Your Year-End Financial Checklist: Contributions, Tax Planning and more  

Ryan Tomko, CFP®, Vice President, Wealth Manager

I know that we’re all in the midst of planning for the holidays. As we create our to-do list for preparing for family gatherings, gift giving, and other festivities, we at Howe & Rusling also think it’s important to create a financial check list before we ring in the new year. We would like to highlight seven points that would be beneficial to review.

Snowy mountains at dusk

1. Review your contributions to your 401(k) or other similar retirement plans.

If you are currently employed, it’s most likely that you’ve deferred a portion of your pay to a retirement plan administered through your place of work. If you are under 50 years old, you can defer up to $22,500 of your pay to a 401(k). If you are over 50, there is an additional “catch-up” amount of $7,000 that you may also defer. If you find yourself with a little more cash in your checking account and can add more towards your account, that will help with lowering your adjusted gross income this year, which is effectively lowering your taxable income, and of course helps save for retirement in the future.

2. Consider a contribution to an IRA for 2023.

The deadline to contribute to your IRA is typically April 15 of the following tax year. However, it can be beneficial to contribute earlier rather than later, so you can take advantage of tax-free growth potential for a longer period of time. The IRA contribution limits for 2023 are $6,500 for those under age 50, and $7,500 for those age 50 or older. There are eligibility limits based on income and coverage of a retirement plan at work in order to contribute to either a Roth IRA or Traditional IRA, but such eligibility is absolutely worth exploring. If you’re working towards retirement and have questions about contributing to an IRA, we would be happy to discuss this in more detail with you.

3. Review how to reduce your Modified Adjusted Gross income for the year. 

There are a number of ways of doing this but the main areas to do so are as follows: Increase pretax contributions to 401(k), 403(b), 457, or Thrift Savings plans. Contribute to Health Savings Accounts or Flexible Spending Accounts. There are limits on how much you can contribute and other stipulations, so even if you’re not able to do so this year, it could be worthwhile to re-examine for 2024. Lastly, selling some taxable investments for a loss will reduce your adjusted gross income, but there is a limit of $3,000 loss deduction in any one tax year that can be applied towards ordinary income. Any taxable gains that you have can be offset by commensurate losses incurred—it’s just that you can’t deduct a final net loss that is greater than $3,000.

4. Examine the potential benefit of a Roth conversion.

Unlike a contribution to an IRA, conversions of funds from traditional IRAs to Roth IRAs need to be completed during the calendar year. It’s always important to know your current marginal tax bracket and tax impact of the conversion as the converted amount is added to your ordinary income, and therefore taxed. In many cases, the best time to employ a Roth conversion strategy is during the years of retirement, before age 73. You may be able to “lock in” a lower tax rate by doing so, as opposed to when the Required Minimum Distributions would take place at 73.

5. Make sure to take RMDs from your IRA if you’re 73 or older.

f you are an existing client of Howe & Rusling, our Client Service Managers track this amount and either have been in contact with you or will be soon on how you’d like to take this from your account. We take this very seriously as there is a steep penalty for not doing so. There is a 50% tax on the amount not withdrawn or taken late. Something to consider further is 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.

6. Identify your most likely filing status for 2023 and years ahead.

This will help determine if you plan on taking the standard deduction or if you should choose to itemize instead for a potentially larger deduction. The most common deductions taken in 2023 are medical and dental expenses, state and local taxes (capped at $10k), home mortgage interest, charitable contributions, and student loan interest. Furthermore, examining if you expect your income to increase or decrease in the future will help determine if there are specific actions that can be taken this year. It is always prudent to check in with your dedicated planning team at Howe & Rusling as well as any other tax professional you consult with. 

7. Look into contributing to a 529 college savings plan.

If you would like to help plan for the education of a family member, individuals can contribute up to $17,000 a year per beneficiary or $34,000 for gifts from a married couple. In New York, you can deduct up to $ 5,000 as a single filer or $10,000 of such contributions if filing jointly from state taxes. Not every state allows for contributions to be deductible, so again, make sure you’re checking with a financial professional to be in the best shape from a tax perspective.

These are a few of the most common financial topics to review before the end of the year. Please do not hesitate to reach out to a Howe & Rusling Wealth Manager whether you’re a current client or looking for a financial advisor. We’d love to partner together to address these topics and many more to help make you smarter, stronger, and wealthier.

Disclosures: This newsletter may include forward-looking statements. All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements. Views regarding the economy, securities markets or other specialized areas, like all predictors of future events, cannot be guaranteed to be accurate and may result in economic loss to the investor. Investment strategies, philosophies, and allocation are subject to change without prior notice. This newsletter is intended to provide general information only and should not be construed as an offer of specifically tailored individualized advice. Any information provided by Adviser is based on current tax law and is subject to change. Tax codes are current as of the date published and are subject to change without prior notice.  A professional designation, certification, degree, or license, membership in any professional organization, or any amount of prior experience or success, should be construed by a client or prospective client as a guarantee that the client will experience a certain level of results if the investment professional or the investment professional’s firm is engaged, or continues to be engaged, to provide investment advisory services. No professional designation should be construed as an endorsement by any past or current client of the investment professional or the investment professional’s firm.

Ryan Tomko

Ryan is a Wealth Manager and CERTIFIED FINANCIAL PLANNER™ responsible for working closely with clients to establish and achieve investment goals.

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