Don't Miss Out on Tax-Saving Opportunities!
As the year draws to a close, it's crucial to be mindful of various financial deadlines that can significantly impact your tax situation. From opening and funding IRAs to managing flexible spending accounts (FSAs), here are some important considerations and tips to keep in mind:
1. Opening and Funding Your IRA
If you haven't already set up an Individual Retirement Account (IRA) but wish to make carryback contributions, don't worry. You have until Tax Day to open and fund your IRA for the previous year. For example, if it's February 2024 and you want to make contributions for 2023, you can still open and fund your IRA for 2023. Just remember to report the contribution on your 2023 tax return.
However, it's advisable not to procrastinate. Opening your IRA by year-end ensures you're prepared to make a contribution at any time.
2. Maximize Contributions to Tax-Advantaged Accounts
Be sure to take full advantage of tax-advantaged accounts like IRAs and HSAs. While some accounts allow contributions until the tax-filing deadline in April, it's essential to consider the implications. For HSAs, waiting until April might mean missing out on potential payroll deductions and incurring FICA taxes.
In 2023, you can contribute up to $22,500 (or $30,000 if you're over 50) to a 401(k). If you receive a year-end bonus, consider directing a portion of it into your workplace retirement plan.
And don't forget about education savings! Be mindful of the deadlines for 529 plan contributions to qualify for state tax breaks.
3. Use Your FSA Funds Wisely
Remember that money left in a Flexible Spending Account (FSA) might be forfeited if not used by year-end. There are three types of FSAs: health care, limited purpose (compatible with an HSA), and dependent care. While some employers allow rollovers, it's generally wise to spend your FSA funds before the year concludes.
4. Required Minimum Distributions (RMDs) for Ages 72 and Older
If you're 72 or older, remember to take your Required Minimum Distributions (RMDs) from qualified retirement plans. Your first RMD deadline is April 1 of the year following your 72nd birthday. All subsequent RMDs must be taken by December 31. Failing to do so could result in a costly 50% penalty.
Note that if you delay your first RMD until April, you'll need to take two RMDs in your first year and pay taxes on them.
5. Consider Charitable Contributions
If you itemize your taxes, consider deducting charitable donations to qualified organizations. You can typically deduct up to 60% of your adjusted gross income (AGI) for cash donations, as per IRS rules. For appreciated securities, you may be able to deduct up to 30% of your AGI. To claim deductions for your 2023 taxes, ensure contributions are made in 2023.
6. Roth Conversions
The end of the year is the deadline for completing a Roth conversion for the 2023 tax year (by December 29, the last business day of 2023). Consider taking advantage of this if your retirement account balances are down. The tax bill for a Roth conversion is based on the amount converted, and with lower stock prices, you might be able to convert the same number of shares for less money than last year.
Remember, Roth conversions can often be done in kind, meaning you can transfer assets without selling, though taxes will still apply.
Neither MML Investors Services nor any of its subsidiaries, employees or agents are authorized to give legal or tax advice. Consult your own personal attorney, legal or tax counsel for advice on specific legal and tax matters. CRN202601-5158286
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