With the end of the year approaching quickly, it’s the perfect time to review your finances and restructure any investments you may have. Some strategies apply to specific age demographics, although this list serves as a great reminder of what may lie ahead for you. Review the items in this checklist and set a time with a KerberRose trusted advisor, accountant or attorney before the end of the year to ensure you’re on track for your financial goals.
Withdrawing your Required Minimum Distributions (RMD’s)
A required minimum distribution (RMD) is the amount of money that must be withdrawn from an employer-sponsored retirement plan: traditional, SEP or SIMPLE IRA. In 2020, the age for withdrawing from retirement accounts changed from 70½ to 72 years old. Account holders must therefore begin withdrawing from a retirement account by April 1 following the year they reach age 72. The retiree must then withdraw the RMD amount every year going forward by 12/31 of the year it’s due.
RMDs are calculated amounts of money that the IRS requires you to withdraw annually from your qualified retirement plan. If you do not withdraw by the due date, you will be taxed 50% of the amount you were required to take out that year. Your RMD is based on IRS life expectancy tables and your December 31 balance from the previous year. If you need help determining what your RMD is, consult with a trusted advisor.
Plan your Charitable Contributions
If you enjoy giving back to your community or charities with donations, some or all of these donations could potentially be tax-free. Individuals who are 70½ or older can donate up to $100,000 from their IRA (not available for 401k, 403b and 457 plans) each year directly to a charity of their choice. These charities must be a 501c(3) organization to qualify (to receive a tax-deductible contribution).
This concept is called a Qualified Charitable Distribution (QCD). A QCD can be a great option for those that don’t need the money from their RMD, yet would like to support a charity. Plus, you can avoid paying taxes on the portion distributed as a QCD.
Employer Retirement Plan Limits
Now is the perfect time to assess the contributions you have put forth in your retirement plan 401(k), 403(b) and 457(b) so far this year. The 2022 contribution limit is $20,500 for those under age 50, and $27,000 for those over age 50. In 2023, those limits will increase to $22,500 and $30,000.
Employer Retirement planning tip: if you have multiple retirement plans from previous employers, you may want to consider consolidating them to either your current employer’s plan or to an IRA. You’ll want to consult with your Financial Advisor to help determine what makes the most sense for your situation.
Tax Loss Harvesting
Tax loss harvesting allows you to sell investments that have decreased in value from their purchase price and reinvest into another security. Doing so will allow investors to utilize those losses to offset gains in their portfolio or potentially take a tax deduction if there are no gains to offset for that year. Losses can also be carried forward to offset capital gains in future years.
The end of the year is a great time for investors to review if there are opportunities to harvest losses in their portfolios. These losses could help offset any capital gains that were taken earlier in the year, and help investors reduce their overall tax bill. Investors need to be aware of the “Wash Sale Rule” when it comes to selling and buying back investments in their portfolio. The wash-sale rule prohibits selling an investment for a loss and replacing it with the same or a “substantially identical” investment 30 days before or after the sale.
No matter where you lie in your financial journey, KerberRose is here for you. Reach out to a KerberRose Trusted Advisor today for guidance on the next steps in your financial journey.