Halloween has come and gone, and we’ll soon be knee deep in wrapping paper wondering what happened to the year. The pace of life, for most people, generally slows down in the fourth quarter. That is, except for the dentists waiting for the post-Halloween cavity rush.
For the rest of us, the Holiday break is spent avoiding adult responsibilities like Agent Smith dodges bullets. If you don’t want to waste your money, there are a few things that should be investigated before clocking out.
Loss Harvesting:
You have until December 31st to book your losses for the year. You can leverage a realized loss against a realized gain to offset a capital gains tax burden, a process known as tax-loss-harvesting. There are some caveats to be aware of. For instance, you cannot immediately buy back a security that was sold for a loss, otherwise you may trigger the wash-sale rule. Instead, you will want to buy an equivalent security or simply wait sixty days to rebuy the position sold.
Keep in mind that realizing capital gains without an offsetting loss can be a part of a sound tax strategy too. The only way to escape capital gains tax is death, hardly worth it in my humble opinion. Pruning long-term gains every year can be a good idea with today’s historically favorable capital gains tax rates.
Employee 401(k) Deferrals:
If you have not maxed out your 401(k) deferrals and plan to do so, now is the time to login to your portal and check if you’re on track. Unlike IRA/Roth plans which give you until tax filing deadline to make contributions for the current year, 401(k)s cut you off on December 31st. Make sure you’re on track to top off your 401(k) plan as desired. There’s only a handful of paychecks left in the year and the only way to contribute to a 401(k) is through payroll deduction.
Roth Conversions:
Like 401(k) salary deferrals, the deadline for Roth conversions from a Traditional IRA is December 31st. After this date, the 1099R will be generated for the following year. When it comes to tax planning, the time between December 31st to January 1st might as well be a year apart. You can royally mess up a sound tax strategy by failing to process a planned conversion by the deadline.
Consider Next Year’s Budget:
I’m sure everyone reading this is going to sit down with a tall glass of eggnog after Thanksgiving dinner to get started on this one. But it’s worth knowing that the IRS just announced (Notice 2023-75) contribution limits for 2024 and they are going up across the board. Plan to increase your IRA deferrals if you’re a maximalist!
Required Minimum Distributions
The Required Minimum Distribution (RMD) rules have been made as utterly confusing as possible for retirees. The required date has been progressively pushed to later into later ages, which is a good thing, but this has caused massive amounts of confusion. Even the IRS had to admit this and waived the RMD requirement in 2020.
Just know that you have until December 31st to pull the funds from your IRA before a 25% tax penalty tax is assessed on the failed distribution amount. For the record, I think RMDs should be abolished, and I think its shameful that our government forces this calculation on retirees. No, I am not running for office but thank you for your consideration.
One thing you can always count on a financial advisor to do is remind you of all those nit-picky things you need to do with your money. It’s one of several reasons you’ll never see a line outside of financial planner’s office like you do the Apple store. Hopefully you can find the time and motivation to check in on these things. If not, give me a call because that’s a sign you need an advocate.
513.438.0095
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Individual tax and legal matters should be discussed with your tax or legal professional.
Securities offered through LPL Financial LLC. Member FINRA/SIPC. Advisory Services offered by National Wealth Management Group LLC, an SEC Registered Investment Advisory and separate entity from LPL Financial LLC.