Financial Plans to Make Before 2023 is Upon Us

There are many December 31st deadlines, so don’t wait too long to plan! Consider these financial opportunities and deadlines before 2023 arrives.

Making Financial Gifts

As we count our many blessings and share time with our loved ones, we can express our thanks by giving to others. Donate to your favorite charity before year-end.

Generally speaking, the amount of charitable cash contributions taxpayers can deduct on Schedule A as an itemized deduction is limited to 100% of the taxpayer’s adjusted gross income. 

Sure, it might change (a short while ago, it was up to 60% of adjusted gross income), but as of now, individuals may deduct qualified contributions of up to 100% of their adjusted gross income. 

To qualify, the contribution must be a cash contribution and made to a qualifying organization.

You can gift assets or cash to your child, any relative, or even a friend, and take advantage of the annual gift tax exclusion. Any individual can gift up to $17,000 this year to as many other individuals as he or she desires – and a couple may jointly gift up to $34,000. Whether you choose to gift singly or jointly, you’ve probably got a long way to go before using up the current $12.92 million ($25.84 million for couples) lifetime exemption.

Grandparents, aunts, uncles, and parents too can fund 529 college saving plans this way, but it is worth noting that December 31st is the 529 funding deadline.

Max Out Retirement Plans

Most employers offer a 401(k) or 403(b) plan, and you have until December 31st to boost your contribution. 

• This year, the contribution limit on both 401(k) and 403(b) plans is $20,500 for those under 50 (it’s going up to $22,500 next year) and $30,000 for those 50 and older in 2023. 
• This year, the traditional and Roth individual retirement account contribution limits are $6,500 (it’s going up to $7,500 next year), but the IRA catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost of living adjustment and remains $1,000.

But be careful because high earners face contribution ceilings based on their adjusted gross income level.

Remember IRA Required Minimum Distributions. Once you reach age 72 you are required to take annual Required Minimum Distributions (RMDs) from your retirement accounts.

Your first RMD must be taken by April 1st of the year after you turn 72. Subsequent RMDs must be taken by December 31st of each year. If you don't take your RMD, you'll have to pay a penalty of 50% of the RMD amount.

Did you inherit an IRA? If you have and you weren’t married to the person who started that IRA, you must take the first RMD from that IRA by December 31st of the year after the death of that original IRA owner. You have to do it whether the account is a traditional or a Roth IRA.

If your spouse died, then, you should file Form 706 no later than nine months after his or her passing. This notifies the IRS that some or all of a decedent’s estate tax exemption is carried over to the surviving spouse. 

Business owners’ retirement plans. If you have income from self-employment, you can save for the future using a self-directed retirement plan, such as a Simplified Employee Pension (SEP) plan or a one-person 401(k), the so-called Solo (k). You don’t have to be exclusively self-employed to set one of these up – you can work full-time for someone else and contribute to one of these while also deferring some of your salary into the retirement plan sponsored by your employer.

Contributions to SEPs and Solo (k)s are tax-deductible. December 31st is the deadline to set one up, and if you meet that deadline, you can make your contributions as late as April 18th next year (or mid-October with a federal extension).

Contributions an employer can make to an employee's SEP-IRA cannot exceed the lesser of 25% of the employee's compensation, or $61,000 for 2022 and $66,000 for 2023.

Your Financial Advisor

As you can see, there are a lot of rules, deadlines, and contribution limits that change from year to year. Many of these ideas might be helpful to your situation.

Talk to your financial advisor as you consider your 2023 financial plans.