your adjusted gross income and, since QCDs can count towards your annual RMD, your gift could give you a tax break even if you don’t itemize your deductions -which has become more common with the recent tax law changes!  Plus, by lowering your adjusted gross income, you could potentially lower the taxable portion of your Social Security and increase the amount of medical expense deductions you can take just to name a few benefits. You must be at least 70½ to do a QCD and there are some very specific rules that need to be followed so check with your CPA or one of us at Beacon first.

Also of note: As of January 1st, if you are age 70½ or older you are now able to donate up to $50,000 directly from your IRA to fund a charitable gift annuity. That means you could potentially donate money from your individual retirement account, have all or part of the donation count towards your RMD, and get back a monthly retirement paycheck at a fixed rate.

4. Harvest some losses (or gains): Tax loss harvesting is the practice of selling a security in a taxable (non-retirement) account at a loss exclusively for tax purposes. By realizing, or “harvesting” the loss, you’re able to offset taxes on both realized taxable gains and/or ordinary income (up to $3,000.)  The sold security is replaced by a similar one, maintaining your optimal asset allocation and expected returns.

Conversely, if you find yourself in an unusually low tax bracket this year, it could make sense to “harvest” some of the long-term gains on appreciated securities that you may own in a taxable account.  This strategy could allow you to realize some of your capital gains at a rate of 0%! This gets complex quickly so check with your CPA or one of us at Beacon first.

5. Contribute to a traditional, Roth or SEP IRA: Contributing to one of these can be a great and easy way to save for the future and improve your tax situation. Knowing which one is best for you, how much to contribute and how it might impact your tax bill is complex but it’s worth having a conversation about if you or your spouse have earned income (W2 or 1099) in 2021.  It sometimes makes sense to contribute to one even if you feel like you don’t have the cash flow this year.  You can contribute using money invested in a savings account or taxable brokerage account assuming that money is otherwise invested for the long haul.

6. Spend the dollars in your Flexible Spending Account (FSA): If you still have money set aside in a flexible spending account for health care expenses, see if you can order new glasses or schedule that dental work you’ve been putting off. Some companies offer a grace period into the spring or a $500 FSA carry-over from one year to the next, but this isn’t very common. If your employer doesn’t offer these provisions, then you’ll lose any unused funds once we ring in the new year.

7. Contribute to your Health Savings Account (HSA): If you are enrolled in a high-deductible health insurance plan (HDHP), you may qualify for an HSA. HSA stands for Health Savings Account, and it’s a effective way to save and pay for medical expenses and improve your short and long-term tax situation. That’s because the accounts get a triple tax benefit: The money you contribute reduces your taxable income. It grows tax-free. And withdrawals are tax-free as well, as long as the money is used for qualified health expenses. Each year, you decide how much to contribute to your HSA account, though you cannot exceed government-mandated maximums. In 2023, these limits are $3,850 for an individual and $7,750 for a family; if you’re over age 55 you can add up to $1,000 more.  Because of their tax advantages and because any unused dollars roll over to the next year, HSAs can also be a great place to save for medical expenses that might occur during your retirement.  Click here to read more about the many benefits HSAs offer.

I don’t think I’ve seen anyone use all 7 of these opportunities in one year but it’s not impossible. How many make sense for you?

If you’re a Beacon client, rest assured we’re looking out for you, but do let us know if you have questions.

Not yet a client? Click here if you’d like someone to help vet these opportunities for you.

Geoff Hall, CFP®
[email protected]

My wife, Crystal, and I have been married for 11 years and have two kids, Cooper (10) and Rhodes (8.) When I’m not spending time with them you might find me downtown serving at our church, pushing my limits during a mountain bike ride or having coffee with a friend in the Five Points area. I've been a financial advisor for 29 years and I'm thankful for the privilege of shepherding my family of clients through the ups and down of the markets, and of life for that matter.